That Girl On Fire
  • Instagram
  • Facebook
  • Pinterest
  • Linkedin
  • Mail
  • Home
  • About
  • Blog
  • Contact
  • Search
  • Menu
Financial Independence, Investing

The Six Steps To Ensuring Your Financial Independence (And Early Retirement!)

If you’re like any of the Aussies with FIRE on the mind (in short: swapping extravagant lifestyles for frugal, intentional living and investing) – the biggest question for  you is… how? The answer, simply, is following the six steps to ensuring your financial independence and early retirement. 

Whatever demographic you fall into, DINK, SINKS, a big brood of kiddos, single parents, young, old and all those in between, these steps don’t discriminate.

Whatever your final income number (let’s say, a passive annual income of $50,000 generated from an asset base of $1,250,000 comprising of rent, dividends, super, interest… or a mix of all, assuming you’re withdrawing between 3-4% of its value), this methodology has been tried-and-tested across the globe. And while that big scary number feels so far away, remember the beauty of compounding.

The sooner you start, the sooner you hand over the baton for your investments to carry the load later on.

I really love this concept and feel it’s so under-rated. We feel we can’t start because we don’t have the tenacity to go the whole hog. But we forget that we don’t have to.

Here’s the logic in short: get rid of your debts (as a big, big priority), keep the costs of living as low as possible for your situation and then use that extra cashflow to invest in safe, low-risk investment vehicles (a fancy term for things that carry and return your cash in good markets).

The key is to simplify. Everything. Not just your money, but your life.

Basically, figure out what brings you joy and security? Spend on that.

What interests you and curates the world you want to live in? Invest in that.

This ensures you’re putting your money to good use, both on a day-to-day spending level and a long-term investing level. Thousands of Australians have done this and are on their way to reaching their financial independence goal. Don’t discount how achievable it is for you, too. Here’s how.

Step one: It’s and et’s… they commit, budget and execute.

They not only make the decision to hit financial independence, but they create their budget (a plan) and execute it.

They look at the different types of FIRE, like leanFIRE (with a lower passive income, think <$50,000 per annum, which maybe they’re supplementing with a part-time job, working six months out of the year, or a profitable side hustle that cashflows part of their lifestyle), fatFIRE ($50,000>, up to a number that only you can decide, because hey, it’s your retirement, and you can either work some of it, or none of it, or spend big or small), and everything in between. 

They map out their process, learn how to invest (which is part confidence, part expertise and part trial-and-error, not in that order) and ensure they have cash to do this with.

They look at their personal risk profile around investing, like whether they’re okay with the hands-on nature of property, the short-term volatility of shares, the delayed gratification of superannuation or the slow burn of trusts and term deposits, and they understand their income and outgoing numbers intricately.

While it’s great to start now (and look, why not?), they also appreciate the power of research and learning, so they’re not anxious to get amongst it immediately for fear of missing out. The reality is, this is a perceived threat. Any time is right to invest, as long as it’s the right time for you.

Step two: Bye bye debt, you sucker.

With a plan, comes action.

Get onto that toxic debt, friends. Seriously, it’s bad. So bad and unnecessary. Be it credit card debt, car loans, personal debt (like owing friends or family money, even if there’s no interest charged), AfterPay, ZipPay, the whole shebang. The interest charged (or the mental burden of owing) is like a weight you can, and should, throw off the side of the boat of your life as soon as possible.

It’ll hinder you from accessing the good debt of building wealth, like business loans, home loans or even capital for debt recycling. Truth bomb: there’s nothing good about owing on a personal level.

The argument of strengthening your credit score is negligible… I mean, does it really? One or two unexpected defaults due to a change of circumstances, or a late pay-check and you’re in the red again, marked as an unpredictable candidate, undoing all of that hard work to establish a strong score.

Step three: They get intimate with a high savings rate (and look at ways of boosting their income).

Get ready for some initial sticker shock.

FIRE proponents save at least 30% of their after-tax income on a regular basis. And if they can’t find the money to do this from their current income, or by minimising expenses, they find ways to boost their income to save at least 30% of that after-tax.

It’s a fundamental, potentially inconvenient truth to accept: you’ve got to normalise saving.

You have to locate, and keep, disposable cash. The more that can be saved to be put to work (so you don’t have to), the better. At a minimum, 30% looks like $25,000 (before tax) from an average before tax wage of $84,968. And the more you can squirrel away, the faster you’ll bring forward that magic early retirement number. 

Step four: They lower their risk ratio with a strong emergency fund stashed up.

The unexpected is both expensive and unavoidable.

At least one years’ worth of annual expenses are a safety buffer that keeps your head above water when everything goes to pot.  Putting together a “life happens” nest egg protects you from the terrifying reality of poverty after job loss, major repairs, becoming sick, crystallizing a loss, and above all, the dangerous debt trap.

Being tax, or growth smart with where this is kept – like an offset or redraw facility, or high-interest savings account or term deposit, could be a very clever move as it gives it not only a home, but a job to do.

Step five: They focus on building multiple income streams.

They shift from chasing income in the traditional way, like employment or business ownership. If it requires an exchange of their time for the money, it’s too active of an income strategy. Instead, they seek ways to bring in money while they sleep: passively.

Some passive income streams include share dividends, rental yield, interest from a bond or term deposit or creating something that pays ongoing royalties or ad revenue.

Diversification may be a good strategy to ensure that your income isn’t totally affected when one stream goes through hardship (many investments generally don’t perform in a vacuum; when some do well, others won’t, and vice versa), but this isn’t completely necessary. Some income streams within the same asset class can still be wildly different. Diversification can still be achieved for the same investment type.

Step six: See you never negative net worth, hello positive net worth.

Finally, the magic happens.

Any assets (what is owned) now exceeds any liabilities (what is owed). 

And compounding can carry the rest of the load. Hooray!

August 4, 2020/2 Comments/by Michelle
Share this entry
  • Share on Facebook
  • Share on Twitter
  • Share on Pinterest
  • Share on Linkedin
  • Share on Tumblr
  • Share on Reddit
  • Share by Mail
https://thatgirlonfire.com/wp-content/uploads/2020/08/Bulb.jpeg 1500 1049 Michelle https://thatgirlonfire.com/wp-content/uploads/2019/02/That-Girl-On-Fire-Web-Logo-Header.png Michelle2020-08-04 19:44:542020-08-04 19:45:15The Six Steps To Ensuring Your Financial Independence (And Early Retirement!)
2 replies
  1. Allison Carter
    Allison Carter says:
    August 2, 2021 at 8:16 pm

    I just read your news article and found my way to your blog. Congrats on your path to financial freedom! Just curious, how in the world do you save 80% of your income? Does that include your mortgage payments? For most people, accommodation takes the lion share of their pay.

    Reply
    • Michelle
      Michelle says:
      September 21, 2021 at 5:28 pm

      Hi Allison, thank you! This is a complicated one. Honestly, I think if accommodation is taking up the lions share of your pay then you may be either living in the wrong house or the wrong area. When most of your income is going to the roof over your head and will leave virtually nothing for saving and investing. Our high savings rate does factor in our primary mortgage, as well as other mortgages we have (although those are supplemented by rental income from our tenants).

      Reply

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Recent Posts

  • What We Absolutely, No Way In Hell, Do Not Spend On
  • The Top 5 Financial Lessons For Kids To Learn Early
  • That’s Bloody Super: Ways To Maximise Superannuation
  • The Most Common Ways To Achieve Financial Independence
  • Ethical Investing for Beginners

Search posts

A bit of history

  • January 2023
  • October 2022
  • August 2022
  • September 2021
  • July 2021
  • August 2020
  • January 2020
  • October 2019
  • August 2019
  • July 2019
  • June 2019
  • March 2019
  • February 2019

Blog categories

  • Financial Independence
  • Intentional Spending
  • Investing
  • Minimalism
  • Money Tips
  • Superannuation
  • Zero Waste

Mo money, less problems. Follow our journey to FIRE on Instagram.

Negroni. Spagliato… with Prosecco in it. Stunnin Negroni. Spagliato… with Prosecco in it. Stunning.
Instagram post 18005170279532297 Instagram post 18005170279532297
Instagram post 17943511508208751 Instagram post 17943511508208751
Instagram post 17896937675650953 Instagram post 17896937675650953
Thanks for having us last night @moneymagaus A cra Thanks for having us last night @moneymagaus A cracking soirée as per usual 🥂🎊 @theestablishmentsydney @amywhitby92
On 40th birthdays, you treat your loved ones with On 40th birthdays, you treat your loved ones with a private boat charter, dropping anchor, and becoming boaty/hoey in equal measure. So much fun and joy to celebrate Andy’s nautical fortical ⚓️✨

Disclosure and Terms of Use

Privacy Policy

Copyright © 2021 That Girl On Fire

Managing Business Financials As A Minimalist My tax and business expenses as a minimalist Ethical investing doesn't need to come at such a high social and environmental cost. Ethical Investing for Beginners
Scroll to top

This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies.

OKLearn more

Cookie and Privacy Settings

How we use cookies

We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.

Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.

Essential Website Cookies

These cookies are strictly necessary to provide you with services available through our website and to use some of its features.

Because these cookies are strictly necessary to deliver the website, you cannot refuse them without impacting how our site functions. You can block or delete them by changing your browser settings and force blocking all cookies on this website.

Google Analytics Cookies

These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.

If you do not want that we track your visist to our site you can disable tracking in your browser here:

Other external services

We also use different external services like Google Webfonts, Google Maps and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.

Google Webfont Settings:

Google Map Settings:

Vimeo and Youtube video embeds:

Privacy Policy

You can read about our cookies and privacy settings in detail on our Privacy Policy Page.

Disclosure and Terms of Use and Privacy Policy