The old Diana Ross song asks “Do you know where you are going to?” and many Americans should be asking themselves the same question when it comes to achieving financial independence. You can’t reach a goal you haven’t adequately envisioned for yourself and reaching FIRE is a very big vision indeed.
The best place to start is by understanding what you are spending today. If you don’t have an in depth understanding of your current budget inflows and outflows, how can you expect to project where you want to be over a thirty or forty year early retirement? I use Mint.com to track our household spending and roll the numbers up into a simple spreadsheet a couple of times a year. It’s nothing fancy, but it certainly leaves me with a good understanding of where we are at. From there, I can start to do some “what if” projections of the future.
The following article from TIME.com speaks to three key variables that people need to get right as the contemplate early retirement. The author states that most people overestimate their living expenses, tax rate, and the rate of inflation. Time Early Retirement
How well do you know your FIRE “Number”? Are you one of the many who “work one more year” because they are not sure?