It turns out that you don’t have to be a mogul to achieve financial independence at an early age if you significantly reduce your expenses to invest much of your income. That is what many people who belong to a global movement known as FIRE have done.
Genaro Fernández has just turned 29 and laughs when asked if he plans to work until he is 62. “No, no, no,” he says emphatically, between laughs.
The question amuses Genaro because he is part of a movement that focuses on achieving financial independence and early retirement, known as FIRE for its acronym in English.
“The idea now, at a young age, is to advance as much as possible and create a foundation for my future. Something that tomorrow I don’t have to work as much or if I work, but work the things that I want and not depend so much on my income at that time, “explains Genaro.
To achieve that, Genaro saves a good portion of his income as a certified accountant. In the FIRE movement, people save at least half of their income and invest it in both stock market funds and property.
The idea is to invest enough money that you can retire and live off 4% of those investments each year without running out of money. For a family that has an annual budget of $40,000, the investments must total $1,000,000.
Yes, raising that money seems impossible, let’s talk about the vehicle that Genaro drives. Currently the average monthly loan payment for a new car is $725 and $516 for a used one. Instead of paying that, Genaro drives a 2007 truck. “Just like the time I bought it for $3,500 four years ago… it still runs the same or better than the first day,” he says.
In addition to significantly reducing his transportation costs, Genaro eliminated the cost of housing when, instead of buying a traditional house with his savings, he bought a multi-family or triplex house. “In the triplex we can live in one of the units and we rent the other two… it has reduced our cost of living. The cost of housing. Basically we don’t pay rent because with the income from the other two units we cover the cost of the mortgage”, he points out.
Other techniques they use in the FIRE movement to save enough money include:
- Reduce the cost of food, cooking more at home
- Buying second-hand clothes and items
- Supplementing your income with additional jobs
- And traveling with the points they receive when they put their necessary expenses on credit cards. Expenses that are paid off in full each month to avoid paying interest.
According to Genaro, the first thing one must do to start this process is to make a budget and get out of debt if you have. Applications like MINT can help you.
Genaro says that his motivation is his family. He thinks that if he continues like this, he will have the financial freedom to enjoy his wife and son while he is young, but with the financial wisdom of a retiree.
