Retirement is not just for your grandparents
What do you think of when you hear "retirement"? This image in your head probably includes a walker, ugly high socks, and bingo night. The age that we can start to collect on social security is the cause for this image. At 62 you are eligible to start collecting. This is the path of least resistance and takes no planning ahead, however, thinking outside the box and learning how money works can help you avoid common financial traps and give you your freedom back.
What is FIRE?
Financially Independent Retire Early has become a new movement as people question the status quo. What does FIRE mean exactly? Financial independence is when you reach the point that you no longer rely on a source of income out of your control. In other words, your income covers all of your necessary expenses without having to trade your time for money at a standard job. You can accomplish this in many ways and at any age! When you reach the point that all of your expenses are covered and you feel confident you can maintain this income for the long term, you can choose to retire if you want.
How do I know I am financially independent?
Giving up the stability of an income from an established company sounds risky and can be very scary. Identifying when you are ready to be independent is a personal decision that only you can make, however, there are some goal posts to aim for. Checking off these accomplishments can signal that you are getting closer to financial freedom.
- A reliable source of passive income
- Covering all of your expenses current
- Ability to replace job benefits (health / life / dental / etc insurance)
- Growth rate of income that will at least keep up with inflation (1-3%)
- Take taxes into account for income and assets
- Additional income to cover the lifestyle you want (travel, entertainment, new cars, etc)
- Is your family growing? Plan to cover expenses for future children
What you need to do now
Have this goal in your mind with every financial decision you make. "If I buy this thing, does it make me more or less financially free?" Strive to maximize your assets that provide income. This is very well described in Robert Kiyosaki's book Rich Dad Poor Dad and where the image to the right comes from. To grow your wealth, allow money to work for you, and get out of the paycheck to paycheck grind; you absolutely must master this concept. Invest your money into assets that will produce income. These assets could be a business that you start, stocks, or real estate.