In 1980, country singer Dolly Parton sung about shunning a life working nine to five. Nothing’s changed since the song was released, with the average person wanting to quit work by the time they’re 30.
Those who want to retire young are part of what’s known as the FIRE movement. The FIRE movement stands for Financial Independence, Retire Early.
The idea is that you can retire by the time you are in your 30s, 40s or even younger and the movement challenges the stereotypical lifestyle of getting a mortgage and working for someone else until you’re 65 (if you’re lucky to retire that young).
To achieve financial independence you pay down your debt, set yourself extreme savings goals and change your lifestyle so you can meet those targets.
How much do you need in retirement?
If you want to retire young then you need to work backwards by calculating how much you need to live on each year. You should then times that figure by 25 and then use the 4 per cent rule.
That is your average rate of return. So for example, if you think you can live off $20,000 a year that means you would need to have at least $500,000 invested. You would then live off the annual investment returns. The figures would change depending on how much you anticipate you could live off. If you wanted to live off $50,000 a year then you would need to save $1,250,000.
Pay off your debts
To truly achieve financial independence you need to pay off all your debts starting with your high-interest debts. That includes credit cards and personal lines. Next on your list should be your mortgage. If you can, make additional payments so you can pay it off faster and subsequently less interest. Student debt has a lower interest rate but it is still indexed with inflation, so if you can, you should pay it off as well.
Change your lifestyle
When you set a goal to retire early you need to ensure that you are debt free and have either a passive income and/or low expenses. That will mean you will need to make drastic changes to your lifestyle. You will need to cut overseas holidays, going out several times a week, cafe breakfasts or coffees, meals out, expensive clothes and hobbies that require significant investment.
If you’re not willing to make those sacrifices then FIRE may not be right for you.
The biggest thing is that you need to cut your spending and save as much money as you possibly can. The more money you have in savings or an investment portfolio the greater the return and closer to financial independence you will be.
Set a budget
Nobody likes setting a budget. It can be tedious and boring but if you don’t know where your money is currently going then you will not know what you can cut back on. You won’t know your incomings either. Your budget should include absolutely everything including your rent, mortgage, bills, eating out, clothes, gym and Netflix subscriptions.
With that information, you can make an informed decision on where you can cut your expenses and what you can go without.
Increase your income
Increasing your income is the easiest way to help you achieve your goal of financial freedom and there are several ways you can do so.
- Get a better-paying job.
- Ask for a pay rise.
- Get a side hustle – hard work now will mean you are closer to financial independence.
- Rent out your assets – if you have a spare room or car space then rent them out.
Divert any additional income into your investment portfolio.
What Scott Levoune says
Scott Levoune (34), a buyers agent, property investor, property mentor and business advisor has achieved financial independence and says that there were four keys to achieving it.
- Good mentors
- Treat it as a business
- Change your mindset
- Do it today.
Mr Levoune says he was able to achieve financial independence in three years. The key for him was treating property as a business and having good mentors around him.
“I turned $120,000 into $6 million when I was on an income of $120,000. You need to understand there are so many gurus online. It’s all beginners teaching beginners. How can you get a good understanding when people say different things?
“I was on a $120,000 to $150,000 income. I enjoyed my life until I was 26-27 and that’s when I bought my first place. I didn’t care about investing.
“Then when I was 31 I bought my first two investments and after that there was something that turned my life upside down. I had no way to move forward then I spent the year rebuilding myself.”
He now has a portfolio of ten properties with an income of $10,000 a month.
The biggest key for him was to get started.
He says: “You have so many people who have these financial goals but they don’t get started and they get trapped in the mindset that they can’t do it.”
To achieve financial independence he spent 5-10 hours a week talking to a mentor, lawyer, accountant and mortgage broker. At one point he was able to buy five properties at once. One of them was worth one million.
He says: “Leverage only gets you so far. It’s how you build your portfolio. I learnt to treat property as a business.”
\Mr Levourne says that the important thing is to have the right professional around you.
“I tried to organise a beer and pizza night and that’s how I found my mentor and she introduced me to other people including a guy who has 27 properties.”
He still works as a buyers agent but that is by choice because he likes to remain active and speak to people.
“I have a choice and I enjoy going to work everyday and going to the gym again and I treat everyday like it’s the last.”
The biggest piece of advice he gives is: “You need to get started. The hardest part is investing in yourself. You need to be positive and make choices that will help you and don’t be afraid to push the limits.”