5 Steps to FIRE

The 5 steps leading to financial independence and early retirement.

We try to boil it down to 5 simple steps and we’ll link relevant articles.

1. Only borrow money to make more money and learn about money

Do not get into any consumer debt, see Is Debt Bad?. If you have any consumer debt pay it down ASAP. You can look at The Fastest Way To Pay Down Debt to optimize how you should pay it off.

Start here if you have any consumer loan, student loan, car loan debt:

Tune in on financial literacy:

2. Track how much you spend

Your monthly rent/mortgage payment should be less than what you make in a week.Your rent/mortgage will likely be your biggest expense. As far as lifestyle goes, it’s usually the biggest ticket item, so it’s important to watch closely how much it cost.

Also other expenses should be tracked, both to identify if there are opportunities to save more as well as understanding how much your lifestyle costs.

If you want to be financially independent, you need to know what what you’re aiming at: do you need $30,000/year, $50,000/year, $100,000 per year? You’ll only know if you start tracking your expenses.

Start here:

  • Expense tracking hack
  • Spend wisely on housing, as it’s usually the biggest budget item. Save money by figuring out whether you should buy or rent.

3. As your income increases your cost of living should stay the same

Lifestyle creep will be one of the main factor delaying your financial independence.

4. Invest any extra income

Saving a large portion of your income is a very good start, now you need to invest it, so you can eventually live from the income of your investments.

5. Re-invest your investment income

Keep re-investing the income from your investments until it covers your lifestyle.

You’re now making even more money, so lifestyle creep can be even more tempting. Do not let it happen, keep re-investing.

And this is the key. While the income you make is important to bootstrap the process, the most important measure of income is the one from your investments. Or said otherwise, the income from your job matters less than the income from your investments, because this is the income from your investment that will allow you to no longer require a job to make money.

Once on that road, it’s only a matter of time until the income from your investments is covering your lifestyle, your money works for you and you no longer need to work for money. You can now focus on experiences and projects that truly matter to you. Congratulations!