Creating a F.I.R.E. plan
Success with the FIRE method requires that you be proactive, not reactive.
This means you have to have a measurable plan in place you can follow, rather than addressing different aspects of the FIRE method (budgeting, investing, debt reduction) as you go along.
Before you start cutting expenses, first create your overall strategic plan, followed by tactical goals to get there.
Your Main Strategic Goal
The difference between strategy and tactics is that a strategy is what you want to achieve, while tactics focus on how you’re going to do it.
Therefore, you main strategic goal in FIRE is your end goal. And it needs to be specific.
“Retiring early” isn’t a specific goal.
“We want to retire at age 35 and live on an income that equals $50,000 today” is a specific goal.
Another example of a strategic goal would be, “I want to save $250,000 by age 30 so I can start a vegan restaurant.”
The reason these are strategic goals is that they are specific enough that you can create objective plans to reach them, and benchmarks to let you know if you are on track and/or need to adjust your plan.
So, everything starts with knowing “Your Number.”
Types of Tactical Goals
Your tactical goals are those you must pursue to reach your end goal. For example:
“Put $18,000 into my 401(k) each year, earning an average of 7% each year for 12 years.”
In addition to your $18,000 yearly contribution, you’ll factor in your employer’s $9,000 annual match. You’ll then project your annual interest, based on, say, a 7% annual return on your investments.
You can then use an online calculator to find out how much you’ll have after 12 years.
Of course, $27,000 a year won’t be enough to enough to reach $750,000 in 12 years – this $750,000 goal assumes you have enough money saved already that $27,000 will be enough to finish off your goal.
You might find that you really need to save $35,000 per year, which is more than you can afford. You’ll then need to either lower your goal, increase the number of years you need to reach $750,000 or increase your income (by cutting your expenses or earning more money).
Once you know your specific strategic goal, you can set other tactical goals like:
- Meet with a Certified Financial Planner.
- Calculate my current assets and liabilities.
- Increase my income by $8,000 a year.
- Create an annual personal budget in Excel or Quicken.
- Increase my 401(k) contribution by $11,000 each year.
- Reduce my expenses by $6,000 each year.
- Eliminate my credit card debt within two years.
- Improve my credit (get lower APRs, balance transfers).
- Write a restaurant business plan.
Even if you’re not ready to commit to FIRE today, planning costs you nothing. It might be a fun experiment to play around with one Sunday evening.
And just because you create a detailed plan doesn’t mean you have to start it.
Remember, if you wait for something to happen, you have a daydream. A dream is something you make happen.
What is a Comprehensive Financial Plan?