Published in 1998, the Trinity Study detailed the probability a retiree’s portfolio would run dry within 30 years of retirement. How good of a chance? The originators of the 4% rule-three professors at The Trinity University-answered this exact question. The 4% rule (of thumb) states that, as long as you can live off of 4% of your portfolio’s value each year (adjusted for inflation), there’s a good chance you will never run out of money. Saving money is great, but what really makes all of this possible? And how does someone with a $1M portfolio make it last for the rest of their lives? The (not-so-secret) secret behind this is the 4% rule-or, perhaps more aptly named, the 4% rule of thumb. And that begs the question… How Much Money Do You Need to Retire? More people than ever were flocking towards the core principals of FI- valuing time and freedom over money.īut you do need money to retire. And after 2008, in the wake of the financial crisis, it grew rapidly in popularity. With that, the FI community, albeit small, began to form. Maybe not the first, but certainly one of the most impactful instances in which the tradeoff between money and time was made abundantly clear. Money is something we choose to trade our life energy for. In just a few incredibly influential words, Robin writes: The modern definition of FI, however, likely came with the 1992 book, Your Money or Your Life, by Vicki Robin. A sentiment popular in the FIRE movement today. Then, in the 19th century, Ralph Waldo Emerson’s “Self Reliance” and Henry David Thoreau’s “Walden” both speak to finding happiness within, instead of pursuing material gain. Two fundamental building blocks of financial independence. Ben Franklin, for instance, published an essay “The Way to Wealth” in 1758. While it may have lacked an official name, the principals of FI have been around for centuries. That is the secret to achieving financial independence.īut before we go further, let’s take a step back to answer the following question. Then, instead of letting money erode with inflation in a bank account, you invest it.
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If I could give you all six words that sum up how to be good with money, in a nutshell, it would be these six words.Īccording to Jillian, you can grow the gap by increasing your income or reducing expenses. Jillian from Choose FI, a podcast with some of the most influential voices in the FI community, shares the following sentiment:
You have your income, your expenses, and the difference between the two. The FIRE FormulaĪchieving financial independence boils down to a simple formula. Sound interesting? Read on to learn what makes all of this possible. It’s the freedom to shape your life and to decide for yourself what comes next. More than anything else, financial independence is about giving you the power of choice. I didn’t have to retire early to start living my ideal life. I’ve designed my life around what I value most-health, relationships, creativity, adventure, and energizing work. In fact, the concept of lifestyle design-or building the life you want now, instead of waiting for early retirement-has been growing in popularity. And while that is true for some, it’s far from the norm. If you heard of the FIRE movement before, you may associate it with extreme frugality and minimalistic living. To break the paradigm of 9-5 work until you hit 65.įor many in the financial independence (FI) community, the ultimate goal is to retire early (RE).īut for others, it means leaving their 9-5 job to follow their passions, without the financial insecurity that would normally come along with doing so. And as more people joined, it became a movement. With a shared goal in mind, those interested in financial independence formed a community. The Financial Independence Retire Early (FIRE) Movement But it is possible-and simpler than you may think. Reaching financial independence takes time, dedication, and a complete shift in mindset. Sound impossible? I assure you, it’s not. When people reach financial independence, it’s not unheard of for them to retire before 50, 40, or even 30!
So, a starting $1M portfolio would theoretically be worth the same-if not more-in 20 or 30 years. Instead, the goal is to live off of investment earnings and other sources of passive income. This is not a new concept traditional retirees have (ideally) met this definition for decades! There are, however, two major distinctions between financial independence and traditional retirement.įirst, the plan is not to cash out on savings in retirement. Financial independence is defined as having enough saved to no longer rely on a 9-5 job.
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