The first investment option that I want to look at is the stock market. Even though the Dow Jones fell 1,800 points in June, we can still find ways to put money into the stock market that will produce money in the bigger scheme. Take the concept of compound interest, in which interest continually grows on top of interest. Say you start with $1,000, glean 10% interest for 30 years, take out the interest rate earnings, and then retrieve the earnings at the close of 30 years, you’ll close out with $17,449.40. Doing the same thing for only 20 years and you earn $6,727.50. With the retirement age projected to change by 2050 this is a nice return for a little money in the long run.
Another option worth taking a look at to save for early retirement is signing onto a workplace pension. In this scenario, say you have saved $100 a month starting at age 35. This could add up to $85,700 at age 65—that’s a lot in your pension-pot. One good rule of thumb is to save half the age you began saving for retirement, so if you’re 20, then you aim for 10%, if you’re 30, then you aim for 15%, and if you’re 60, then you aim for 30%.
Emergencies, vacations, and more
But if you really want to play it safe, consider starting an emergency fund that will pay for 2-3 months’ worth of rent and other accrued fees which paves the path toward an even stronger financial foundation. Once you’ve started up a savings account for emergencies, you can begin putting aside money for other things you want such as vacation, college, or early retirement. The main thing is to make sure you’re covered should something go awry.
In a horse race, the market would be ahead of the economy, not the opposite theory. It would be important to remember this since the economy and the stock market are very different. According to a CNBC article by senior money writer Meagan Leonhardt, the stock market acts as a “leading indicator” to the economy. This means that, usually, the market will start slowing before a recession is seen in the clear, and it will start reenergizing months before the recession has ended. It’s a wonderful sign that the stocks have bounced back so quickly.
FIRE Movement Lifestyle
Another topic we have not breached yet is the FIRE Movement—an acronym for Financial Independence, Retire Early. The aim is to lay by money when you’re young—between 50 and 70% of your earnings—in hopes for an early retirement and fun life at a young age. In order to do this, folks have to push their costs extremely low and make income a bit—if not much higher. And don’t think it’s just about lounging on the beach all day, says Chris Hogan of Ramsey Personality. The real goal of FIRE movement for young people is quitting their full time job if they want or need to. What then is the huge hurry? Why save all (or almost all) your earnings for some distant dream? The dream is not such a distant one, it would seem…
The FIRE Movement was realized because of a book written by two financial gurus called “Your Money or Life” (1992), by Vicki Robin and Joe Dominguez. The book compared personal budget and the hours working to hours of one’s existence. It seems strange at first, but when you look more closely, it turns your view of the life/work balance on its head. When you look at each cost contrasted with the time spent working to pay for it, you get a complete picture of how much labor you’re putting in and what you’re getting out.
It seems there are a variety of FIRE types, some of which I name here:
Fat FIRE: A person who adopts a more conventional living style and saves more than the average retirement investor
Lean FIRE: Refers to a more rigid obeying of minimalist living rules and utmost saving, making it necessary to create a more minimalist lifestyle
Barista FIRE: Meaning FIRE members who have left their full-time employers, but still work part-time to quilt over expenses
Coast FIRE: Also for members with a part-time job, but these adherents do have to have enough money saved for retirement and to live on current banking savings
Fire Movement Through Entrepreneurs’ Eyes
For some, hearing about the FIRE movement caused them to want to invest wisely in one salient area: themselves. Take Jamila, a mother of three who used to spend way too much time commuting to and from work (forbes article). After she heard about the FIRE movement, it changed her life because she started her own business. Her husband, a gym teacher, began investing half of his earnings into savings, with the stipulation that they could always pull back. However, after giving birth to her third child, the mother decided to changeup the two year savings plan they’d been on into a more workable retirement strategy.
There are several ways to invest for retirement, one of them being a 401K retirement plan, which as a “qualified” retirement plan, can obtain unique tax rewards under IRS regulations. You can also invest a part of your income, curtailed by a yearly limit. Apparently there are many uses for a 401K plan!
IRA’s are another good way to invest one’s money for the future retirement one has been planning for. IRA’s are tax-advantaged subsidizing contrivances to appropriate their retirement savings. IRA’s are a second options 401K for fueling the FIRE.
To tally all, it would seem there are various kinds of FIRE Lifestyles and adherents, and the gurus named it correctly “Your Money or your Life” in 1992. The FIRE movement is creating a new generation of savers who are far thriftier than previous generations. While some put away emergency funds, others are working part-time jobs to help cover expenses, in what is overall a flexible and challenging savings plan. 401K’s and IRA’s can play a part in saving with the FIRE method if that is the route you choose.
Have any more tips on saving money to retire early? Let us know down in the comments.
This article originally published on GREY Journal.