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JanuaryHow Much Money Does It Take To Pursue Financial Independence?
Financial independence isn’t about hitting a magic number. It’s about developing sustainable money management skills. Being able to budget smartly, avoid unnecessary debt, and consistently save for the future can establish healthy long-term habits that help keep you on track with your goals. However, the hard work doesn’t stop once you feel you have reached financial independence. You need the right tools and mindset to help sustain it.
Wherever you are on your journey towards financial independence, we’re here to help. Our knowledgeable financial professionals can help you establish smart money habits and confidently save for the future. This guide will help you understand financial independence and ways to help get there.
What is the FIRE Movement?
The FIRE “Financial Independence, Retire Early” movement combines lifestyle and financial strategies to save and invest most of your income. The goal is to reach financial independence and retire early while having enough to cover living expenses without working. For some people, this might mean at least 30 years of retirement to fund. Focusing on living below your means, making informed investments, and aggressively saving from a young age can keep you on track during the FIRE movement.
Importantly, these numbers are highly personalized. They may even feel too lofty based on your unique situation. For example, you can aim to save 50-70% of your income or more to retire early. If you’re supporting a family, for example, your savings may be lower than someone with fewer financial obligations who can get by on less. Your financial professional can help you find a number that works best for you.
How does FIRE work?
It’s easy to imagine what life might look like when you have enough money to quit your job and live off of your savings. But how do you actually get there? The short answer is by cutting unnecessary expenses, living below your means, and aggressively investing to grow your wealth.
Here’s a closer look at some of the specific steps towards financial independence:
Rule of 25
What’s your FIRE number? Under the rule of 25, aim to save 25 times your annual expenses to reach a comfortable retirement number. It should be something you can realistically live off of without working. However, your FIRE number is just a suggestion. If it seems too lofty, explore ways to increase your income and invest the extra money.
The 4% Rule
Like many people, you’re probably worried about running out of money in retirement. One way to help protect your hard-earned savings is to withdraw up to 4% of your portfolio’s value in the first year of retirement. After that, you can adjust the withdrawal rate based on inflation to stay on track with your goals.
Savings Rate
One of the best routes towards financial independence is to save more than you spend. As we’ve discussed, that could be up to 50-70% of your income. However, this number is different for everyone. Yours might be higher or lower, depending on your unique situation. Reducing living expenses, cutting unnecessary spending, and living below your means can help you get (and stay) there.
The Magic of Compound Growth
Instead of saving money in a bank, most FIRE followers consider investing in assets that seek to grow wealth through compounding returns. The sooner you start, the more money you can potentially save. Here’s an example:
You start saving $100 a month at age 20. You earn a 4% average annually, compounded monthly across 40 years. By 65 (after 45 years of saving), you earn $151,550. Your principal investment was $54,100.
But what if you wait until you’re 50? Say you invest $5,000 initially, then $500 monthly for 15 years, averaging a monthly compounded 4% return. By age 65 (after 15 years of saving), you’ve only earned $132,147. Your principal investment was $95,000.
Despite investing roughly twice your principal interest when starting later, you’ll still have less than if you started saving at an earlier age.
This is a hypothetical example that demonstrates a mathematical principle. It does not illustrate any investment products and does not show the past or future performance of any specific investment.
Tax-Management Strategies
A key part of planning for early retirement is understanding how much money you need to fill the gap between the time you retire and when you can withdraw from your retirement accounts at age 59-1/2 without penalty. Then, consider investing that money in a traditional investment account, which can provide enough interim cash flow without early withdrawal penalties. However, you’ll still owe taxes on any withdrawals or income earned.
In many tax-deferred accounts, contributions are made with pre-tax dollars. Whether contributions are made with pre-tax or after-tax dollars, such accounts allow your investments to grow and compound tax-free over the years, which can allow your accounts to grow notably faster (all other things being equal). You’ll still owe income taxes when you withdraw the money in retirement, but you may be in a lower tax bracket.
If you want to learn more about the FIRE movement, including calculating your own number, our financial professionals are here to help you through the process.
Steps Towards Financial Independence: 12 Habits to Help Get You There
For most people, feeling financially independent doesn’t happen overnight. Adopting money-savvy habits, such as mastering budgeting and informed investing, may accelerate your journey. A fiduciary financial advisor can also act as an impartial guide to help separate money from emotions and maintain your wealth. Let’s explore some of the essential habits to pursue financial independence and the freedom to live life on your terms.
1. Set Life Goals
Do you want to fund a college education or travel the world? Get specific about the amounts and deadlines for each goal. This can make it easier to stay on track.
Depending on your specific goals, you can consider the following:
- What your lifestyle requires.
- How much money you should save to make that possible.
- What the ideal age is to reach that amount.
2. Make a Monthly Budget
Prioritize the bills you need to pay and essentials for survival. Consider food, health, transportation, and essential living expenses. This includes your rent or mortgage, car payments, groceries, insurance, debt payments, and utilities. If you’re over budget, consider reducing or eliminating unnecessary expenses or even downsizing.
3. Pay Off Credit Cards in Full
Having credit card debt and high-interest loans can make it hard to build wealth. To avoid interest, try to pay off your full balance each month. Not sure where to start? Prioritize high-interest debt such as credit cards and personal loans. Making on-time payments can also boost your credit score.
4. Create Automatic Savings
Automating your savings can reduce the temptation to splurge. One option is to set up instant withdrawals to pull the money from your account as soon as you get paid. Enrolling in your employer’s retirement plan and utilizing matching contribution benefits can help grow your savings.
5. Consider Investing
Despite the potential risks, the stock market can effectively grow your money through compounding interest. Think of it this way: Money makes money. Reinvesting your earnings, whether they’re capital gains or interest, can generate even more income over time.
6. Watch Your Credit Score
Your credit score can greatly impact your purchasing power. Most scores range between 300 and 850. Generally, higher scores can provide better options, including lower interest rates. Consider how these numbers can affect major purchases such as a new home or car.
7. Negotiate for Goods and Services
Good negotiating skills can help you get better deals and stretch your money further. There’s no harm in asking for a reduced price, especially if you’re a repeat customer or are buying in bulk. Even waiting to buy something on sale can save significant money.
8. Get Educated
Understanding the latest tax laws can help maximize your savings and reduce your tax burden. Whether it’s using tax deductions or making the most of tax-advantaged accounts such as an IRA or 401(k), you can plan to save, invest, and withdraw funds in a more tax-effective way.
9. Maintain Your Property
Your home, car, and maintenance equipment need regular care to function properly. Staying on top of routine care can help prevent unexpected repair bills and extend the life of your property.
10. Live Below Your Means
Once you feel you have reached financial independence, it can be tempting to splurge. However, adopting a frugal mindset can help you feel more comfortable living a good life with less. Separating your needs from wants can keep you on track with your financial independence goals.
11. Take Care of Your Health
Just like your property, your body also needs routine maintenance. Having regular check-ups and dental exams can help catch problems early while teaching you how to prevent potential problems. Poor health can consume your sick days, force you to work longer, and increase your healthcare costs, which can negatively impact your retirement savings.
12. Work With a Financial Advisor
Pursuing financial independence can be an exciting yet intimidating prospect. Working with an experienced fiduciary advisor can help you feel confident that your goals are always a priority. If you’ve amassed a certain amount of wealth and want help growing it, contact our team of trusted professionals today.
Start Planning Your Journey Towards Financial Independence Today
In the end, financial independence isn’t about a specific number. It’s about growing your wealth and setting realistic goals to help maximize your assets while minimizing unnecessary expenses. Want to retire early with enough money to help you live fully in your golden years? This practice takes diligence and careful planning. It can also be complex, but a knowledgeable financial professional can help you stay in control despite the ups and downs.
Navigating the journey to financial independence can be challenging, but you don’t have to do it alone. Contact us today to learn how our financial advisors can help you pursue your goals.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation or advice of any kind. The information contained herein may contain information that is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor.
Per Stirling does not provide tax or legal advice. Before making any decision or taking any action, you should consult with a qualified professional.
This content has been reviewed by FINRA. Prepared by Broadridge Advisor Solutions. © 2025 Broadridge Financial Services, Inc.
Advisory services offered through Per Stirling Capital Management, LLC. Securities offered through B. B. Graham & Co., Inc., member FINRA/SIPC. Per Stirling Capital Management, LLC, DBA Per Stirling Private Wealth and B. B. Graham & Co., Inc., are separate and otherwise unrelated companies.
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Fernando, Jason. “The Power of Compound Interest: Calculations and Examples”. Investopedia. “https://www.investopedia.com/terms/c/compoundinterest.asp#:~:
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