When I started reading more about money and personal finance, one of the blogs that taught me a lot is Fire The Boss. His blog, as the title states, is about FIRE.
What is FIRE?
FIRE stands for Financial Independence, Retire Early. I can hear you thinking “Uh… aren’t you 21 years old? Is that not a bit early to think about retirement?”. And I see where you’re coming from. But I disagree. I think I’m already “too late” and I wish started way earlier!
The FIRE method consists of two steps. In this post I will tell you more about Financial Independence.
What is Financial Indepence?
Financial Independence is not about becoming a multi billionaire. I mean, I’m not stopping anyone, but it’s not the goal. Being financially independent is more about having choices. For example, you can choose to stop working, you can choose to go on holiday, you can choose to pick up all your belongings and move to another country. You do not have to be glued to your desk at work because “If I don’t, I cannot afford my mortgage” or “There will be no Christmas presents if I don’t work hard enough”.
Why would you want to be financially independent?
In an ideal world, every single person would perform a job they love. They would be excited to wake up on Monday and go to work with a big smile on their face. In reality, this is not the case. Although I don’t know a lot of people who hate their job, there will always be the jokes and comments about being glad it’s Friday and being happy to go home from work.
Work can be draining. I work two days a week because I’m still a full time student, but nonetheless have I already experienced how exhausting the corporate world can be. If you spend around 40, maybe 50 hours working every week, how can you work on your own potential? How can you execute all those plans that are in your head, like starting a business, making a Youtube account or starting a blog?
The truth is: most people will not do it. They will continue working at their 9-5 job, 5 days a week, making some old rich man even richer. Why would you support this? You should focus on your own growth and your own potential.
Another reason to strive for Financial Independence is to be prepared for tough times. Nowadays the economy is great and there are loads of companies looking for skilled workers. But as most people know, the economy is not one flat line. The business cycle is an evermoving economic cycle that goes up and down as the gross domestic product goes up and down. Right now the business cycle is high, but most economics predict that the business cycle can start declining any time soon.
What if the business cycle declines and you lose your job? If you are financially independent, you are prepared. There is no need to worry about your income, you will still earn passive income to cover your costs. In a future post, I will examine ways of earning passive income.
How can I become Financially Independent?
Financially Independent is not something that happens overnight. If you’re willing to put in the work, you can reach Financial Indepence in a few years. For most of us, it’s a multi year plan that requires a lot of perseverance.
The most important step to becoming financially free is to stop spending and start saving. If you lessen your spendings, you will have more money to save and you can reach Financial Indepence sooner.
The money you save is used for investments. There are tons of (financial) products that you can invest in. For example: stocks, bonds, crowd funding or real estate. I invest in crowd funding and I like to think of my apartment as an investment (Robert Kiyosaki will not agree with this…). This month or next month I am planning to start investing in index funds, which I will write a post about when it happens.
By investing your saved money, you can grow that money and produce passive income. If you invest that income once again, it will grow more over time and will hopefully be enough to one day live off of.
What to do when you’re finally Financially Independent? It’s time for step 2: Retire Early.
Personally, I am nowhere near being on FIRE. But if I don’t start working for it right now, I know I will never get there. I like to think of myself as a sparkler (hence the photo with this post). I might look small, pretty and innocent, but once I get too close to anything flammable and everything will burst into FIRE. It just takes time, patience and a lot of perseverance!