We FIREd in July 2021 after 3 years of planning! These are the steps we took to achieve financial independence since we understood working 9-5 until 65 was just an option. If you want to read about our story, check out this post!
1. Discuss what matters the most to us
One of the first things we did when we decided we wanted to achieve financial independence soon was to discuss what we valued the most. We knew we would need to make some “sacrifices” to save money but we wanted to make sure our FIRE journey wouldn’t be painful.
Therefore, we had many conversations regarding what we love the most and make us happy. For me, it was traveling so even though it was our largest spending bucket after housing, we decided not to touch it. For Mr Life it was internet and living somewhere with a swimming big enough to swim laps (i.e. at least 25 meters). We could “optimize” all the rest.
Additionally, we discussed how we would like our lives to be after FIRE. Guess what? For me it was about slow travel, get to know the world and spend more time with my family. For Mr Life it was about having the time to invest in his own projects as well as be closer to family. So one of the first decisions we made was that we would not be tied to a place. We would spend quite a bit of time in Europe, close to the family, and then travel the world for the rest of the time. Also, we created a bucket list of things we wanted to do. We would start with all the physically-demanding activities (you never know for how long you will be fit and healthy). The first one was climb Mount Kilimanjaro!
2. Analyze our spending and reduce expenses
I love excel so I’ve always tracked our expenses. But tracking is not the same as controlling or analyzing! We reviewed where we were spending our money. Then, we identified areas for improvement and decided what buckets we were not going to touch based on our “values” discussions.
After a lot of thinking, we decided to sell our primary residency and go back to rent. This was one of our first key decisions and the reasons were:
- We wanted the physical flexibility to move anywhere once we FIREd
- It made more financial sense to rent and invest the “frozen” money of our residency
Other expense cutting
Some other areas where we optimized our spending and earnings based on all our learnings from the ChooseFI and BiggerPocket Money podcasts were:
- Phone: we started using Mint Mobile which worked perfectly for us (and just $15 a month each)
- Cars: we analyzed our transportation needs and we decided to just keep one of our cars (our Chevy Bolt)…which means >$600 a month less (including insurance, maintenance and lease payment)
- Free stuff: I started to get free stuff from websites like RebateKey
- Groceries: I started to use websites and apps like Ibotta (get $5 on your first receipt submitted, this is my referral link) to earn some money with the groceries as well as to spend a little bit less
Something else we decided to do was to minimize the amount of material stuff we had. I started selling/donating my clothes and random items I had a home. Our rule of thumb was “if we haven’t used in the last 3 months, it goes”. Additionally, for every one new item we bought, an old one needed to go. We used Facebook Marketplace, Nextdoor, and Mercari. This helped us earn some money as well as prepare us for becoming nomads!
3. Define our post-FIRE financial needs
We had already reviewed the past and present of our expenses. Next step, we defined how much money we would need once we achieve financial independence. In order to do this, we used the output of our values discussion and the analysis of our current expenses.
For this projections, we made sure we had some wiggle room and safety nest. One third of our budget is for traveling and in case of emergency, we could be easily cut it off to survive.
This is a key step as it will be the one determining what your “number” is so make sure you don’t rush into it! The number we came up with was ~$65k. Don’t forget to include a bucket/fund for technology replacement or other things that are not annual expenses but at some point you need to spend on!
4. Make a plan to achieve financial independence
One of the first things we did was to define our Safe Withdrawal Rate (SWR). This rate will depend on your level of comfort and how conservative/cautious you want to be.
In order to set this SWR we re-read (for the xth time)the updated Trinity Study and settled on a 3.5% rate. We wanted to maximize our chances of not surviving our money.
We made some numbers and estimated how much we could save every month with the cost cutting policy we were implementing. That was 3 years to FIRE!
COVID was roaring when we achieved our SWR so given that we couldn’t travel anyway, we decided to keep working and we finally FIREd with a 2.5% safe withdrawal rate.
5. Create an investment strategy
We first analyzed what we were doing with our money. Our 401ks, HSA account, and bank accounts. We were not actively investing in anything so we started to look into real estate. Read more about how we are currently investing in real estate.
We decided againts opening and investing in a brokerage account. We were already investing in the market through our 401ks and we thought the market was at the peak. Then when COVID hit on March 2020 and the market plummeted, we didn’t think it twice and started dropping money into the market. The more it fell, the more money we were investing.
One of the key discussions we had was about cashflow. How were we going to get the money to pay the bills? We didn’t like the idea of selling stocks or touch “principal” from our real estate investments. The idea was to pay our bills with the passive income we will get from our real estate investments. The closer we got to our FIRE date, the more money we moved into cash producing real estate investments. You can check how we are getting enough passive income from real estate here.
This post from Physician On Fire inspired us to also create our “Investor Policy” so we would be very clear of our post-FIRE goals as well as “operating procedures”. Our Investor Policy has been very helpful so far in guiding us when making financial decisions.
6. Be patient in your path to achieve financial independence
Sometimes it’s going to be challenging to balance the work you are making towards FIRE with enjoying the moment. But it is extremely important to keep those things that really make you happy in your budget! It’s not all about sacrifice, but about efficiently minimizing.
Then at some point, it will get boring. There is nothing else to reduce, there is nothing else to change. In this case, boring can be good! You will just need to be a little bit patient and enjoy your way.
In your path to achieve financial independence, you will need planning and patient, but also flexibility to adapt to the evolving circumstances! And please, do not forget to enjoy the journey!
How have you planned to achieve financial independence? Share it with us!