“A spark can become a flame, from a flame a fire” Kathryn Lasky
Sometimes I think finances is a bit like dieting. You read the guidelines on what you should be doing, follow along for a while and then get inpatient when things don’t happen quickly. This is when we start looking for the “quick fix diet” that will make everything happen really quickly supposedly. In the end we just delay the inevitable and go back to what we should have been doing anyway!
The basic formula for FIRE is based on three principles:
- Spend less than you earn
This one is easier said than done however without this step its going to make the journey to FIRE that bit longer. The best way to do this one is to create a budget and stick to it. Mr Fire and I are having considerable trouble with this one at the moment so we really need to get a grip on it.
Since I have started tracking our finances I have been really surprised at where our money is going. Every “quick nip to shops” soon adds up. I think we really need to go back to basics with our budget and then see if we can cut down our expenses even further. The key to FIRE is always the
dreadeduseful savings rate (more on that in future posts). Once the budget is on track then there should naturally be some savings left at the end of each month.
Another key part of this principle is the Emergency Fund. We always seem to have some unexpected expense pop up that tips us over the budgeting edge. An emergency fund is the buffer to stop this meaning you can still put some money away at the end of each month.
2. Invest extra money
Whether this is building up the emergency fund, putting money in savings, Isa’s or investments it is a really important part. Without stashing any extra cash then you are simply on the same path as everyone else i.e working until your past 60 (or even 70 in some cases) I’m worried that since we bought our house we are wiped out savings wise really. Got to get back on track!
3. Pay off and stay out of debt
I’m no debt management expert so if your in debt then do some research. I really like the snowball approach to debt and there are some really good resources out there including free spreadsheets. With debt, its important to have a plan and start to pay off the smallest amount first, when you get rid of that loan you free up some cash to put towards paying of the next loan and so on. Debt is going to suck up your hard earned cash whilst charging you interest for the pleasure. I’ve mentioned it several times that we have a family loan that is always in the grey area of when it should be paid back.
How do you stick to your budget?