How You Succeed at Financial Independence and FIREtys

FIREtys is a lifestyle from the United States with the goal of financial independence and early retirement. This also becomes an acronym for

FIRE: Financial Independence, Retire Early.

The idea of FIRE is simple: spend less than you earn and invest the extra money in, for example, low-cost index funds or investment housing and other sources of passive income. Firefighters strive to live on the lowest possible cost of living and save most of their net income, up to 50-70%.

The main thing in financial independence is that you want to live your life on your own terms. Today, even a good education does not guarantee that you will get a good job and otherwise the whole working life will look like an endless squirrel wheel.

.What is your own limit on financial independence and how is it calculated?

What is your annual consumption and is your goal to keep it the same or will it increase from the current level? As a rule, 25 times your annual consumption is considered short-lived.

As an example, if, for example, you currently have an annual consumption of $ 20,000, you will need an investment portfolio of $ 500,000 for yourself. If your consumption is $ 40,000, you already need a portfolio of $ 1,000,000.

In addition, the cornerstone of sales is the 4% principle, which in turn means that you can raise 4% of that portfolio each year and have enough money for the rest of your life. If your annual consumption increases, so must the size of your investment portfolio.

But in principle, you can spend the same 20,000 dollars a year as you do now while increasing interest rates and you don't have to worry about running out of money.

In what different ways can you build a passive income for yourself?

You can achieve financial independence by investing in stocks alone, but this is not absolute and the only way. It is also possible to achieve financial independence even if you do not own any shares. Don’t be left in the box to think and limit yourself but think from the outside of the box.

Shares are just one option among others. Historically, the stock exchange has generated a return of about 5-7% per year, with an average of about 6 percent. Less often, however, fritters put all their eggs in the same basket, that is, the entire property, that is, not stuck in the shares. Let's look at the following options.

The seller may also be a home investor, in which case he or she will receive rental income from his or her apartment. Let's imagine that he has bought an apartment entirely with debt and it has cost, for example, 60,000 dollars. From this, he receives a rental income of 450 dollars/month and the price of the care allowance is 100 dollars/month.

The net income will therefore be $ 4,200 / year and the rental income will be 7% (4,200: 60,000 x 100).

But even if he had used 75% of the leverage, he could buy four studios for the same 60,000 dollars, for a total of 240,000 dollars and 75% of the loan money, or 180,000 dollars. It is assumed that the interest rate on the loan would be 2%, the annual interest expenses would be $ 3,600 and the net income would be 13,200 / year (450-100 X 12 X 4 -3,600). In that case, the return on equity would be 22% (13,200: 60,000 X 100).

The loan money is used to reduce the amount of equity invested and thus increase the return on equity.

Or you can invest in your own business, for example, by setting up your own business and thus investing in your own business.

For example, an online business is a pretty clever way to make a passive income for yourself and thereby get financing for your chosen lifestyle. So think about how much money you need each month and invest in an online business through which you can make money for your life.

How long does it take to become financially independent?

This depends on how much you are able to invest each month and should be as large as possible. There is a big difference between investing $ 500 and $ 1,000. Another important factor is, of course, the return achieved.

Crystallized, the formula for financial independence is in its simplicity: spend less than you earn and invest the difference.

In practice, this means that you know how much you earn and what your consumption is. Then calculate how much you save and invest. When you receive dividends or other returns on your investments, reinvest them to take advantage of the interest-to-interest phenomenon. Repeat and watch how your investment portfolio grows towards the required amount (already calculated above).

Your savings rate will therefore play a significant role in how long it takes to achieve financial independence.

.What is the main savings rate for firefighters?

In an economy with two adults and two children, with a combined income of around $ 3,000, it is not advisable to aim for a savings rate of more than 50%, but rather a realistic level of 10-20%.

Some well-off single person who earns 8,000 dollars a month could very well save up to 80 percent of their income. Most savers have a savings rate of about 50-60% of their income.

Our own attitude determines many things in our lives, this also applies to saving and investing. Consumption as well as saving and investing are choices. You decide whether you are a firefighter or not.

.Will the national economic collapse if everything burns?

After all, financial independence has been sought, it will never go out of style. Everyone wants security. People study and go to work to get something for themselves. They do so because they want more or less financial security, that is, they want to be able to support themselves.

Fires are nothing but a finer word for what almost everyone wants. Savings have always been made for a bad day and lifelong savings have always been the goal. Where have these allegedly sometimes collapsed the national economy?

The polluter pays taxes on his income where other people do. If a financially independent person pays capital income tax on their income, it is at least 30% in many countries in Europe. So aren't the firefighters putting their cards in the pile and accumulating the state coffers quite commendably.

Is a firefighter a free traveler in society?

Underlying this idea is the idea that a person who has achieved financial independence is a person useless to society who does nothing for the common good but only picks raisins from a bun. Apparently, this is related to the previous idea that a firefighter will no longer do anything useful once he has achieved his goal.

However, a person who has achieved financial independence pays taxes all the time and has more time to do something for others. This, of course, depends on the personal values of the firefighter, but the same is true of the attitude of a person in full-time paid work.

Firefighters bring the pension system

The idea is this: all young people just save every penny and don’t spend anything at all. Then they stop working at the age of 30-40 and no longer pay killing pension contributions. This will collapse the payment of all other pensions as well.

So… These young people saved their own pensions ahead of time. So was this a bad thing? This begs the question, why is the whole pension system even needed?

Besides, there are some really wealthy countries in Europe. Have you ever seen the news that in one of these countries, the pension system has collapsed because people are saving too much? Or that the pension system would have collapsed at all because of the savings?

The pension system could collapse with great certainty for very different reasons. And that is why saving and financial independence are worthwhile, and this is what people should increasingly strive for, even if they do not feel like firefighters.