You don’t need to be rich to retire early

F.I.R.E., also known as Financial Independence, Retire Early is basically a major lifehack for those who don’t want to work until they’re 65. A common misconception is that F.I.R.E. is only for rich people or people with big paychecks. But I’m not rich, nor do I have a big paycheck, and I’m well on my way to financial independence. And so can you.

When you retire before your retirement age, you won’t get any pension money. This means you are responsible for providing your own funds to live off. Most people just assume you have to be crazy rich or live extremely frugal to achieve that, but those people don’t fully understand the basic concepts of F.I.R.E.

Don’t worry, I got you. Let’s get our Mythbusters hat on and debunk some of those stubborn misconceptions about F.I.R.E.

Retiring early means you don’t work anymore. You can’t cash in a government check yet, so the money has to come from somewhere else. But where?

The most efficient answer to this question is passive income. Passive income comes in many forms, and the most common one with F.I.R.E. is from investments. This can be dividends or capital gains that you take out yearly or quarterly, depending on the market. The difference with a savings account is that because of inflation, your savings will most likely go down. I won’t claim the market will only go up, but when you look at it long-term, the market does have an upward trend and you have the potential to get some awesome compound interest gains. This takes time though, a lot of time, and nerves of steel when the market does go down (temporarily).

With passive income, you are earning money without having to do any actual work. Some forms of passive income require you to do the work upfront, like writing a book or making a course. Once the work is done, you can sell that product over and over again without having to lift another finger. Okay, this might be a bit of an oversimplification, because most things do need some marketing or follow-up stuff, but most of the work is already done.

But how much passive income do you need to retire early? Well, that all depends on your lifestyle. Calculate how much you are spending right now on a yearly basis, and that’s how much passive income you will need when you retire. How do you calculate your yearly expenses? Start by making a budget. If you want to retire in luxury, you will need more. On the other hand, if you want to live a simpler life and scale down, you might need less.

This is where the common misconception of only rich people can retire early comes from. People with a high salary usually have a more luxurious lifestyle and will need more passive income to retire early. I have an average salary and live an average life, so I don’t need nearly as much as those people making +100K a year. This makes F.I.R.E. a lot more accessible than people realize, which means you can do it too!

If you don’t have to be rich to achieve F.I.R.E., then it must be a miserable journey, right? Because if it’s not, why aren’t we all doing it?

It is true that you will probably have to change your lifestyle if you want to achieve F.I.R.E. The good news is that you decide how your F.I.R.E. journey goes. Some people don’t mind living really frugal is it means they get to achieve their goal faster, others like to splurge on some things every now and then so that it doesn’t feel like they are sacrificing everything.

You will have to be a bit more frugal of course, otherwise, you’d already be financially independent without any effort at all, and that would be pretty spectacular. Everybody has other limits though, so what you find frugal living might be pretty normal to me. It is a balancing act that will probably also change over the years or by the season. Being flexible is one of the most important in life, and the same goes for F.I.R.E. I love to splurge during the holiday season and buy new plants in the spring, but at other times, I don’t mind saving a little extra here and there.

Another big thing about F.I.R.E. is increasing your income. If it’s not possible for you to save more, try to earn more. Ask for a raise or find a better-paying job. You’d be amazed what you can get by just asking. Find out if you have any hidden talents and get a side hustle. Don’t have any hidden talents? If you’re a true entrepreneur, you’ll find something you like and you can learn. Try to get at least 3 different streams of income. If one dries up, you can still rely on the other ones.

To summarize, you definitely don’t have to be rich to achieve F.I.R.E., nor do you need to have an enormous paycheck. The amount you need depends on your lifestyle, and if you’re earning 20K a year, your lifestyle will probably be less expensive than somebody who earns 100K a year. This makes F.I.R.E. a lot more achievable than people think. Want to know if it is doable for you? Find out what your annual expenses are, and that’s the amount you need in passive income.

Once you know how much you need, you can start by building a passive income. The cornerstone of F.I.R.E. is investing your money into the market. The market won’t always go up, but looking at it long-term, you do have a pretty good chance of creating a significant increase in your capital. Don’t limit yourself to only saving money and investing it though. A true entrepreneur has multiple streams of income, so find something you are good at (or bad at, but willing to learn) and create yourself a side hustle. The more streams of income you have, the better your chances at achieving F.I.R.E.