What are your financial goals? Wait, let me back up... do you have financial goals?
I'm not sure about you, but mine don't include retiring at 65 (or 70 suggested by this article), watching The Price is Right every day, and wearing out a recliner. There's far too much life to live, passions to pursue, places to see, and time to spend with family to be working for a paycheck for the next 30-40 years.
The solution: Financial Independence & Retire Early (FIRE)
Financial Independence (FI): Creating enough passive income that you no longer have to rely on your normal W-2 job. Many times this leads to the pursuit of other passions.
Early Retirement: Creating enough passive income to have the ablilty to stop working and enter retirement in a more traditional sense, just at a much younger age.
So what do these options offer you? Freedom.
Freedom to start your own business. Freedom to spend more time with your kids and less time in your office cubicle. Freedom to move, learn a new skill, travel, or whatever else your job hasn't allowed you to pursue.
1. Become Debt Free
Personal debt shouldn't be looked at as a normality, but instead as a barrier between you and your goals. Get serious about it right now. Don't make minimum payments - make a plan to debt snowball or debt avalanche it today.
The absense of debt decreases your overall spending, which decreases the amount of passive income needed to reach FI. It's also working for you on the other end. The money you save is invested, thus speeding up your path to FI.
2. Track & Understand Your Spending
Track your spending (get as detailed as you want), whether it be through Personal Capital, Mint, YNAB, or your bank**. Having a strong understanding of your finances is necessary in setting your freedom number, the point at which you are no longer bound by your paycheck.
Analyze your spending and find the fat that can be trimmed or at least understand the impact of keeping that chub around.
Needing $40,000/yr vs. $50,000/yr in FI is a difference of $250,000 invested.
3. Make Money Work for You
You want to make your money work for you, not be solely dependent upon working for money. Commonly this is done through investing in the stock market or real estate or a side business that grows to a sustainable level.***
Now let's do this...
Investing in the stock market
Freedom number = 25x your annual spending
If you're spending $50,000/yr and plan on continuing at that level, then you'll need $1.25 million to walk away. This is then withdrawn using the 4% rule, but I'll let Mr. Money Mustache and his shockingly simple math to early retirement explain it in more detail.
Now if you can make lifestyle decisions to cut your annual spending from $50,000 to $40,000, you've just found yourself $250,000 closer to FI.
Real Estate Investing
The goal here is to acquire enough cash flow (gross income - expenses) through rental properties or other means to replace your annual spending.
Successful real estate investing may require a more active role than passively investing in index funds through Vanguard, but, if done right, it has the potential replace and exceed your income at a faster pace. Education is key with real estate though. A poorly calcuated cash flow, failure to understand your market, overpaying for a property, and many other things can ruin your pursuit of FI.
Read The Book on Rental Property Investing, get on Bigger Pockets, then take action.
In. That. Order.
I believe that everyone should have a side job in some form. not just because I'm a Renaissance Soul with a revolving door of passions, but because there's only so much of a working class/lower middle class income that can be saved. Creating and building a business of your own, even on a small scale, gives you the option to expedite years to FI by either increasing your savings rate or replacing partial expenses while passive income takes care of the rest.
You're not bound to your current job. You're not required to work until you're 70.
Take action today to shape your future.
Freedom is within reach; it just takes hard work to get there.
Honestly, I love working, but on things that I'm passionate about and on my own schedule, and I don't know that I ever see myself truly retiring. Allison and I have built a side business, 3 Nails Designs, that earned $20,000+ in 2016 (also allowed her to be a stay-at-home mom).
Our immediate goal is to replace all expenses by combining rental properties and side business income by summer 2022. After that, it's a matter of options. Options that all depend on what our future interests will be. Options that will give us freedom.
What are your financial goals?
What's on top when your reach FI?
Let us know in the comments.
*This is a topic that'll be covered much more in depth in time, and there are a number of ways to pursue FI/RE. This article is intended to serve as a starting point.
** We like Personal Capital as a quick reference for net worth and all account balances. The only con I've found is it won't sync with some small, local banks.
***This is a beginners guide to being financially independent. I've linked to articles explaining this process more in depth.