Nowadays the cost of living is increasingly higher, which makes it a real challenge to achieve the so-called financial independence. Although it is more complicated than in the past, if appropriate habits are followed, with good organization, discipline and knowledge in investments, it is possible to enjoy a better economic situation.
A method that has been on the rise in recent years is the so-called FIRE method, whose acronym is the abbreviation for “financial independence and early retirement,” being a strategy that seeks to enhance savings to eliminate superfluous expenses and be able to generate good money for retirement. retirement, in addition to having an economic cushion that allows covering different imponderables that may arise.
How to apply the FIRE method to achieve financial independence
Financial independence can be defined as the economic state in which passive income exceeds expenses, so that capital can be invested so as not to depend on a job and be able to access retirement before the age established for it.
To achieve it, the FIRE method is based on cutting back on consumerist and unnecessary purchases, so that you can save as much money as possible that you can enjoy in the future. The idea is to better manage your monthly salary to think about your long-term benefits, and to do this, it is recommended to save between 50% and 70% of your annual income.
Likewise, this system insists on the need to not waste time, and always value it when thinking about the future, since this can help improve the quality of life in the present or in the future. Therefore, before making a large investment, it is recommended to translate the hours invested in work to make it into money, such as the purchase of a new car, which can help to have a better perspective of the situation and perhaps make you reconsider your purchase when you really don’t need it.
The FIRE method is committed to investing, recommending using the stock market or investment funds and betting on it. In this regard, propose a long-term investment that allows you to take on more risks, since the type of investment has less associated with it, in addition to opting for investment in index funds or low-cost EFTs, since, if a portfolio is kept at In the long term, it is possible to obtain 7% annual profitability.
Finally, this method ensures that annual expenses must be multiplied by 25 to know the amount to be saved in the long term, so it would be necessary to accumulate and invest 25 times what was spent in a year. In this way, in order to achieve the long-awaited financial independence, it is essential to know the savings rate of each person, that is, the percentage of their income that they can dedicate to it and that will be of great help to live better in the future.
