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FIRE Guide 101 | Part 2 - Assessing Goals and Priorities

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FIRE Guide 101 | Part 2 - Assessing Goals and Priorities
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Understanding FIRE Types and How to Choose the Right One for You (Part 2-Goals)

Part 2: Assessing Goals and Priorities

Achieving FIRE isn’t just about saving and investing—it’s about clarity. You need a crystal-clear vision of what you want from life and the discipline to work toward it. Think of this section as a compass that helps you choose your FIRE path. It starts with understanding your goals, lifestyle, and financial situation.

Step 1: Define Your Ideal Life

Before you calculate numbers, you need to dream. FIRE isn’t about money; it’s about freedom. Take a moment to imagine your life after reaching FIRE.

  • Questions to Ask Yourself:
    1. What does a perfect day look like for me?
    2. Do I want a simple, quiet life or a dynamic, adventurous one?
    3. How much does "happiness" cost for me and my family?

Example 1: A Minimalist Couple (Lean FIRE)
Sam and Jamie imagine a life living in a tiny house in the countryside, spending their days gardening, reading, and hiking. They prioritize freedom over luxury.

Example 2: A Family Dreaming of Travel (Fat FIRE)
The Rodriguez family envisions traveling the world, staying in beautiful accommodations, and sending their kids to private school. Their ideal life is luxurious and flexible.

Step 2: Calculate Your FIRE Number

Once you know your vision, it’s time to attach a number to it. Your FIRE number is the amount you need to save to sustain your lifestyle.

Formula:
Annual Expenses × 25 = FIRE Number

  • Why 25? This is based on the 4% Rule, which states you can safely withdraw 4% of your investment portfolio each year without running out of money.

Examples:

  1. If your annual expenses are $40,000, your FIRE number is $1,000,000.
  2. If your annual expenses are $100,000, your FIRE number is $2,500,000.

Pro Tip: Use an online FIRE calculator to include variables like investment growth and inflation.

Step 3: Assess Your Current Financial Situation

Now that you have your FIRE number, let’s take stock of where you are today.

  • Questions to Answer:
    1. What is my current net worth (assets minus debts)?
    2. How much am I saving each month or year?
    3. What is my current savings rate (percentage of income saved)?
    4. Do I have high-interest debt that needs to be eliminated?

Activity:
Create a simple financial snapshot:

  • Income: $75,000/year
  • Expenses: $50,000/year
  • Savings: $25,000/year
  • Net Worth: $150,000

Knowing where you stand is like checking the map before starting your journey.

Step 4: Align Your FIRE Type with Your Lifestyle

With your goals, FIRE number, and current finances in mind, it’s time to choose the FIRE type that fits your life.

Questions to Guide Your Decision:

  1. Do I want to retire as early as possible, even if it means living frugally? (Lean FIRE)
  2. Am I okay with working longer to maintain or upgrade my current lifestyle? (Fat FIRE)
  3. Do I prefer part-time work or flexibility along the way? (Barista FIRE or FIRO)
  4. Am I willing to work hard early to let my investments grow later? (Coast FIRE or Flamingo FIRE)
  5. Do I want to balance saving with enjoying life now? (Slow FIRE or Chubby FIRE)

Examples:

  • If you value simplicity and independence, Lean FIRE might fit your vision.
  • If you dream of a comfortable, indulgent life, Fat FIRE may be your path.

Step 5: Create a FIRE Blueprint

Your blueprint is your personal plan for reaching financial independence. It combines your goals, numbers, and chosen FIRE type into actionable steps.

FIRE Blueprint Example: Lean FIRE

  • Goal: Retire in 10 years and live on $30,000/year.
  • FIRE Number: $750,000.
  • Steps:
    1. Reduce expenses to save 60% of income.
    2. Invest savings in low-cost index funds with a 7% return.
    3. Reach $750,000 in 10 years.

FIRE Blueprint Example: Fat FIRE

  • Goal: Retire in 20 years and spend $100,000/year.
  • FIRE Number: $2.5 million.
  • Steps:
    1. Save 40% of income by increasing earnings and reducing unnecessary expenses.
    2. Diversify investments across stocks, real estate, and bonds.
    3. Retire in 20 years with a high-quality lifestyle.

Step 6: Adjust for Life’s Challenges

Life isn’t static, and your FIRE plan shouldn’t be either. Revisit your plan regularly to make adjustments.

  • Questions to Reevaluate:
    1. Have my expenses increased or decreased?
    2. Am I saving enough to hit my FIRE number?
    3. Do I need to change my investment strategy?

Examples:

  • If you start a family, you might need to adjust your expenses and savings rate.
  • If you receive a promotion or inheritance, consider investing more aggressively.

Reflection: Your Personal FIRE Compass

Now that you’ve defined your goals, calculated your FIRE number, and assessed your finances, you have a clear path forward. Remember, the journey to FIRE is as important as the destination. It’s not just about retiring—it’s about creating a life aligned with your values.