What if you no longer had to work to make a living? Part One.

What if you had enough capital and income being generated in the background to be able to leave your job? This is called FIRE: Financially Independent Retire Early.

These are people who by following certain life principles are able to invest up to 75% of their salaries and to become financially independent in their 30’s. FIRE is a way of life. I believe in balance and moderation in everything in life (even if I don’t get it right all the time!) and whilst I wouldn’t champion the most extreme FIRE principles I think there is much we can learn from these remarkable people.

1. Have a personal balance sheet and targets

Every asset and liability we have forms part of our personal balance sheet. Knowing what we want our personal balance sheet to look like in future is a massive guide to what our actions should be right now.

2. Get debt free ASAP and avoid debt

Our personal balance sheet should be as debt free as possible. Pay cash for everything we can. If we cannot afford it, we need to save for it until we can. Credit providers are not our friends and credit is not free money. The only acceptable forms of debt are for housing and furthering our education. Credit cards, personal loans, overdrafts, store accounts and all other forms of unsecured debt are toxic, and we need to avoid them.

3. Make your money work hard for you

Every lump sum/windfall and salary increase we receive can be used to improve our lives. Each increase or lump sum is an opportunity that we must grab with both hands. We can use them to squash our debts or for the purposes of investment.

What kind of assets should we be looking to invest in? Those that produce regular income and grow in value over time: Shares/ Unit Trusts that will produce Dividends or Investment Properties that will produce rental Income.

4. Know the difference between wants and needs

Needs are what you cannot physically live without. Wants are nice to haves.

If we base our spending on what we need rather than what we want it will allow us to have more room in our budgets to work towards our biggest and most important goals.

5. Know where you are spending your money and how much you are spending

What is the most important word in personal finance? B U D G E T. We can base this on what we currently spend by tracking our spending for the last three months and then averaging it out to give us a monthly figure for each item. By classifying each expense as a need or a want we can see where we need to improve and set targets for that improvement. It may take a few months to downsize our spending, but it will be well worth it.