How to Start Your FIRE Journey: 7 Practical Steps to Get Started

Are you ready to take control of your financial future? The FIRE (Financial Independence, Retire Early) movement is all about achieving financial freedom and living life on your own terms.

Years ago during my time as a financial advisor I was focused on following and guiding people down the "traditional" retirement route.

The pathway was simple: Invest a small portion of your income throughout your working years in a retirement account and hopefully live out your natural years when you can finally access that money penalty free.

I'm committed to a different path now.

Every dollar I can spare is being put to use and invested in assets so that my passive income eventually covers my lifestyle right now. I'm delaying gratification in the short term to be able to enjoy everything I want in life in the long-term.

Whether you're dreaming of retiring early or just seeking more financial security, this guide will walk you through seven actionable steps to get started. From tracking your spending to making smart investments, these steps can pave the way to a brighter financial future.

Understand What FIRE is and Why It Matters

The FIRE movement is centered around a few key principles. It's "retire early", so as you can imagine it won't be utilizing the traditional model of retirement planning.

This isn't to say that retirement accounts such as your employer's 401k plan or IRA should be neglected. In fact I encourage taking advantage of those as well.

FIRE is focused on making investments in assets that will cover your lifestyle long before, often decades sooner, than the typical retirement age.

Since the FIRE movement began there have been different types that have become popular:

Lean - Devotion to minimalist living and extreme savings. Living on $25k is not uncommon
Fat - Saving more while giving up less. Great for those who earn higher than average incomes and can be more aggressive with the amount they contribute to their future.
Barista - For those who want to quit the 9 to 5 and are willing to cut back their spending while working only part-time. A happy medium of the two other methods.

Whatever your preferred lifestyle is there's an option for you. It doesn't mean you have to give up working, rather you live life on your terms without the stress of job security.

Assess Your Current Financial Situation

First off you must understand the importance of calculating your net worth. This is your measure of wealth and is a snapshot of your financial standing. It's like stepping on the scale. You have to measure it on a regular schedule to track progress.

Get a deep and thorough understanding of your income, expenses, and debt. Focus on reducing or eliminating your debt completely before starting the path of investing.

Debt will be the biggest drag on your net worth and paying interest rather than earning it will make things a lot harder in the long run.

You want to be able to put every dollar you can spare to work for you without having to take your foot off the gas and stifle progress.

Set Clear Financial Goals

Your FIRE number is easy to calculate. Essentially it's what your lifestyle costs you. If you make $100k and you spend $100k then that's your number. If you make a $100k, and spend $80k, then $80k is your number.

Make sure you're setting short-term, mid-term, and long-term goals. The more actionable time frames will be anything between the 0 to 3 year mark. This is because you can create detailed action plans that are more realistic and near term that will keep you aligned towards the long term vision.

Use SMART criteria to create actionable financial objectives. "Purchase an investment property" simply won't cut it. Save up $40,000 for a $200,000 investment property by October 1st is way more specific. Know exactly what you want and WHY you want it.

Our brains are wired like heat seeking missiles. We can literally program it to sub-consciously guide us towards what we desire. Be intentional with your thoughts.

Where your focus, energy flows.

Build a Budget That Supports Your FIRE Goals

Once you've established clear goals now you need to determine how to manage your expenses on a day to day basis. This is where income allocation comes into play. Decide what percentage of your income is going to needs, wants, and investments.

Now that you've determined where your income is going you can focus on budgeting to control expenses. Expense management is going to be key in staying on track in the long run. Complacency will cause things to get out of hand really fast so make sure you're tracking everything.

You want to be able to identify financial leaks in your budget before they sink your ship A.K.A. your bank account. Every week set an appointment with yourself for 5 minutes to go over the transactions you made that week.

Log into your banks website and go through and make sure each expense is properly categorized.

Waiting two weeks is too long because you might forget what the purchase was for. You will need to be able to do this consistently and create a routine so you can see what your average spending is per each category so and allow you to make adjustments where necessary.

Use some of the best budgeting methods: zero-based, 50/30/20 rule, and envelope system.

Zero-based - Every single dollar of your income has been accounted for in each spending category.

50/30/20 - An income allocation variant that portions out your income based on your needs, wants, and savings. Choose which percentage fits the desired category. Most people start with 50% Needs, 30% Wants, and 20% savings but you can switch this around however you'd like.

Envelope System - Can be used in conjuction with the either the zero-based or income allocation method. Once you've decided how much of your money will go to each spending category you will then use a physical envelope to alott that money for that specific use.

For instance, if $100 is designated for dining out, you will put $100 into that envelope. When the money is gone you're done spending in that category. A great way to stay keep awareness high whether it's your total budget or certain areas you want to make improvements on.

Use tools and apps to simplify budgeting and tracking. Keep a written planner, spreadsheet, app, or your banks dashboard to keep a line of sight of your cashflow.

Review your expenses at the end of each week to ensure accuracy and make adjustments along the way.

Maximize Your Savings Rate

There are a lot of ways to cut unnecessary expenses without sacrificing quality of life. You can be as aggressive or conservative as you want. It really comes down to how big of a priority of reaching your goals are.

Be creative and try as many frugal living hacks as you can to boost savings. You don't necessarily have to make drastic changes to your lifestyle to begin with.

Start with the low hanging fruit. Cut your fixed expenses down by switching to a different phone plan, adjusting your insurance coverage based on your needs, getting rid of subscriptions you don't use, or opening a window or getting a blanket to reduce your energy consumption.

Small changes can lead to big savings. Freeing up hundreds a month leads to being able to invest thousands a year.

Work your towards gradually increasing your savings rate. If you can only do 5% then start there. Push yourself to get it to 10% and then 20%. Eventually you'll get to a point where you can take the plunge and shoot for the really significant amounts.

Can you imagine being able to invest 50 to 75% of your income? The secret is that you will need to be able to imagine this to make it possible in reality. Think of how big of an impact that will be in your goal of being financially independent.

That can be the difference of hitting your goals in a few years rather decades!

Learn the Basics of Investing for FIRE

There is a whole world out there of great opportunities to explore and invest in.

Investing for FIRE is quite different than the traditional retirement model because the focus is that these investments will produce income NOW to support your lifestyle.

I encourage you to still take advantage of the tax benefits of the retirement accounts so they can also benefit you later in life.

You can even have the same investments that you have in your retirement account but hold them in a brokerage account so you can use the money now instead of incurring fees that you would be assessed with an IRA or 401k.

Understand the basic investment options that are readily available to everyone. Index funds, stocks & bonds, real estate, or your own business are all potential investments you can pour your capital into to create income streams.

The key to a strong investment strategy is understanding risk and diversification. Having all of your eggs in one basket exposes you to quite a bit of risk if there's a period of decline in performance or something goes wrong entirely.

This concept of risk also goes for creating multiple income streams. You don't want all of your income coming from the same source.

Passive income streams are essential for FIRE success. From the above example mentioned earlier, let's assume your lifestyle costs you $80k. Your focus from here on forward is to find investments that will cover this number.

It could be 8 rental properties making you $10k each. It could be a $1,000,000 investment portfolio of stocks and bonds producing 8% dividends to you. It could be a business you pour into that grows and eventually covers that amount.

The Rule of 25

The rule of 25 is another methodology to determine your FIRE number. Take your desired income and multiply it by 25 and you'll get the amount of investment assets you will need to accumulate.

Again, if we're shooting to live off of $80,000 then we'll need to have $2,000,000 ($80,000 x 25 = $2,000,000). Essentially your drawing on 4% of your nest egg to cover your lifestyle.

Stay Consistent and Adjust Your Plan as Needed

You're going to be making lifestyle changes, behavioral changes, and mindset changes. Making changes in any of these categories takes effort and time to master.

There will be moments where you question why you're doing this or have doubt. That's normal, remember, consistency is the name of the game.

Here are a few tips for staying motivated on your FIRE journey:

• Adapting your strategy to life changes (e.g., marriage, kids, job loss).
• Remember the importance of tracking progress and CELEBRATING milestones.
• Have patience and remember this is a journey of self-growth...not just the bank account.
• Find people on the same journey or have gotten to a level of success you aspire to have.

Conclusion:

Starting your FIRE journey can seem daunting, but with these seven steps, you're well on your way to financial freedom. Remember, consistency and patience are key.

This is a simple path but not easy. It will make you dig deep and live like no one else so that eventually you can live like no one else.

Start small, stay focused, and adjust your plan as you grow. If you can first establish what you're doing, and why you're doing it, the how will eventually follow.

Are you ready to take the first step? Let us know in the comments about your FIRE journey and the strategies you're using to achieve financial independence.