(TheDailyCurrents.com) – With so much uncertainty in the economy, the labor market, and the world in general, it’s understandable that a growing number of people are seeking financial independence. The flexibility to volunteer, travel, or move to a lower-paying but fulfilling job is motivating members of the FIRE movement to make major financial changes with the goal of retiring early.

What Is the FIRE Movement?

FIRE stands for financial independence, retire early. People in the movement reduce their expenses and increase their savings rates so they can build wealth and reach the point where they can live off their investments instead of working. There are two general rules people use to calculate when they’ve reached this point. First, the 25 times rule estimates that you need 25 times your annual expenses to safely retire. FIRE participants often use this rule to help choose their FIRE number, or ultimate savings goal. The second is the 4% rule, which estimates that you can withdraw 4% of your savings each year during retirement without spending down your wealth. This rule also helps people make calculations to decide if they can afford to retire early.

How to Achieve Financial Independence

Retiring early can require saving half your income or more. Many in the FIRE movement save 70% of their earnings. For this to be feasible, you’ll need a relatively high income. If you want to work toward FIRE, figuring out how to earn more is a good place to start. This can mean looking for a new job, taking on a second job, or even changing career fields if you’re currently in a low-paying area.

You’ll also need to lower your expenses. Housing and transportation are the biggest budget items for most Americans. Cutting your housing budget can mean moving to an area with a lower cost of living, downsizing, looking for roommates, or renting out your spare bedroom. Choosing a less expensive model for your next car can also make a major difference in your budget. Depending on where you live, you may want to consider going from two vehicles to one to reduce your budget further.

As you create a bigger gap between your income and expenses, you can save and invest the difference. Depending on your FIRE timeline and overall risk tolerance, you can look at stocks, funds, bonds, and other investment options. Investing will help you grow your wealth faster than keeping it in a basic savings account.

What to Consider Before Pursuing FIRE

When deciding whether they can afford to retire early, Americans need to think about healthcare expenses. Retiring before reaching the age of Medicare eligibility means that you’ll need to pay for your own insurance coverage for years or even decades. Leaving the workforce could also reduce your Social Security eligibility, so be sure to factor that in as well.

It’s also important to think about the tradeoffs you’ll be making. For most people, FIRE requires a big lifestyle change to reduce expenses. This can mean cutting travel, eating out, entertainment, high-end clothing, the latest technology, and other things you enjoy out of your budget. A more minimalist lifestyle might be worth the freedom and flexibility you’ll achieve later on, but it’s a good idea to think about your big-picture goals and priorities before making any major changes.

Members of the FIRE movement save the majority of their incomes so that they can become financially independent and retire early. FIRE lets people pursue goals outside of their careers, have more free time, or simply enjoy the peace of mind financial security brings. However, saving enough to meet this goal can require substantial lifestyle changes.

Copyright 2023, TheDailyCurrents.com