3 steps I’m taking to reach financial independence by 45

• I’ve thought a lot about the FIRE (financial independence/retire early) movement over the years but never thought it was for someone like me, from a low-income background and with a history of debt.
• But the pandemic changed my priorities and showed me life is too short to spend it working all the time, so I’ve decided to work towards financial independence by 45 to give myself more choices.
• So far, I’m saving 30% of my income, diversifying my investments, and tracking my future net worth to work towards financial independence.
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The FIRE movement, or financial independence/retire early, has been on my mind for quite a few years now. In the past, I’ve had my doubts, mainly because I didn’t think it was realistic for someone like me, who came from having a low income, tons of debt, and virtually no nest egg. But 2020 has changed my mind.

The past nine months have prompted me to focus much more on my health and finances than ever before. There have been times this year when I’ve been scared for my husband to go into work, where he might contract the virus, and other times when I’ve felt uncertain about what we would do financially if both of us had to stop working. 

I realized we needed a larger emergency fund, to decrease mindless consumerism in our lifestyle, and to obtain more financial security overall, and I think working towards FIRE can help us achieve those goals.

Achieving financial independence is about having more freedom and options

To be clear, my decision to pursue FIRE is not heavily based on fear or worry about our future. Instead, it’s based on the fact that I finally feel like I understand the true benefits of FIRE, and it aligns with my core values. 

I’m almost 29 years old and plan to reach the FI part of FIRE by the time I’m 45. I’m not interested in retiring completely and would be happy to continue doing work I love for as long as I want. 

For me, the goal is more freedom and options. I want the option to be able to travel when I want, possibly not have a mortgage, or not have to worry about getting back to work right away when there’s an emergency in my family — or the world. I also would rather not work seven days a week year after year if I can help it. I want to be able to do this way before I turn 65, so this means I will have to manage my money differently.

What we’re doing to reach financial independence

I used the “multiply by 25” rule to estimate how much we’ll need in retirement. You take the amount you expect to live on annually in retirement and multiply it by 25, and that’s your FIRE number. Right now, we’re living comfortably by spending around $40,000 to $45,000 per year. Let’s say that, due to an increased cost of living or just wanting more wiggle room, we expect to spend around $60,000 annually in future years. If you multiply $60,000 by 25, you’ll get $1.5 million. This is a very rough number, but a reasonable target nonetheless. 

While this number might scare the daylights out of my husband, I often reassure him that this journey doesn’t mean we will be living on rice and beans and depriving ourselves to the core along the way. I think financial independence by 45 is a great goal and I know we will reach it eventually, but I’m not going to stress out about every little detail and figure. Instead, we’re choosing to do a few things that are simple for us right now and will still move things in the right direction.

Saving at least 30%

This is what we’re able to save currently, and it’s a great start. We pay ourselves first and keep consumer debt low in order to maximize savings each month. 

As our careers advance and/or we pick up side hustles along the way, I know we will earn more and be able to reach a higher savings rate. My goal is to reach a 50% savings rate or higher, but I’m not willing to cut my lifestyle any more than we already have. So the key will be earning more money.

Tracking our future value

I love tracking my net worth each month, but recently, I started tracking my net worth and future value using this handy Excel spreadsheet. I love keeping up with both figures because while net worth determines how much we have currently given our liabilities minus assets, it doesn’t say much about where we’ll end up if we keep spending and saving money like we do today. 

Tracking our future value is great for achieving FIRE because I can easily add in how much we have saved so far, how much we plan to save each year, and what our expected return (growth rate) will be. 

Diversifying our investments

I’m all about investing in stocks, but don’t just want to throw all my money into one basket. So right now we’re investing in real estate and index funds through taxable brokerage accounts, as well as saving for the long term in a 401(k) and an IRA. 

Investing in real estate and index funds through Vanguard is a big part of my strategy for reaching financial independence sooner than later. Since we won’t be able to touch retirement savings (without a penalty) from our 401(k) and IRA accounts until age 59 1/2, we will need to have investments and passive income that we can use before then. 

Even if I don’t hit FIRE by 45 years old, I will probably never go back to the way I thought about FIRE and money before this year and the pandemic. COVID-19 just gave me another reason to stop feeding myself excuses and get to work. If I miss the mark, I will still be much closer to becoming financially independent than I would have been if I never decided firmly to pursue this goal.