How We Plan To Retire At 40 Years Old - a FI/RE Journey
Whenever I tell people that I plan to have the choice to leave my career and retire at 40 years old, they usually give me a weird look and question how that’s possible. It’s so engrained into people that the retirement age is 65 and anything earlier than that is a windfall.
I learned about a little movement called Financial Independence, Retire Early (FI/RE or FI) back in 2017 when I was in the process of paying off student loan debt and educating myself on personal finance. The principles of it just really clicked with me and my values. I could see myself, my husband and future family really carrying out this plan to live a life of purpose and intention.
In this post I’m going to:
Explain the principles of FI/RE
Talk about our plan to reach FI/RE by the time I’m 40
FI/RE Explained
According to Nerdwallet.com “FIRE is a movement that aims to help individuals achieve financial freedom and gain control over their lives, rather than depending on income from a 9-5 job to fund their lifestyle” This is often done through saving a large percentage of your income - usually over 50%. A lot of people resort to extreme frugality and creating multiple income streams.
The key to figuring out when you can reach FI is to know your yearly expenses to a T. This will allow you to calculate how much money you need invested (Yearly Expenses x 25 is the common formula) or how much passive income you need to generate every month to cover your expenses.
But not all FI/RE is created equally and you can make it work for your lifestyle!
LeanFIRE - this is the classic sense of FI/RE that favors minimalism and living frugally. The idea is to live as lean as possible so you can save and invest as much as possible. Retirement years for this type of FI/RE would be a modest lifestyle. However, you would be able to retire quicker because your expenses would be so low.
FatFIRE - this approach favors a less frugal approach with a longer timeline to hitting your FI number. People who follow this method may not cut back a ton in order to reach FI, or they could live a frugal lifestyle now and want to live large with a hefty investment account in retirement
BaristaFIRE - this approach has you investing enough in order to retire from your 9-5 gig. Instead of retiring and not having to work, BaristaFIRE will have you continuing to generate some sort of income in order to cover the gap between your investment income and monthly expenses. The point of this isn’t that you have to work, its that you get to work, doing something you enjoy hopefully. Maybe that means bartending a couple times a week or starting up a small business.
Here are some books about FI/RE if you care to learn more:
Our Plan for FI/RE by 40:
We will be taking a more BaristaFIRE approach in our journey to Financial Independence.
Right now its just myself and my husband, but plan to start a family soon.
We are currently doing our best to live below our means while also spending on the things that matter to us; experiences! Our current expenses average around $4,500/month right now. I track our expenses with THIS spreadsheet $1,500 of that is our Mortgage, which will be paid off in 9.5 years from now. My student loans make up $770 of our monthly expenses, and that will be paid off in 3 years from now.
So overall we will be getting rid of 2 of our largest expenses within the next 10 years, bringing our overall monthly expenses way down. But I’m not naïve, I know that with children brings more expenses, and the cost of living is set to increase over time. So I will conservatively guess that our monthly expenses will be about the same at $4,500/month.
We plan on covering most of our monthly expenses by investing in cash flowing (income producing) rental properties. The number I have in my head are 10 units cash flowing $400/each.
Right now we have 1 property that cash flows $200! Not as much as we want, but it’s still something. We are currently on the the hunt for our next property to keep the momentum going!
My husband and I are also not people that could just retire and sit on the couch all day or travel for years on end. We like to pursue work that we enjoy! For him, that means continuing his landscaping business, but only taking on the work he likes doing or as much as he wants to work every week. For me, I think I would really enjoy being a home inspector (I currently work in construction), monetizing my blog, and continuing with real estate investing or even taking on flipping some houses.
The point of Financial Independence is that it gives you options! We are excited for our future and gladly live below our means because we want a life where we can choose how we spend our time. Not working hours that other dictate.
I really hope this is something I can update you guys on every year. In the mean time, we will keep investing in our retirement accounts, while emphasizing saving to buy rental properties.
Let me know in the comments what you think of our plan and if FI/RE is something you’re interested in.
