Why do we work so hard? What makes us keep going on and on and on a daily basis? We can say 2 reasons for this.
Family responsibility and self dreams and aspirations..
We all try hard to shoulder our family responsibilities to fullest and at our best be it kids education marriage parent’s health care etc. Once these responsibilities are over or we provided enough for these in terms of money we want to explore self dreams. And for this, we want to retire early as well want to achieve FIRE stage (Financial Freedom Retire Early)
But is getting FIRE stage so easy? Can we reach this stage in a short span of time? The answer is NO.. You need to plan things meticulously and implement those systematically and rigorously to achieve the FIRE stage so that you can retire early and still have the same standard of living until you are alive. Money is not created out of thin air. People don’t want to slog but want FIRE.
Let me clear one thing here achieving FIRE stage doesn’t mean you completely stop earning or you are not employed and just sitting idle. Rather it means you are not dependent on forced employment for earning your daily bread and butter rather your assets and Investments will take care of your monthly expenses. Once this stage is achieved you are free to pursue your dreams and hobbies or can take up the job which you want to do.
So what are the MISTAKES those have avoided who have retired early and now enjoying their lives according to their wish.
Starting investing late: This is the biggest mistake they have avoided and that why they could retire early. As you all know the biggest advantage of starting early is the time you get to multiply your wealth because of the Compounding Factor. Those who want to retire early should start investing from their first paycheque. A delay of one year can push your retirement age by more than 5 years.
Random retirement corpus: All those who successfully achieve FIRE stage have calculated their retirement corpus very properly. Instead of vague numbers in mind, it is very important to arrive at your retirement corpus based on mathematical calculations and considering all factors in mind such as years in retirement, early expenses every year in retirement, inflation, withdrawal rate etc. A general thumb rule is to have minimum 25x your annual expense and need to maintain 4% withdrawal rate from the above mentioned front end instruments.
The generic objective of FIRE: Instead of having a generic desire of retiring early these people have a clear objective in mind to retire early. They have set the target date as well as the target corpus after considering all the above-mentioned points. These successful FIRE people have a clear objective statement that clearly spells out these parameters: Scope — What we want to do, Schedule — When we want to finish it, Resources — What would we use to achieve FIRE.
Not having proper roadmap.: This is one of the biggest mistake FIRE guys have avoided. Once you have decided to retire early you need to have proper ROADMAP to achieve this stage at the desired time. This roadmap includes penning down all your life goals which you want to achieve besides retiring early. It is very important to provide for all other life goals properly so that you can enjoy your FIRE state completely.
Random investments: Successful FIRE guys work on backward calculations. Normally what we do. we invest the money is left after spending every month. But those who are serious about retiring early, calculate how much they should invest every month to achieve the targeted corpus. After knowing it they decide their asset allocation according to time left and their risk profile. Invest in those instruments which suit their investment style.
Avoiding Financial Contingency planning: All successful FIRE guys know the importance of contingency planning. A skyscraper can be built only when it has a strong foundation likewise when you want to build your riches you should have strong life risks hedging foundation called INSURANCE! Always set aside an adequate emergency fund, term insurance, health insurance and personal accidental plan.
Ignorance of anticipation of future expenses and emergencies : It is very important for FIRE guys to know how much money they need immediately after they stop working. It helps them to decide the monthly withdrawal rate so that they can keep a watch on the unwanted expenses as well plan their retirement kitty well.
Random investments have done after retirement: Once you have achieved FIRE stage it is very important to have a proper plan to deploy your accumulated kitty so that it will last up to your and your spouse’s life. Successful FIRE guys have a proper strategy called Bucket strategy where they have created 4/5 buckets of different financial products for different time horizon. This way FIRE people can make sure their kitty last long and as well they can live comfortably.
Not giving importance to mental and physical health: Apart from financial part successful FIRE guys avoid this mistake to keep on going happily and peacefully after a major turn in life. It is very important to have a healthy body and mind to start something on our own in the late 40s or 50s. To pursue your passion you should keep your mind and body fit and fine.
Get affected by social impact : This is very important thing which successful FIRE guys avoid. It is not easy to get retired from your active working where you have power. position and as well as good earning. Relatives Friends and society may you feel like you have done a BIG mistake. Here you need to ignore all such noises and keep yourself cool and calm for your better life.
Achieving FIRE stage is not at all easy. It needs loads of commitment and determination. Its a long term process. One needs to stick to it and keep on going on the ROADMAP framed for the same. FIRE requires you to forgo some present enjoyment and material happiness so that you don’t splurge your money today to make yourself FIRE ready for tomorrow.