What's F.I.R.E. status and how do you achieve it?
recently had a conversation with a friend about hard work. We both agree with Vince Lombardi’s infamous saying that the only place success comes before work is in the dictionary. Our perspectives on how we should work and why however, were starkly different! He believed that working 40 hours a week, 50 weeks a year for 30+ years on a job that he didn’t love was the best way for him to retire with a comfortable pension. I asked him, don’t you want to achieve financial independence sooner? What do you mean by financial independence? he responded.
The question, What do you mean by financial independence?, did not come as a surprise. In fact, it’s a question that I hear quite often. Financial independence is when you have enough passive income that allows you maintain or exceed your current lifestyle, because you no longer have to exchange time for money. It’s going to take my friend 30+ years to achieve a goal that could be done in 7-10 years had he received the proper financial education on how to build wealth. Generating enough passive income to exceed your monthly expenses so that you can create the option to work a job or not is known as F.I.R.E. status. F.I.R.E. means to achieve Financial Independence and Retire Early! F.I.R.E. my friends is FREEDOM! It's freedom to make decisions that no longer depend on time or money!
In the United States approximately 89% of Americans have a high school diploma or GED (census.gov), yet nearly 80% of Americans live paycheck to paycheck (forbes.com). Moreover personal finance courses are only required in 22 of the 50 states. Although these courses are a step in the right direction, they mostly focus on teaching students how to manage money, but not for the purpose of building wealth and achieving financial independence. My friend is a great money manager. He has good credit, pays his bills on time and saves a percentage of his income each month. If he lost his job though, he’d lose his income. A loss of income would jeopardize every aspect of his lifestyle.
Imagine for a moment if my friend chose the F.I.R.E. path while he was working his job. Suppose he decided the first day that he started working that he would take his savings and invest in assets such as stocks, real estate and insurance that has the potential to pay him passive income within 7-10 years. He could still earn his salary, but in 7-10 years also be earning as much as or more than what he makes on his current job through his investments. By investing he has now created options for himself that does not depend on time or money because he has created a path of financial independence and true wealth that can last for generations. World renowned financial education author and speaker Robert Kiyosaki says it best: "It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for."
My friend’s scenario is just one example. If he knew better then he would have made a better choice. Increasing your financial intelligence is the first step towards financial independence. No matter where you are starting from, F.I.R.E status is attainable and available to YOU! Since we all have to work hard we should at least be smart about how we do it!
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