FIRE: Financial Independence Retire Early

Path to financial independence.

FIRE or Financial Independence Retire Early is a movement that emphasizes saving and investing a significant portion of one’s income in order to find the path to financial independence, which in most cases, means releasing yourself from a 9 to 5 job. But let’s dig a little deeper into the fundamentals of the FIRE movement.

At CrypcoCollege.cc we want to help you increase your understanding of the Crypto Asset class because we believe that not only is it here to stay, but it could also play an important role in individual investment strategies as whole and particularly, when it come to FIRE. We are therefore also going to be writing articles and develop courses that dive into the fundamentals of Financial Independence (often referred to as FI) and see how this links with Cryptocurrencies.

The goal of FI or FIRE is to accumulate enough wealth to be able to live off of passive income and investments, rather than relying on traditional employment or retirement savings. FIRE enthusiasts often aim to achieve financial independence in their 30s or 40s, and retire in their 40s or 50s. Reaching Financial Independence and retiring early (FIRE), typically involves a combination of saving a significant portion of your income and “making it work for you”.

Here are some of the fundamentals that allow people to reach FI:

• Create a budget: Track your expenses and income to see where your money is going and where you can cut back in order to save more.
• Save as much as possible: Aim to save at least 50% of your income, and invest as much as possible in retirement accounts such as 401(k) or Roth IRA (US Only).
• Invest wisely: Research different types of investments and diversify your portfolio. Focus on low-cost index funds and exchange-traded funds (ETFs) to minimize fees and maximize returns. A good example is an ETF called VTI. It that tracks the US stock market with 10% average yearly return and very low fees. If you are young, this is where you can also consider more risky investments like Crypto. But it’s important to understand in which crypto to invest by mastering Tokenomics. Follow us on social medias @CryptoCollege33 or subscribe to our newsletter to be made aware about our content on Tokenomics.
• Reduce debt: Try to pay off high-interest debt as quickly as possible. Even better never buy anything on credit if you can avoid it.
• Increase income: Look for ways to increase your income. By starting a side hustle or asking for a raise at work.
• Live frugally: Minimize unnecessary expenses and live below your means.

Important to remember

Reaching FIRE is not a one-size-fits-all and it depends on your personal financial situation, lifestyle, and goals. It can take a long time to save and invest enough money to retire early, so it’s important to be patient and stay committed to your goals.

So when can someone consider he or she has reach FI or FIRE? The general rule of thumb is that you need 25-30 times your annual expenses saved up in order to retire. This number is known as the “FIRE number.” If you have reached that number, you can probably retire. But it also depends on your personal financial situation, lifestyle, and goals. Put differently the “FIRE number” means spending 4% annually of appreciating assets.

For example:

If you are happy with $1,000 / month, and that fits your lifestyle you should have at least $300,000 in appreciating assets like the VTI ETF. The asset will grow by an average of 10% per year and you will take out 4%. That is 30,000 x 0.04 = 12,000 and divided by 12 months that is $1,000 / month.  You might wonder why not use the full 10% VTI returns on average? Simply because you have to make up for inflation. Cost of living continuously increase and you “retirement” has to grow at the pace or faster than inflation itself.

This is not always easy to do particularly when inflation explodes like in 2022. This is also where assets like Bitcoin can potentially help protect your portfolio. By having a small percentage of it in BTC as an edge against inflation. Check our Bitcoin Business Case to learn more about it.

The above is just a high level example of the FIRE mechanism. It’s important to remember that reaching FIRE is not a one-size-fits-all and it depends on your personal financial situation, lifestyle, and goals. It can take a long time to save and invest enough money to retire early, so it’s important to be patient and stay committed to your goals. Here is a good tool that can help you calculate when you could theoretically FIRE.

If you want to find your own path to financial independence make sure you follow us on social medias @CryptoCollege33 or subscribe to our newsletter. A really good way for you to dig deeper into that and understand a lot more about the VTI ETF is to read the book “A simple path to wealth” by J L Colins.

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