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Explaining FI/RE: Financial Independence and Early Retirement

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Script ID #223
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So I recently achieved a financial independence and I didn't even know it because I had never actually run the numbers. So let's talk about what the fire movement is because A, a lot of people don't know about it and B, the people who do know about it might think that it has a bad reputation because it does. So fire stands for financial independence retire early. And this is something that I had heard about in the past, but I was never really interested in it because A, I never really considered retiring early because like I'd have to stay busy. But B, I associated the fire movement with like this extreme frugality know by kind of persona and that is just not only not something that I'm interested but not something that I am going to promote. However, after digging into it a little bit recently, what I've discovered is all it really is is a little bit of math. The ultimate goal with fire is to reach a point where you have enough money invested in this stock market where you can live off of your annual return. So you don't have to put more money into it and you don't have to continue to work to earn income. Most people, the goal is to achieve this by the time that they retire at age 65. But if you want to retire early, you know, then obviously you have to save aggressively or change your financial strategy in order to reach that big enough investment balance where you can live off of your returns. There are so many different types of fire and I'm sort of exploring what all of them look like. So let's talk about a couple of the big ones. So first is traditional fire and this is where you would take your annual expenses and divided by 4% and that 4% is basically like a safe amount that you can withdraw from your total investment balance and it will last you about 30 years. So for me because I want to be like really conservative and have money to spend, I set my annual expenses to be $100,000. I divided that by 4% and so my traditional fire number is 2.5 million. So based off of conservative calculations, that's a number that I would reach around like 2040-ish. However, there are other types of fire that are also really interesting. So cost fire means that you have enough money invested right now where even if you didn't add any money to that balance over the course of the next X amount of years that with compound interest it would grow to be a high enough value for you to draw down from it without having to add anything else. So based off of my traditional fire number, I want to have $2.5 million in retirement by age 65. And in order for me to have that number at age 65, I need to have $250,000 invested today in order for it to compound over the next 35 years to reach that number. And I've already crossed that threshold. So I've technically already hit cost fire meaning I don't have to put any more money into my retirement account and I am all set for retirement at 65, which is awesome. The last layer of this and this is what interests me the most, but the math on this is the most complicated and it's called barista fire. And barista fire is basically you've earned enough money and invested enough money to cover part of your expenses, but you still need to work part time in order to supplement that investment income. I think technically I've already reached this or I'm like very, very close to reaching it. However, I'm also actually like a transformative time in my life where I'm hoping in the next couple of years I'm going to get married. I might start a family, I might buy properties. So those numbers could all definitely change. However, the idea of part time working or at least taking some pressure off myself from a business standpoint to pursue some other projects is very, very interesting and appealing to me. I have gone so far down the Reddit rabbit hole on fire over the last couple of days. I am working on a template that is going to be fantastic. But if you have fire questions, let me know because I want to help you as I learn about this.