7 Mistakes Young People Make When Joining the FIRE Movement
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Many generations, including Gen Z and Millennials, are working to join the FIRE movement. FIRE – Financial Independence Retire Early – is based on the principle of saving as much money as you can now to retire early and achieve financial independence.
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While Gen Z in particular has some financial leverage over previous generations, success with FIRE means making careful money moves. If you are a young person considering joining the FIRE movement, be careful not to make these mistakes.
Become obsessed with reaching a number, not the endpoint
Maggie Tucker is the co-host of the personal finance podcast titled friends on FIRE. Tucker, who recently retired early at 41, said a common mistake young people make when joining the FIRE movement is obsessing over reaching a certain number instead of enjoying the journey along the way.
“When young people first experience FIRE, they can get really excited and motivated, and that initial excitement can lead to complete obsession with the goal and the endpoint,” Tucker said. “We think it’s just as important to enjoy the journey along the way. There’s a way to balance staying focused on your goals and enjoying the trip and the money you’re working hard to earn. It’s all about balance and compromise.
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Underestimating how much they really need to retire
If you think you can live on $25,000 a year in retirement, Tucker recommends considering doubling that number with the kids and recalculating to figure out what you really need.
Young people often underestimate the future cost of medical insurance, having a family, home emergencies and other unforeseen expenses.
Samantha Hawrylack, co-founder of How to shoot, also said that not saving enough money is a major problem faced by young people who want to reach FIRE. Hawrylack recommends starting small. Cut costs and set aside a certain percentage of your income each month. This will increase your savings rate over time and allow you to invest for the long term.
“If you can’t save a lot at first, that’s okay. Just be sure to automatically transfer money to your savings account each month so you can gradually increase your savings rate,” Hawrylack said.
Enter without a plan
Young people who want to reach FIRE should not start unless they have a plan. And that plan must be specific to their FIRE needs.
“FIRE is not a one-size-fits-all program,” Hawrylack said. “You have Lean FIRE, Fat FIRE, Barista FIRE, in addition to other variations. Without researching which strategy fits your goals and establishing an appropriate plan to achieve those goals, you might end up living more frugally than necessary or failing to invest as needed to meet your early retirement date or be unable to live up to your ideal retirement standard.
Research the type of FIRE you want to perform. Next, Hawrylack recommends calculating your FIRE number and establishing the type of investments and savings you need to make to reach your goals. When you start planning, track your progress to stay on track.
Not taking advantage of tax-advantaged accounts
If you haven’t opened an IRA or started contributing to your company’s 401(k) yet, now is the time to do so. Tax-advantaged accounts can help you save on taxes and grow your wealth faster.
Max these accounts every year. If you can’t contribute the maximum amount, make sure you contribute at least enough to get the employer match.
Not being on the same page
Those who want to start their FIRE journey with a spouse or partner to have to be on the same page. This includes everything from creating a plan, setting goals, and maintaining discipline so you can follow those plans.
“If one of you is comfortable living as little as possible and the other likes to indulge once in a while, it is imperative to communicate and compromise on the type of FIRE trip you are on. get on board,” Hawrylack said. “You’re unlikely to be able to stay the course if you can’t find common ground to agree on.”
Thinking that living with less for a long time is synonymous with happiness
In your 20s or early 30s, eating ramen for dinner or sharing an apartment with a roommate might not bother you. However, Tucker said that as you get older, you might enjoy living in your own home, taking fancier vacations and enjoying nicer meals.
Don’t make the mistake of thinking that your future should be based on maintaining a financially stripped lifestyle. “You can mitigate this by increasing your estimate of your annual cost of living that you use to calculate your FIRE goal,” Tucker said.
Thinking that retirement will solve all the problems in your life
Tucker, who is only five months away from retirement, can personally attest that it doesn’t bring anyone instant happiness. Sorry to burst bubbles, but retirement doesn’t magically solve other problems you have in your life either.
The truth is that happiness comes from within and from your mindset, which you all have the power to change or rearrange right now.
“You should learn what makes you happy and what doesn’t and design the life you want before you retire,” Tucker recommends. “You can increase it and evolve it further once you retire, but you need a pre-retirement happiness base to enjoy your retirement.”
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