All of us dream of being financially independent so that we can retire early. Living a comfortable life as you age is also a goal of financial independence. F.I.R.E. began in the United States and has now spread all over the world. It consists of two concepts — Financial Independence and Early Retirement (F.I.R.E.).

Over time, income is the key to achieving F.I.R.E. You can divide your income into two categories – passive income and active income.

• Income earned through work is considered active income, for example salaries earned for services provided, wages earned for remuneration.
• Your passive income is the money you earn without doing any work. Investments can be made in mutual funds, stocks, real estate, fixed deposits, etc. to earn this type of income.

What does F.I.R.E consider to be financial independence?

• The first situation occurs when passive income exceeds active income.
• Second, when you have an alternative source of income and are not completely dependent on your full-time job. By doing so, you’ll gain a second source of income and become financially independent.

In order to achieve Financial Independence and Early Retirement, F.I.R.E advocates the following parameters –

• Extreme Savings –

In order to retire early according to F.I.R.E. rules, you must save 50% to 70% of your income. By making regular contributions to your retirement savings at the earliest possible date, you will be able to build your corpus in the shortest time possible.

• Extreme Frugality –

When you are setting aside 3/4th of your income into savings, you will need to practice frugality. Buying new items should not only be considered carefully before buying, but also avoided randomly and frivolously.

• Passive Income –

Having passive income is a key component of retiring early. Place your active income into funds that will give you a substantial return while preserving your capital.

While trying to achieve F.I.R.E, remember the following points:

      1. Career:

When you plan your career early, with an executable strategy, you are more likely to succeed. With a working plan, there is a high chance of achieving financial stability.

     2 . Minimise debt or avoid debt traps

Debt should be minimized or avoided entirely, especially those with high interest rates like personal loans and credit cards. There are some debts we cannot avoid, like student loans or home loans. Pay off your debts at the earliest opportunity.

    3 . Be thrifty

Avoid taking out loans to pay off expenses, only spend on necessary items, and be frugal.

    4 .  Pay yourself first

When your salary arrives, pay yourself first, put the agreed amount in savings, and then pay off your regular bills, and then spend what’s left. Income – Savings = Expenditure is the golden rule.

   5 .  Insurance

Insuring oneself is one of the most essential aspects of financial planning. It can help you in case of emergency. Aside from life insurance, you should also get health, motor, and property insurance. Any expenses due to property damage, hospitalisation, etc. will be covered.

   6 .  Emergency Fund

The path of life is filled with unexpected twists, turns, and ups and downs. You can handle these situations without disrupting your financial planning and security by having an emergency fund.

    7 . Backup Plan

The importance of a backup plan can’t be overstated. There are too many uncertainties for not to have a Plan B. This plan may not be used, but it is handy to have one in case anything happens.

Financial independence and security are prerequisites for retiring early. Money should work for us, not the other way around. It is imperative to use the hard earned money to generate passive income as a stepping stone to financial independence and early retirement.

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