We'll discuss 4 questions you might have about achieving financial freedom:
Financial independence and early retirement (FIRE) is a growing trend among US adults. Many people today strive to achieve financial freedom by following the FIRE principles of frugality, investing, and planning for a future of financial security.
But what makes some people excel at adopting the FIRE mindset while others struggle? The answer may lie in the behavioral angle of personal finance.
Understanding the Role of Willpower
Recent research on money saving and willpower has shown that while willpower can play a role in an individual's ability to save money, it is not the only factor. Other factors such as income, expenses, access to financial resources, and overall financial literacy also play a significant role in an individual's ability to save.1
Research has also shown that willpower can be depleted over time, leading to decreased self-control and success in saving money.2 To counteract this effect, researchers suggest strategies such as setting clear financial goals, creating a budget, automating savings, and limiting exposure to tempting spending triggers.
Behavioral Traits of FIRE Success Stories
One of the hallmarks of a FIRE-bound person is their focus on long-term goals. Rather than living for today and worrying about tomorrow, they understand that their financial future is shaped by their behavior today. This mindset requires discipline, patience, and an unwavering commitment to your financial goals.
“The ideal person to achieve FIRE is someone with discipline and an obsession with freedom,” says Greg Wilson, who owns ChaChingQueen, a lifestyle blog helping people save time and money, with his wife Erin. Wilson planned his early retirement since his teenage years, making the dream a reality at age 42.
Another important factor is the FIRE mentality of viewing money as a tool rather than a means to an end. In that way, money can be a tool of empowerment and control.
“Financial success is simply controlling your money instead of your money controlling you. FIRE is just one flavor of that,” says John Frigo, eCommerce manager of Best Price Nutrition, who retired in his thirties.
Finally, a key trait of a FIRE mindset is a willingness to learn and adapt to continue honing your financial literacy and positive habits. As James Clear notes in his renowned book, "Atomic Habits," in changing behavior, it can be helpful to think of the identity you want to embody and internalize it.3
It's equally important to take a balanced approach, advises mental health officer at Startups Anonymous Kerry Lauders. “It's important to balance the pursuit of financial independence with other aspects of life, including mental and emotional well-being," she explains. “Seeking support from friends and family, therapy, or a financial advisor can be helpful for managing stress and anxiety related to financial matters.”
Tips for Improving Your Financial Situation
Here are four tips to help you improve your financial situation and meet your financial goals.
- Start with a budget. Understanding your income and expenses is the first step to improving your financial situation. One study suggests that regularly monitoring one's financial situation can improve self-control and lead to better financial decisions.4
Create a budget that prioritizes your essential expenses and sets aside money for savings and investments. “Once you have worked out your budget, automate your savings so that it goes straight into another account before you are able to spend it,” says Lauders. “Cut down on unnecessary expenses, and find ways to save money on the necessities.”
Reduce debt. High levels of debt can be a major roadblock to financial independence. As anyone with debt understands, it can also be a source of stress and even impaired psychological functioning.5 Take steps to pay down your debts, starting with the highest-interest debt first.
Invest in your future. Start by setting aside money for your emergency fund. Then consider investing in a mix of stocks, bonds, and real estate. Diversifying your portfolio is a smart way to maximize your assets. Additionally, consider seeking out a financial advisor if you need guidance.
Seek education. To achieve financial independence, it's important to have a solid understanding of personal finance, investing, and retirement planning. Seek out books, online resources, and other educational opportunities to increase your knowledge and skills.
“There is no one way to do FIRE. The only path that will work for you is the method you can commit to,” says Wilson. “Learn from others and make your own plan.”
Focus on Long-Term Goals
Remember that achieving financial independence and early retirement requires patience and perseverance. In other words, don't be tempted by short-term temptations. But it doesn't mean you have to live a joyless life in the meantime.
“FIRE isn't about taking all the joy out of your life and not spending on anything,” Frigo says. “It's about figuring out what spending brings you value and what spending doesn't, and cutting out all spending that doesn't bring you value. Ask yourself how much value you'll receive for a given purchase and if that cost is worth it.”
1 American Psychological Association. “Willpower, finances, and spending.” Accessed February 2023.
2 University of Washington. “Personality Process and Individual Differences: Ego Depletion: Is the Active Self a Limited Resource?” Accessed February 2023.
3 James Clear. “Atomic Habits.” Accessed February 2023.
4 Science Direct. “Improvements in self-control from financial monitoring.” Accessed February 2023.
5 PNAS. “Reducing debt improves psychological functioning and changes decision-making in the poor.” Accessed February 2023.