7 Tips for Financial Independence Retire Early

Financial Independence Retire Early or FIRE is the term used when you no longer have to depend on someone else for monthly income and can happily retire from your corporate job to work on your passion or simply your investments allow you to cover monthly expenses. In order to accelerate the path towards your FIRE, there are 7 Tips for Financial Independence Retire Early you can follow including – Calculating your FIRE number, Increase your income, Maximize the savings rate, Investing wisely, Making use of SWP, Removing Bad Debt, getting Health Insurance and Defining the why and your lifestyle.

Let us understand all this in detail. You can also download the Retirement Calculator in Excel to check your FIRE Numbers:

Table of Contents

1. Calculate your FIRE Number
2. Increase your Income
3. Maximize the Savings Rate
4. Invest Wisely
- Rs. 2000 SIP Returns Calculation for 15 Years Video
5. Remove Bad Debt
6. Get Health Insurance
7. Define your “Why” and “Lifestyle”
- WATCH: SWP for Monthly Income with Calculations
Conclusion

1. Calculate your FIRE Number

This is the process where you get your average monthly expenses, and try to predict the expenses for future
Calculating your FIRE number (Financial Independence Retire Early number) is the first step towards your mindset of living with financial freedom
How do you calculate your Fire Number? Based on the FIRE Number Formula = Yearly Expeness * 25x
For example, if your current monthly expenses is Rs. 50,000 , than your yearly expenses will be around Rs. 6 Lakh
Now you multiply this Rs. 6 Lakh with 25 to get your FIRE Number, which is around Rs. 1.5 Crore
Note that this 25x is the minimum number you should use. To get inflation and market volatility into picture, you can also use 30x, 40x or 50x numbers as well to keep that margin of safety
Why this FIRE number is important? It helps you to know the amount of corpus you need to have in the mutual fund portfolio, that earns you expected returns of approximatey 12% or more every year on average
This mutual fund portfolio returns will help you to cover your monthly and yearly expenses in future

ALSO READ: What is Financial Independence Retire Early (FIRE)

2. Increase your Income

Another import tip is to increase your income that helps you to accelerate your financial freedom
With the increase in wealth, you will be able to cover your expenses as well as allocate more amount to your investments
Every year you might get salary increment or bonus or switching your job and working in another organization, that can help you to increase yearly income
Apart from this, you can also work on a side hustle or your passion that you can monetize such as creating a youtube channel, blogging about your favourite topics, vlogging when you travel, giving reviews on websites, etc.
This passion helps you earn more income apart from the salary income and hence increases your yearly cash in hand

3. Maximize the Savings Rate

Now since you have increased your income using above mentioned processes, you also need to increase your savings rate
It is very easy to increase your expenses to improve yur lifestyle when your income increases. You need to avoid increasing the expenses and instead must increase your savings
So you should maximize the savings rate if you are really serious about attaining FIRE
Have an emergency fund that covers you for at least 6 months to 12 months in case of any unexpected condition like job loss or some other issues, and then invest in the markets to maximize the returns over long time
Rs. 100 Saved is Rs. 100 Earned

4. Invest Wisely

Now since your income and savings rate has increased, it is time to invest your money wisely
Investing is different from Savings. You save in order to use it in case of an emergency, where as you invest because you do not need that money for now in short period, which helps to grow your invested money over long time when you keep them in markets
So either investing is stock market (if you have knowledge about studying companies) or mutual funds is the best idea
For beginners, a Simple Index Mutual Fund is recommended so that they don’t have topick individual stocks of the companies which requires more time, study and involves risk as well.
Equity mutual fund such as an index fund simply invests your money in the stock market while diversifying your investments over multiple companies. A fund manager is allocated to invest your money wisely and hence you take less risk via mutual fund route
And the best way to invest is via SIP (Systematic Investment Plan), based on which you invest a specific amount every month over a long period of time let’s say for 5 to 7 years to get good returns from market.

Watch below video to know Rs. 2000 SIP returns calculation for 1 to 15 years

Rs. 2000 SIP Returns Calculation for 15 Years Video

Watch more Videos on YouTube Channel

5. Remove Bad Debt

When we talk about Debt, there are 2 types – Good Debt and Bad Debt
Good debt is the loan or debt you take in order to buy an Asset, such as a house to be put on rent as investment, a car that earn you monthly income via Ola or Uber, etc. Assets that help you to earn money, and the debt in this case is called Good Debt
Bad Debt is the loan or debt you take to buy a Liability, Liability takes ur money from your pocket. Examples can be buying a car for your own use, buying a phone with high cost on loan, etc.
So whatever existing bad debt you have, you must try to eliminate it, since loans or debt have interest amount to be paid
It does not make sense to try to increase your income at one side and taking more bad debt on the other side. You are just making the money flow from one end to the other
So in order to attain financial freedom before time, you should remove the bad debt or the Loans you have taken, so that the EMI amount you pay can be invested in the markets that increases the savings rate

ALSO READ: Car Loan Repayment Tips to Save Interest amount

6. Get Health Insurance

This is one of the important step as far as your health is concerned
With today’s lifestyle and quality of food, you can imagine your health after 10 to 20 years down the line
The junk food or street food we love, is not good over long run and impacts our body
So we need to avoid such foods and eat only healthy foods such as fruits, home cooked food, etc.
At the same time it is important to have a health insurance that covers your hospital bills during your need
For example, a kidney stone surgery can easily cost you around Rs. 50,000 to Rs. 1 Lakh, but with health insurance, you might only have to pay processing fee of the application which may be around Rs. 1000 to Rs. 5000 based on the insurance you have taken. This saves you from paying high amount in hospital bills
Above example is not age related and can happen to anyone who drinks less water.
So get a health insurance for yourself and family members to cover the hospital expenditures, that might occur anytime

7. Define your “Why” and “Lifestyle”

While you have the goal of attaining FIRE (Financial Independence Retire Early), you also need to define your “Why” and the “Lifestyle” during the retirement phase
Why you want to retire early? Whether it is not working for someone else over the lifetime, or taking good care of health post 40s and 50s, you should be having a good reason to work towards financial freedom.
You also need to think about post retirement phase, whether you’ll be just playing games or will not have anything to do throughout the day. Being alone can also make you feel bore. So have some ideas in mind that you’ll love to do during retirement phase that keeps you engaged
Apart from this, you need to iagine your lifestyle as well, since retirement phase will not have any active income. You have to rely on passive incme that either comes from teh side hustle you work on, or from the mutual fund portfolio by using SWP (Systematic Investment Plan)
So have a plan during your retirment phase that keeps it smooth and keeps you engaged as well throughout the day, while your investments or side hustles helps you in passive income that cover the monthly expenses

WATCH: SWP for Monthly Income with Calculations

Conclusion

So these were some of the tips to attain FIRE and accelerate towards financial freedom, before you are 60 years of age. Important ones include increasing your income, removing bad debt, increasing the savings rate and having health insurance, because all these need time in the market to grow your money. Other tips can be followed after you have accumulated good amount of money in your mutual fund portfolio.

Some more Reading:

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