FIRE stands for “Financial Independence, Retire Early” and is an increasingly popular cultural movement based on the goal of saving 50 to 70% of your income throughout life. With careful investments, the capital can grow into a figure 25 times larger than your annual expenses. When that happens, you’ve reached the goal and can think about quitting your job! Of course, it’s a long and complicated journey that, for many, requires extreme lifestyle sacrifices. Some FIRE followers live in rural areas in inexpensive housing, for example, or drive very old cars. Many don’t have cable TV subscriptions, go to the salon, or pamper themselves in any way. The extreme-saving concept appeals to Millennials who watched the generations ahead sacrifice quality life years to their jobs (often without receiving adequate compensation), but you’ll find FIRE followers of all ages.
FIRE is a concept that encourages economic sacrifice, and the overarching goal is to save 25 times the amount spent on expenses every year. This means a close examination of extraneous expenses. For some, meeting the savings goal requires extremely frugal measures like a thrift-store wardrobe, a used car, or no car at all and refraining from expensive habits like drinking alcohol. Other money-saving ways include budget-conscious at-home meals, no concerts or shows, local vacations, and having few children (if any).
FIRE enthusiasts don’t just let their money sit in low-interest checking accounts--they invest in securities and educate themselves on how to make their savings grow. The better the investments, the sooner a FIRE follower can achieve the end goal of retiring early and enjoying life independently. Popular investments might include mutual funds, real estate, collectibles, and well-researched stocks. Some go for riskier ventures like start-ups and cryptocurrency with the hope they will explode and multiply.
Forbes Magazine divides the FIRE community into three types: “Fat FIRE” is the group that tries to retire early without changing their lifestyles that much. They pursue riskier investments for potential higher gain. “Lean FIRE” goes the opposite way by living on a shoestring and sacrificing many comforts. “Barista FIRE” tries to combine both extremes, maybe alternating between them depending on the time of year. A married couple might have one partner in “Fat” and another in “Barista.”
FIRE encourages a debt-free life, and followers might pay off credit cards, mortgages, and student loans as they save and invest. However, it’s not uncommon for some to accumulate debt as part of their investment process. For example, buying a parcel of land that’s expected to grow in value will put the buyer in debt, but it’s considered “good” debt. When the time is right, selling the asset and collecting the profit is a step closer to the FIRE end goal.
Since FIRE is focused on the concept of retirement, many use their employer-sponsored 401k accounts as their primary investment vehicle. Working for a company that matches employee contributions means that savings are boosted with every contribution, a fact that attracts FIRE-lovers to corporations and organizations who offer the matching IRAs. Many FIRE followers contribute the maximum amount to their account with every paycheck, living on the smaller portion that’s left. Although this can be challenging, the dream of early retirement is worth the sacrifice.
"Your Money or Your Life" (Vicki Robin and Joe Dominguez) is the book that is largely responsible for the FIRE movement. According to the book, the first step to retiring early is to save and invest as much as you can, and then take those investments and withdraw them from your retirement accounts over the course of two decades or more. This will allow you to begin making most of your money work for you. Once you reach this point, you can choose to stop working or simply continue saving up for retirement if something happens (like losing a job), but a serviceable backup plan is always best.
The FIRE community encourages each other not to tie up all cash in investments. A nest egg of emergency cash helps with an unexpected illness, car repairs, home damage, and any incident that creates a big bill. Having the emergency fund quickly available is another advantage of living the FIRE life. There’s a certain peace of mind in knowing that bad situations can be remedied with a trip to the ATM. At the same time, FIRE followers living frugally have to train themselves not to dip in unless they have to!
Everything about FIRE seems wonderful -- who doesn’t want to quit their job and just enjoy life? But reaching the goal requires decades of dedication and frugal living, which isn’t realistic for many. Some are trying to make the path easier by developing passive income, which is the idea that you can establish an income stream on the side with just a little upfront work. Ideas for passive income include blogs loaded with ads, YouTube channels, e-Books, and more.
There’s plenty of fuel for the FIRE in healthy economic times as jobs are easy to find and prices for goods are pretty low. But the long-term aspect of FIRE means that, at some point, a recession will occur. FIRE followers try to prepare for downturns by building community and by training their wills to endure even when their investment accounts are crashing. FIRE followers who can tough out the storms will be more likely to see the rainbows someday.
If you want to try to reach FIRE, you can estimate the effort with a simple calculation. First, determine the percentage amount of income you currently save. Make sure to include all sources! Once you have the number, multiply it by 25 (the 4% rule), and write down the resulting number. This is the amount you need to achieve FIRE. Getting your bank accounts to match the number is the journey ahead -- are you going fat, lean, or barista? It’s time to decide.
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