If you’re like me, you want to reach Financial Freedom yesterday. No worries! Just as there are more ways to Rome, there are more ways to reach Financial Independence and Retire Early (FIRE).
Do you want to know how you can join the FIRE movement? A good place to start is to read the ultimate guide to financial independence and retire early for the basic concepts.
Do you want to be Financially Independent and Retired Early within X years? Bare with me because I’m going to tell you everything about the ways you can reach Financial Independence and Retire Early!
There are various different strategies to reach FIRE, including winning the lottery and having a rich aunt. For now, I will focus on the most popular and realistic paths to reach FIRE below.
One side note: you don’t have to choose! I’m using two out of three methods at this moment, and I’m aiming to get started with the third one this year.
Saving Or Investing To FIRE
If you want to reach FIRE, the most popular way is through saving and investing. This is also the most accessible way to FIRE. On this path, it is important to save half of your after-tax income.
First, the saving is used to pay off any high-interest debt, like credit cards and car loans. When you are having low-interest debt like a mortgage or (depending on your country) student loans, you don’t need to make paying them off a priority. Rather invest this money, as the average rate of return on your investments is 7% historically.
If you have paid off the high-interest debts, start by creating an emergency fund. This is really important, as you want to be able to replace things around your house or your car without touching your investments. The rule of thumb is to have around 3-6x your monthly expenses in your emergency fund.
[Related Read: 25+ Money Saving Tips To Save Money RIGHT NOW]
Now We Invest
Once you have established your emergency fund, all the extra money you save can be invested. Investing here is aiming to consistently put money away. It does not involve day trading, timing the market, or actively managing individual stocks. Instead, you are mostly concerned with getting money into the market via low-cost index funds.
I believe that if you want to invest in the long run, you want to avoid any major fluctuations while (aiming for) being retired. Investing for the long term is your best bet for reaching FIRE. However, it’s important to note that there are still significant differences between different index funds. If you are paying 0.1% fees or 1% fees will make a dramatic difference over 40 years.
For example, if you invest €100 monthly over 40 years with 0.1% fees, you will have €431.200. If you invest €100 over 40 years with 1% fees, you will have €339.000. This means that only the fees are costing you €92.200 in income in 40 years. Why is this the case? Because of the compound interest. Albert Einstein called it the 8th Wonder of the World. You reinvest your return so that your initial return also generates a return. You get a return, on return, on return.
There are many in the FIRE community who are trying to get their savings rate. They cut down their expenses – a lot. Some of them even move to have their expenses as low as possible. For example, if you live in the Philippines, your monthly expenses will be dramatically lower compared to Europe or the US. If you are reducing your annual expenses, the amount you need to be financially independent decreases dramatically.
There are many most investment vehicles besides the stock and bond market. One investment vehicle that is becoming increasingly popular is Peer-to-Peer investing.
Peer-to-Peer investing means that you’re lending money to people against increased interest rates. For example, I invest with Mintos, which lends money to people and companies. The interest rates vary between 5-20.5%. The best thing about is that there is a buyback guarantee – meaning that if they cannot pay back the loan, you will get your money back.
I am very enthusiastic about this approach. If you’ve gotten curious as well, you can read my Mintos Review + How I Get >11% Interest Rate here!
Business To FIRE
A second way that can lead to FIRE comes from all things business. There are many businesses on this planet, they have the opportunity to earn a living from it. If you choose this path, you should be decently motivated, though, since it can be a challenge. It can also create your personal FIRE foundation in years instead of decades.
At this moment in time, starting a business is the easiest it has ever been. You can just start a website within minutes with Bluehost. If you’re like me and first want to see what’s up, you don’t even have to quit your day job yet. I have listed a ton of side hustle ideas. Check it out if you’re interested.
One thing that I can recommend you is starting a blog. If you’re interested in how to do that – I’ve listed three easy steps to get your blog going with Bluehost for CHEAP. You can read more about how to start a blog here!
Real Estate To FIRE
At this moment, I don’t own any real estate. It is my dream to own a few apartments to earn passive income! I love real estate because it can generate a big stream of passive income with relatively little effort.
Finding a good property that will provide you with sufficient cash flow is not impossible, but you have to invest some time beforehand to find the best one. Educate yourself about what’s important. I read my first thing about real estate investment in Rich Dad Poor Dad. So educate yourself. Just don’t overdo it! Take action when you find something that feels good, and you want to invest in.
If you’re like me and don’t have enough lump sum to become a real estate investor by yourself, you can also invest via alternative vehicles. You can do this through REITs (Real Estate Investment Funds) or crowdfunding.
For me, at this moment in time, the housing market is too overheated to invest. I would like to have an apartment in a city which is too expensive at the moment. So I’m patiently waiting for a moment to get into the market, hopefully within a few years!
What is your preferred way to reach Financial Freedom? Let me know below!
Founder of Spark Nomad, Radical FIRE, Journalist
Expertise: Personal finance and travel content
Education: Bachelor of Economics at Radboud University, Master in Finance at Radboud University, Minor in Economics at Chapman University.
Over 200 articles, essays, and short stories published across the web.
Experience: Marjolein Dilven is a journalist and founder of Spark Nomad, a travel platform, and Radical FIRE, a personal finance platform. Marjolein has a finance and economics background with a master’s in Finance. She has quit her job to travel the world, documenting her travels on Spark Nomad to help people plan their travels. Marjolein Dilven has written for publications like MSN, Associated Press, CNBC, Town News syndicate, and more.