What is F.I.R.E.? What You Need To Know About The Financially Independent Retire Early Movement.
The FIRE movement is quickly growing, but it’s still a small group that goes against the grain.
What is the F.I.R.E. movement?
In short, F.I.R.E. is an acronym for Financially Independent Retire Early.
Many would argue that this movement was launched with the 1992 release of the book Your Money Or Your Life. It popularized the idea that your money represents life energy. It can be wasted or used as a tool to free you from your 9-5 job. Before the book, there wasn’t an organized, connected community. It was mainly a handful of oddballs and misfits that realized we live in a world of great excess. A few people were realizing that our time was actually our most valuable asset, not stuff or luxuries. The term “FIRE” didn’t come into common usage until the idea started spreading like wildfire through the internet. A series of blog and articles, like Early Retirement Extreme and Mr. Money Mustache, started showing others how they too could retire early.
There is a great community around FIRE. People support others’ goals of achieving financial independence so they can retire early. Check out my recommended reads so you can explore the community. I’m an avid reader and will add to this page as I find new books and blogs that I think add value.
“The only real asset you have is your time. The hours of your life.”
A More Detailed Explanation of F.I.R.E.
Some people consider FIRE one concept. I tend to think of it as two separate but equally important components.
(FI) + (RE)
(FI) Financially Independent
First, you must master the fundamentals of money.
You must master your own finances on the way to retiring early. You achieve this when you:
Save more than you earn.
Create an emergency fund.
Have a comfortable amount in investments.
You’re not stressed about paying the bills, putting a roof over your head, or having food on the table. Events that used to be emergencies, such as a flat tire or busted water heater, are now minor inconviences. Some people would go so far as to say to be “FI” you need to have FU money: the ability to tell your boss to fuck off and go find another job without too much worry. In general, I can’t argue with this perspective.
Ultimately, when you reach the point money is no longer the primary factor in your decision making process, you are FI! Your needs are met, and you’ve structured your life in such a way that your net worth continues to grow. You’re confident that you can handle the events that life throws at you. Most importantly, your stress levels go way down!
Some people argue that you’re not truly financially independent until you have reached the point that you can retire early (RE). I think that’s a bit of a hardline view, but I can’t argue with the point. If you are able to quit your job and explore other activities with your time, you’ve certainly reached Financial Independence.
(RE) Retire Early – anything before age 55 (The sooner the better. I did it by 32!)
Simulation of you quitting your job someday soon!
This is the end goal. I treat this separately from FI because it has nothing to do with money and everything to do with learning to enjoy life. You’ve earned your freedom. Enjoy life without being controlled by the needs of others (employers, bills, etc.). This is the reason so many people have jumped into the FIRE movement. You have reached such a strong financial position you can either live off the investment income of your savings or have enough passive income from other sources (rental property, business income, contracts, etc.) you no longer need to work a traditional 9-5 job if you don’t want to.
Side Note: Many FIRE people find enjoyment in side hustles or passion projects.
The key is having the freedom to do what makes you happy.
The 3 Pillars of F.I.R.E.
To become financially independent and ultimately retire early, you must master what I like to call the three pillars of FIRE. I’ll create a separate post deep diving into each pillar and explaining how you can maximize their benefits. For now, let’s review what they are and why they are important.
Pillar 1: Spend Less/Save More
A penny saved is a penny earned.
The first pillar is saving money. This is a core element of the FIRE movement. By simplifying your lifestyle, you can significantly increase your savings rate. We live in a period of great excess where the average person has an absurd number of luxuries. It’s not as hard as you might think to save a significant portion of your income. The average person consumes as much as they possible can either by living paycheck-to-paycheck or by purchasing expensive goods on credit (stealing from your future self): homes, cars, boats, RVs, second homes, vacations, private schools, etc. If we take a step back, we realize that paying for all of these extravagances forces us to work late into our lives.
Is it really worth it?
The conventional wisdom calls 5-10% of your earnings (as you work your way up the corporate ladder so you can retire at 65) a “good savings rate.” Members of the FIRE community aim to save 30-50% of their income to retire in their mid-thirties. More aggressive members save upwards of 80% of their income to quickly pay off student debt and retire in 5-7 years.
Pillar 2: Earn More Money
Gotta make money to save money!
The second pillar is figuring out how to make more money. I would say this is equally important to the save more pillar. This is the gasoline that accelerates the process to retire early, and it’s not as hard as you might think. (I’ll make another post about how to level up your earning power.) Keep in mind that as you earn more, you need to keep your spending in check. The reason most people have to work until age 65 isn’t because they don’t make enough money. It’s because they find increasingly imaginative ways to spend more as they earn more.
As a cautionary tale, you don’t need to go further than the many famous athletes who’ve made millions and end up broke shortly after they walk off the field. The same is true for the majority of lotto winners who have won the jackpot only to find themselves filing for bankruptcy a few short years later.
Pillar 3: Investing
Do not underestimate the power of your green men. Create your army, and send them in to do the dirty work!
The third pillar of FIRE is investing. Once you’re saving more than you earn and you’re making enough money to save a significant amount every month, it’s time to put those green army men to work! The power of compounding interest is a very powerful force. Putting your money to work is the magic sauce that lets you live 50+ years off of what you earned by your thirties. It’s highly unlikely you’ll be able to retire on savings alone. You need to put that money to work! Rather than thinking of money as something to hoard, think of it as putting your green men to work. Your dollars are assets that produce a return on investment that you can live on.
I’ll create a post about different investing strategies, and I will share monthly updates showing where I currently am on the investing journey.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
FIRE boils down to two things.
maximizing your savings rate by spending less while earning more
investing this money to work for you while you enjoy early retirement
Becoming financially independent requires discipline, hard work, and a healthy attitude toward money. To reach this ambitious goal, it needs to be a priority to you. What if you got a rocky start on your FIRE journey? What if you are still trying to master the income or savings steps? Or maybe you are past the dream retirement age of your mid-thirties. These principles can still help you become more financially secure and improve your future by putting you in control of your resources. You can’t change the past, but you can certainly work on a better tomorrow.
All of this takes deliberate steps and some sacrifices on luxuries others might call “extreme.” Most members of the FIRE community would argue the ability to live a free life and be the master of your own time is well worth the lifestyle adjustments. Consciously take a step back from the rat race and ask yourself, “What do I really want in life: material things and luxuries or my life?” Then act on that to become Financially Independent and Retire Early!
“What do I really want in life: material things and luxuries or my life?”
Also make sure to Join our Community so you don’t miss out on future updates!
If you want to hear more from some of the early F.I.R.E. members, here’s a fun TED Talk by Mr. Money Mustache.
Mr. Money Mustache shares his thoughts about FIRE.
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Wondering “how much longer is before I can retire?” or “how much you I need to save for retirement?”.
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