I am happy to notice that the FIRE movement is becoming more and more known in the Netherlands. The FIRE movement has inspired me immensely since 2017. But what are the principles of the FIRE (financially independent & retire early) movement, and how can you become FIRE? Read, learn and participate!
Financially independent & retire early
The FIRE movement originated in the States, among a group of well-earning young people. Working hard, making a lot of money, but still feeling “is this all there is?!”. The idea that this rant – get up every day, go to work, make money, spend money again, repeat the same old thing because, after all, we have adapted our lifestyles to our high earning jobs, and on and on…. – would last until retirement makes a large group of people think, ‘I’m going to do things differently!’ No way this is my life until I’m 67, surely there is something clever that can be thought of to get more out of life, have more (free) time and experience more freedom.’ And so it happened. Financially independent & retire early it is!
Purpose of FIRE
Very briefly, the idea behind the financially independent & retire early movement is to create as big a gap as possible between income and expenses, invest a large portion of your income, thus build wealth, and be able to retire as early as around age 40.
But how does this work in practice? And is this even feasible? And desirable? Looking at the rules of FIRE, it comes down to three aspects:
- Live below your means: live a little minimalist, avoid so-called lifestyle inflation (often when people start earning more, they adjust their lives accordingly – bigger house, bigger car, more vacations);
- Spend less than you earn: simply, spend less than comes in. Because you want to create a hole, preferably as big as possible, so you can start investing as much as possible;
- Invest the rest: invest, invest and do smart things with your money! Investing is the way to turn your money into more money, to make your money compound (see here what this means, and you immediately understand why investing is so interesting).
But how do you do this in practice? If you are also inspired, and want to take the first steps toward this lifestyle, where should you start and what should you consider?
What about that famous 4% rule?
Let’s tackle this issue first, because when you read and hear about the financially independent & retire early movement they often talk about the 4% rule. This works like this: the idea of the FIRE movement is that you are going to invest so much money. You are going to work toward a certain ability. You receive returns on these assets (that’s the whole game of investing). Once you have enough assets, you can live off your returns. To determine what is “enough invested capital,” we calculate with the 4% rule.
Sample
You have calculated that you need €25,000 a year to live on. If that €25,000 is 4% return you get paid, that means you need to have €625,000 in invested assets to live on your investments. Namely, you will then get paid 4% on that €625,000 per year. Capisci!
So how does one get that 4%?
This 4% is a wet finger maxim that assumes an average return of 8% on investments (this is an average on stock market investments over the past few decades) minus taxes and minus inflation. So about 4%. Can also be 5%. But this 4% gives a nice guide to calculate how much money you need to have invested, and what you need to start investing per month for that right now.
How do you become financially independent?
Okay, enough introduction. You want to know how to do this, and what steps to take. I get that! Because let’s face it: life is so much fun and fine, to sit inside the office until we are 67, day in and day out, no, it’s not, right ladies! Don’t get me wrong: I love working, because working – whether for yourself or at a great company – can provide fulfillment, contribute something to society, puts you in touch with people and can also be hugely enjoyable. But: this is especially fun if it is a free choice. Choosing certain work because you like it, rather than from a “shit I have to because my mortgage is so high!” makes all the difference.
Okay ladies, let’s go. Read, learn and on to FIRE!
Step 1: provide insight
Understanding ladies, is the very beginning. How much comes in monthly, how much goes out? What are annual expenses you need to consider, what dreams and goals do you have in the short term that cost money and that you need to save for, and last but not least, how much do you need to live conformably financially & independent retire early? Elfin can help through Elfin membership.
Step 2: Pay off debt and secure an emergency fund
To build your financial future, these 2 aspects are necessary. What high-interest debts do you have (not secretly shopping at wehkamp on credit, right?!) and where does it pay off quickly? In addition, have an emergency fund, or: a piggy bank with enough money to last for 3 to 6 months if you have no income. Sleeps nicely, this fuck-it potty!
Step 3: Make “the gap” as large as possible.
Anyway, spend less than comes in, because then you can invest more. And at this step you can turn 2 knobs: spend less, or make sure you start earning more. I myself favor not spending unnecessarily, but keeping it a little cozy. Moreover, you can only turn the ‘save’ knob to a certain extent (I mean: you can take a cheaper health insurance, but money is still lost on this) but you can turn the ‘more income’ knob much harder! Do you have a salaried job? Start negotiating for more salary. Learn all about that in the Masterclass with Sophie van Gool. Or take care of multiple sources of income. Go ahead and do that anyway. After all, that also gives a lot of mental peace. Get some ideas on side hustles here.
Step 4: start investing. Like a man possessed.
Yes, like a man possessed. But do it safely, minimize risk, and know what you are doing. Investing ladies, is fun, oh so fun, and so smart! Unfortunately, many women do not yet consider this option, simply because we do not know that this possibility is there, or that it is even possible for us. But investing is the trick, the way, to achieve that financially independent & retire early lifestyle. I get that you may be thinking, “Whaaa investing, never mind. Too scary. Besides: where should I start and how? Who can I trust? And can I even do this myself?” Elfin will help you with that, too. Because yes, you can do this yourself. It’s not scary. You don’t lose your money. And you don’t have to worry about having to follow stock market news all day.
Is the financially independent & retire early movement for everyone?
Yes. Look, I ain’t gonna lie: things go faster and easier if you make a lot of money. Sure. But that doesn’t mean you should let that stop you from building wealth if you’re not raking in 6 figures a year (not yet, because ladies, like I said: start turning that one button, that “earn more” button!).
Many headlines report “retire before age 40!”, but that is not at all necessary. Building wealth takes time, needs proper planning, needs making choices. But don’t be discouraged by the idea of needing 6 tons of power, and then therefore not starting it. Nor does your goal have to be to retire very early. You may want to have the option of working part-time, moving abroad or traveling around the world for six months. Your FIRE goal is personal.
Why do you want to become a fire?
You may be attracted to the FIRE movement if you hate your job. We live in a time where (work) stress and burnout are common, especially among the millennial generation. So it is no wonder that a growing number of young people dream of leaving the workplace altogether.
But if so, then there is a deeper problem and FIRE does not solve it. If you hate your job, you don’t need FIRE, you need a change of jobs. FIRE, aside from being practical, is also a mindset for me. A mindset, a way of living, where I make choices with my heart. Not happy with your job, your relationship, or your home? Change it! And with money behind them, change is easier.
So consider to yourself why you want to adhere to the FIRE lifestyle, and realize that this journey becomes much more enjoyable when you start investing with money that you have enjoyed earning. Because all well and good, retiring early, but we live NOW, now is the only moment we have. So planning and making smart money moves for later, but above all making sure we live a nice and contented life now. Are you in?
Are you chatting?
In the Elfin community we chat with thousands of women daily about our activities to become FIRE, do you chat with us? Also, you’ll find lots of tips and inspiration on investing, earning more and side hustles. Click here to sign up for free.
