What’s the Story behind FIRE?
Financial Independence. Retire Early. Sounds good, doesn’t it? Those are the concepts behind the FIRE movement. The movement revolves around the concept that retirement isn’t an age, but rather a financial status. Why work until your 65 if you have enough money to stop working at a much younger age? Followers of the FIRE movement believe that you don’t have to.
Staunch believers maintain that it’s possible to retire as early as 35 or 40 if you save and invest in the right ways. Just how much do you need to save in order to make it happen? Between 50–75% of your income. And, FIRE advocates aren’t saving to go on a perpetual vacation. These are people who simply don’t want to work if they don’t have to.
Let’s take a closer look at how the FIRE movement was born, different variations of FIRE, why this method of saving and investing may not work for everyone, and things you can learn from FIRE.
Where did the FIRE movement come from?
FIRE became popular among millennials in the 2010s thanks to a series of blogs and podcasts that praised the idea. The idea itself dates back to the 1990s in a book called Your Money Your Life by Vicki Robin and Joe Dominguez. The popularized the idea of saving enough money to retire early and to stop wasting your life at a job you don’t like.
Over 20 years later, Pete Adeney started a blog called Mr. Money Mustache. Like Your Money Your Life, Adeney’s posts shared the power of living frugally, as well as his own early retirement story. Adeney and his wife were able to retire before their first child was born thanks to saving 60% of their income over the course of a few years.
A few other books came out in the 2010s that promoted FIRE, like Early Retirement Extreme by Jacob Lund Fisker, which further popularized the concept. Millennials who were sick of their day jobs wanted a way out of the seemingly mundane 9 to 5 lifestyle, and FIRE sounded like a great option.
How do you FIRE?
FIRE followers usually work to save “25-times their expenses.” For example, if you earn $80,000 per year, and you live on about half of your income, you’d need to save $1 million (25 x $40,000) before you could safely retire. This 25-times expenses rule stems from the idea that a retiree can spend 4% of their savings portfolio in their first year of retirement. The next year, the percentage will change slightly due to inflation, but this spending rule of thumb means any person’s retirement savings should be able to last 30 years (this becomes a problem with FIRE, but more on that later).
Logically, the more aggressive you are with your saving, the sooner you’ll be able to retire. For example, if you save 75% percent of your income, you’ll be able to save 1 year’s worth of income in about 4 months. Adversely, if you only save 10% of your income it will take you 9 years.
FIRE is all about perspective: what do you want to be doing right now, and what lengths would you go to to achieve your goals? Are you willing to give up going out to dinner or picking up a coffee in the morning multiple times per week? Would you sell your car and start taking the bus? Are you willing to put on 5 sweaters in the winter so you don’t need to turn on the heat?
Your dream doesn’t need to be as extreme as going into full retirement under the age of 40. A lot of FIRE followers simply don’t want money to rule their lives: they want the freedom to follow their dreams. It’s also the freedom to do something that you actually enjoy doing for work, not just whatever pays the most.
And, your saving doesn’t need to be as extreme as living by candlelight for a few years, especially if you’re not necessarily interested in full-on retirement. There are different levels of FIRE that can be tailored to your specific situation.
Different types of FIRE
Fat FIRE: you want to retire without changing your current lifestyle. Fat FIRE is reserved for the most determined savers and investors.
Lean FIRE: you don’t mind changing your lifestyle and minimalizing your possessions and expenses. Your lifestyle will be more restricted if you opt for Lean FIRE.
Barista FIRE: you don’t mind picking up a part-time gig to make up for any missing income. Barista FIRE usually also involves changing your lifestyle and reducing expenses, but as long as you don’t need to work a 9 to 5 job, you’re happy.
Coast FIRE: you’ve saved up enough money not to work, but you pick up a part-time job just because you can. You’re not controlled by money, but you like to keep busy.
Why FIRE may not work for everyone
FIRE often comes under criticism because it isn’t attainable in every income bracket. While this is true for extreme early retirement, you don’t need to earn 6 figures to FIRE. This is especially true for people that are more interested in Barista FIRE or Coast FIRE.
Others question the 4% Rule, as it only applies to a 30-year retirement. If people are retiring at 35 or 40 years old, they could potentially be looking at over 50 years of retirement! Critics say that the 4% rule hasn’t been studied over a longer period of time, so it’s unclear if it can apply to a 50, 60, or even 70-year retirement.
Whether you agree with FIRE or not, there are some smart ideas to pull from the movement. It’s important to think about your wants and dreams for your future and to start planning accordingly. It’s also beneficial for your wallet if you try to keep your expenses as low as possible. But, living simply and intentionally doesn’t need to happen just because you want to retire early. Make it a habit, and you’ll be on your way to independence, financially and otherwise.
Originally published at https://expeeriences.com on August 19, 2020.
