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Is Your Financial Plan on 'Fire'?

financial planning

There is an online movement that has caught a lot of steam and enthusiasm recently. It’s called the “FIRE” movement, which stands for Financial Independence, Retire Early. Much of the  momentum with this movement comes from Millennials, but it’s also catching on with Generation Y.

The general idea behind FIRE is to live on a small percentage of income, or increase your savings rate, so that retiring up to 20-25 years early can become a real possibility. At McKinley Carter, we call this concept Financial Autonomy — working because of  enjoyment, not because of necessity.

The idea of early retirement is certainly music to many people’s ears. And although many FIRE examples are extreme with retirement beginning at age 30, 35, or 40, there are steps that can be taken through a proper financial plan that would ensure the achievement of Financial Autonomy, or greatly increase the odds of a successful retirement.

Step #1: Live Within Your Means
The three basic principles of a successful financial plan are to save more, spend less, and work longer. The FIRE movement, on the other hand, has just two basic principles: spend less and save more.  While living within your means seems like an obvious thing to do, many people ruin their chances of Financial Autonomy by spending more than they earn. Avoiding credit card debt, saving 10 percent of your income, utilizing retirement savings tools like 401(k)s and Traditional and Roth IRAs, as well as efficiently paying down debt, are all ways to live within your means and to help achieve Financial Autonomy.

Step #2: Leave Emotion at the Door
Fear and greed are two emotions that constantly play against investors’ long-term goals. Human nature causes investors to buy when the market is going up (greed) because they want in on the action, and to sell when the market is going down (fear) because they fear losing money. Educating yourself, or working with a financial professional, to mitigate emotional bias in your investment strategy can help you avoid mistakes on the quest to Financial Autonomy.

Preparing and following a financial plan is a great way to help you leave your emotions at the door. If your financial plan allows you to save an adequate percentage of your income, have enough insurance coverage for your family, have a clear investment strategy for your specific financial situation, mitigate your taxes, and gather the correct legal documents (i.e. will, living will, power of attorney, medical power of attorney, etc.), then you are in a much better place to achieving your Financial Autonomy goals.

 Step #3: Invest in Your ‘Good Life’
At McKinley Carter, we believe in “Investing in a Good Life,” which means helping our clients to achieve their individual financial goals. No two “Good Life” goals are alike and, thus, there is no “one size fits all” financial plan.

For some, the FIRE movement (living on a small percent of salary and saving the majority) may be the “Good Life.” For others, it may be to spend a little extra today and not mind having to work a few extra years or make other trade-offs, because they enjoy their occupation.

But we believe the “Good Life” shouldn’t be a “now or in the future” decision. It’s about living a “Good Life” now and in the future — and that’s what we help families plan for each and every day.

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