What is Financial Freedom?
Hopefully this is not a convoluted answer, but financial freedom is exactly what it sounds like. You completely dominate your personal finances, have saved enough money for retirement, and are satisfied with your position in life. However, achieving financial freedom is not hard if you live a minimalist lifestyle.
Minimize your Expenses
Let me put it into simpler terms, just cut out of the useless expenses. The sad thing is, majority of the people reading this don’t even know they could easily save 10% of their paycheck per month if they just monitored their spending. No! Being frugal doesn’t mean you are a cheapo, it just means you know exactly what you value in life.
Sure, having a BMW NAZCA C2 would be awesome, but I want you to ask yourself this, “do I really need it?” As a broke millionaire, we are totally fine driving a used car, living in a modest home, and satisfied with retiring early. Why work for 30-40 + years when you can sacrifice a little in your earlier days and retire a multi-millionaire.
Calling yourself a millionaire is nothing special. Especially in our culture now, where a new millionaire is minted every minute. Millionaires come in all different forms. Some are fortunate to inherit a million, while others have put the time, sweat, and effort into their working career, like you are now.
Who are FIRE individuals?
But there is a new hybrid breed of millionaires. They are the ones who live a frugal life and are enjoying retirement as early as 30 years old. If you ask me, that may be a bit boring, but nonetheless their stories are inspiring. These individuals know exactly how much money they need to sustain their lifestyle of “FIRE.” Financial Independence Retire Early. What did they do to retire early? They executed a full court press and were saving anywhere between 50-80% of their paycheck. No shame, their skills rivaled the dream team. Some even paid off their student loans in under 2 years. Now that is some serious financial discipline.
Believe me, you can retire early if you just put your mind to it. BUT you need to recognize the common theme amongst the FIRE dream team. They were not only saving 50-80% per paycheck, but they were investing it in relatively low risk index funds. By now you must be thinking what can I do to join this elite team? Take some ownership of your finances and start investing.
How much do I need to Retire?
You might be asking yourself, “how much do I need to retire?” Again, like most numbers, it all depends on your situation. Members of FIRE will say you only need 10-12 times your current income, while more seasoned professionals will say you need a strong nest egg of $1,000,000-$1,500,000 to retire comfortably. But investing does not stop when you retire. The purpose behind FIRE is to live off of your invest income, whither that be through dividend payments or your principle return on investment (ROI).
Let us take a step back and break this down. I am sure you are slightly confused on how they are sustaining retirement at an early age with only $1,000,000 to their names. On average, the stock market returns roughly 7%. Again, 7% is on the conservative side. If you are savvy you should be able to get around 8-10%, but that comes with time, experience, due diligence and a true keen eye for financial markets.
Let us take a brief math break and calculate how much you will make if you have a 7% ROI on your portfolio value of $1,000,000. This is basic elementary/middle school math, so please refrain from calling me a mathematician.
Math Break: Get the notepad out and a glass of ice tea.
7% = .07
.07 x $1,000,000 = $70,000
Math break over. Read up, we both know you need it.
As you can see from my basic arithmetic, a 7% ROI is yielding $70,000 a year. Again, this may not seem like a lot if you are a seasoned mid-career worker, but the point of FIRE is to retire early and live frugally. People who retire early only value a few things. Remember these are the things that make them happy. After speaking to numerous FIRE individuals, I have created a simple mnemonic for us to remember since none of us here are smart: “FIT”
- Family, Friends
- THEIR TIME
Living frugally allows you to enjoy the simple things in life. I challenge you to drop the materialistic lifestyle us millennial tend to have. We can all learn a thing or two from members in the FIRE community. They are knowledgeable at saving, know how to properly invest, and more importantly, only value things in life that impacts them.
Financial Independence Retire Early
Like we discussed in our previous post the 50/30/20 rule is a great first step to joining the FIRE community. As Broke-Millionaires we need to recognize our weekly expenses, so we can truly calculate our budget. Here is our weekly challenge. I want you to write down every expense you have for the week. Yes, this means carrying a notepad around with you. I guarantee you can eliminate at least 3-4 things off your weekly expense list. If you believe you spent the most, go on ahead and email me. I will send you our Broke-Millionaire bonus content, which you do not want to miss.