FIRE. Financial Independence Retire Early. Having no more worries about money and skipping the time to retirement. It sounds exciting. Maybe even impossible to some. Because the whole point of escaping the rat race is actually about two very precious things: time and freedom.
The big question is therefore how to get more of both. More time and more freedom. And like it or not, both are closely tied to money.
Money can give us the freedom to pursue ideas, plans, to support others or ourselves. Money is not the definition of freedom, but it is a tool that can vastly increase our freedom to make decisions. Over the course of this blog I hope to help you understand how money is intertwined with those precious resources.
Breaking it down
The term “financial independence” is a vague wording, with a different meaning for every person out there.
If you live in Chile or in Thailand it will be a different story compared with a person living in the US or in Singapore. If you grew up in a one-family house it will be a different story compared to someone who grew up sharing one room with the entire family. Expectations and lifestyles matter. So how can we break it down?
Firstly, by removing the pressure on the most essential things that every human being needs to cover:
I would say that if you can ensure that those three things are covered, you are basically financially independent. Everything else that comes on top of that is already something a large amount of the global population would consider to be “luxury”. That is my very raw and general point of view, it surely will look different for you.
My way: Setting up passive income with dividends
Most of us go to work to secure our income. We dedicate our time to make a living. We trade time for money. This goes against the very core of the idea of FIRE, because time is one of the things that we want to secure for ourselves. Going FIRE means to stop trading time for money.
There are several ways how one can achieve that, with one of those ways being to becoming an investor. Becoming an investor requires a lot of upfront work, dedication and discipline, but it leads straight to the aim of FIRE via the magic term of “passive income”.
By investing in companies that are eager to share their profits with their investors via dividends, one can create a stream of income which does not require to do the one thing that any other regular job requires: trading time for money.
The plan to make this happen is as follows:
- A successful career to create as much cash-flow as possible available for investing
- Buying dividend-paying stocks to start creating passive income from dividends
- Re-invest every penny from the dividends back into more stocks
- Enjoy the benefit of compound-interest on stocks and dividends
- Work, save, invest, repeat – until reaching the target
There are of course a few more steps to consider in between to either make it easier or faster or better but this is the basic strategy and this is what this blog is all about.
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