For many Aussies, the ultimate dream is to retire early with plenty of money in the bank, lots of investments working for you, and, of course, being mortgage-free.

But how realistic is this?

The FIRE movement (Financial Independence, Retire Early) actively encourages people to pursue this dream. Yet, it advocates saving upwards of 75% of your income, which is unrealistic for most Australians. 

That is why if you want to retire early, you need to make shrewd lifestyle choices that help you achieve financial freedom without resorting to extreme frugality and potentially impacting your mental health. 

Here’s how you can kickstart your journey to prosperity.

What does it mean to be financially independent?

Leon Ng from Zenith Financial states that being financially independent means having enough income, savings, or investments to live comfortably for the rest of your life.

During this time, you will be able to meet your fiscal obligations without relying on a regular employment salary.

What are the main FIRE approaches?

We touched upon FIRE at the beginning of this post. So, it’s worth briefly providing an overview of some of the main strategies it suggests to achieve financial independence.

1. Lean FIRE

If you are comfortable with a minimalist lifestyle, Lean FIRE is a very disciplined approach where you reduce your spending on all unnecessary purchases to reach financial independence faster.

It basically involves being extremely frugal and sacrificing things like holidays, not buying expensive cars or spending a lot of money on leisure and entertainment.

2. Barista FIRE

Barista FIRE is a strategy where a person strives for early partial retirement by accumulating enough savings to live partially off their investments while still working a part-time job.

3. Coast FIRE

This path to financial independence involves saving and investing as much money as you can when you are young and then ‘coasting’ off the compound interest that accrues from it when you get nearer to the age you want to retire.

4. Flamingo FIRE

This is a hybrid approach for those who want to enjoy semi-retirement whilst their investments are growing.

It involves saving aggressively while you are young and then working reduced hours once your investments have grown to a particular level but have yet to fully mature.

Smart Alternatives to the FIRE movements

If you don’t want to follow any of the traditional FIRE strategies and still retire early, don’t worry. Financial independence can be gained in many other ways.

Here are some other tactics you can pursue:

1. Education + job promotions

A strong education has always been a good way to secure a high-paying job, and this is particularly true if you have an MBA qualification.

According to the Australian Institute of Business’s 2023 Alumni Insights Report, over 81% of students received a salary increase after graduating with an MBA. On average, this worked out to be approximately $37,000, which is quite a large pay jump, putting AIB MBA graduates one step closer to financial independence. 

Therefore, investing in your personal development no matter how old you are in this way can speed up your investment and retirement journey through increased salary and job promotions.

2. Live within your means

Simple economics should tell you that if you constantly spend more money than you earn, you will face financial difficulties. That’s why it’s important to reduce your living expenses. 

While you shouldn’t have to do without some of life’s little treats and luxuries, you do have to cut your clothes accordingly. Until you get a handle on this, you’ll always live on or near Struggle Street. 

A great way to get out of Struggle Street is to create an emergency fund and aim to have a full month of living expenses first, then see if you can grow it to at least two or three months. Once you’ve exceeded three months, then it’s time to get all of your credit card debt paid off and get your affairs in order. 

This can be automating necessary financial obligations you’ll have to meet, such as rent or mortgage, insurance (health, car and life insurance), which an accountant or licensed financial planner can advise you on the best way to contribute to them.

On top of this, it’s recommended that you pay down bad debt. Consider working with a finance broker to consolidate any high-interest loans so you can pay them off quickly and start investing the difference.

3. Investing

The key to putting yourself into a position where you can retire with complete financial independence is to invest often and wisely. Financial counselling can be a valuable service to help you create a plan to achieve financial independence. A licensed professional can guide you through managing debt, building savings, and developing strategies for long-term financial success.

Improving your financial literacy is key, and this can take several years or even a lifetime to develop. It doesn’t matter how much you set aside for investing; the more, the better. 

But, if you can put away significant investments for assets like real estate, stocks, mutual funds, and equities like gold over a prolonged period, you could enjoy a financially independent retirement much quicker than the traditional age of 65.

You may also want to consider binding financial agreements if you are investing with another party, as this will protect your assets if the relationship breaks down.

4. Passive income streams

In addition to investing, it is a good idea to develop as many passive income streams as possible.

This could come from renting out your extra storage or car parking spaces on Spacer, generating income from a blog, earning an income from dividend investing or running an online print-on-demand and drop-shipping store. That’s because a major goal of financial independence is to create multiple streams of retirement income.

The more additional passive income streams you can establish, the more your wealth will grow in a way that is less reliant on a salary.

Protect your wealth

While it is important to grow wealth, it is also vital to protect it and there are some measures you should put in place to do so.

One of the main ones is to diversify your investments to ensure you are not relying on one particular type. The second is to get your estate planning in order and create a will.

Moreover, if you are one of the 40% of Australians who currently don’t have one, making a will is advisable to ensure that your possessions and investments are distributed to exactly who you want them to go to.

Summing up

Making smarter and better financial decisions is a skill that takes time to develop. Starting with increasing your cash flow and creating an emergency fund is a great place to start. Once you’re able to master investing, then you’ll be on your way to financial freedom. 

There are steps to financial independence that everyone can take, from controlling spending to saving consistently. By building a solid foundation of financial literacy, you can create a strategy that works for you.

If you’re looking to earn a passive income today from the comfort of your own home, why not lease your extra space on Spacer — it’s free, and it’ll help you get that one extra step closer to achieving financial independence.