Hi all! Hope you are all safe during these crazy times.
I have been recently reading posts about FIRE (Financial Independence, Retire Early). It is a movement to retire early by savings and investing aggressively.
I’d like to share my journey on this – as it might be helpful for those who want to start a journey like me.
Basically – FIRE contains a few steps:
1. Calculate your FIRE number (I am currently using the rule of 25 – I multiply my annual expenses by 25). The reason is we are assuming we can live off of the 4% withdrawal rate from our investment.
2. Finding out ways to reduce our expenses.
3. Looking for ways to increase our income.
4. Making investing and savings a priority. (After doing some research, putting money to your index funds seems to be what most people do).
Here are some of the things I did so far:
– I paid off my personal debt. (I did this a few years ago, but this is the very first step I did. Although there is no real loan interest because it was a family loan).
– I maxed out my 401k contribution (my employer unfortunately only matches 3%) to reduce tax bills.
– I maxed out my Roth IRA for this year and last year’s contribution. The maximum contribution is $6,000 ($7,000 if for those who are age 50 or older).
– I maxed out my HSA contribution (30% cash, and 70% in investment).
– I invested some of my savings in a Vanguard brokerage account. I am planning to invest more aggressively this year. (One thing that I regretted is I should have invested more heavily during March in 2020 where stock prices are at discount!)
– After calculating expenses and my savings rate is ~60%.
It is difficult to calculate my expenses as they fluctuate every month. I am also actively looking for ways to increase my savings. In the last year, I switched a job and earned a ~20% raise – so it helps with my savings a lot.
Anyway, the plan in 2021 is to save more aggressively, track all of my expenses, and hopefully, I can start earning money on my blog. Hope this article helps!
Vi, a software engineer with a keen interest in personal finance, had planned to retire once she reached her lean FI/RE (Financial Independence/Retire Early) goal. However, after achieving the goal, she took few months of a mini-retirement filled with travel and adventure and decided to continue her career.
For the past five years, Vi has been using Personal Capital (Empower), a free financial tool. Her favorite features include the dashboard for net worth, allocation, and planning, which help track her FI/RE goal and keep those investment fees in check.