By Emily Elmore | 2 June 2020
Let’s talk about Freedom.
We’re thinking long and hard about this word right now. Financial freedom is often associated with the trendy term’ financial independence, retire early,’ or F.I.R.E. And in a world of uncertainty, injustice, and disarray we’re asking ourselves, “what does financial freedom really look like?”
Financial independence is when we can survive off of our own interest-growing money, untethered to that 9-5 income from a full-time employer. However, like most financial other terms, Nav.it thinks of “FI” a little differently. We think it’s the freedom to earn how you want to, and pivot when you want to, by having a healthy savings structure to support your life’s changes.
So let’s talk about your path to financial independence. Whether you’re in need of a refi, an automated savings strategy, or you’re staring down a new investment, we got you.
The Basics of FIRE
The math is simple: spend less than you earn and save the difference in low-fee investments like index funds.
Other passive income streams, like rental properties can help you reach financial independence too. The other big piece? Frugality. The less money you need to live, the less money you need to save in order to fund the rest of your years.
“To highlight the value of cutting expenses, for every $100 per month you can trim, it means you need $30,000 less to achieve FI ($1,200 yearly expense x 25 = $30,000),” says Jonathan Mendonsa, co-host of the ChooseFI podcast.
The rules are simple, but achieving FIRE is, well, usually a challenge. Reaching FIRE involves the same concepts of reaching any other financial goal, and it ultimately comes down to behavior.
If you want to achieve FIRE, you must first determine your “why.”
Do you want to quit your job so that you can start your own business? Work less overall so you can spend more time with your family? Do you want to take a year off to travel, or perhaps to work pro-bono for your favorite nonprofit? Once you have your why, you can determine your strategy.
From there, FIRE comes down to math and mechanics. In an episode of his podcast, Mendonsa suggests ten “pillars” of financial independence. Those pillars are:
- Lower your housing costs
- Drive used cars
- Cut the cable cord
- Lower your tax liability by maxing out your tax-deferred vehicles such as your 401(k), 457, 403(b), IRA, HSA, etc.
- Switch to cheaper cell phone service
- Use credit card rewards and smart financial habits to help fund your travel
- Reduce your grocery bills
- Increase your income and consider adding multiple income streams
- Invest via low-cost index funds
- Use the 4% rule, the ultimate equation behind achieving financial independence. When you can safely withdraw 4% from your nest egg each year to cover your expenses and still have enough money down the road, you’ve reached FI.
Like any other financial goal, the math is easy and everything else requires resourcefulness, diligence, and patience. Start your goal at any point, and then move forward. How quickly you’ll reach your goal will depend on those three basic variables: income, spending, and time.
We’re changing the narrative around money but change can’t happen with a one-sided conversation. That’s why we’re excited to bring different voices and experts to share their wisdom. Send us an email and let us know what you think. And remember the nav.it money app offers you free tools so you can achieve financial independence.
You can download it at Google Play and the Apple Store.