The FIRE Movement has become quite popular in the last decade or so. Wikipedia says the FIRE Movement started as a term in the 90’s particularly by a book Your Money or Your Life written by Vicki Robin and Joe Dominguez. Since then there have been countless books, blog posts and other media on FIRE.
So what exactly is FIRE, you may ask. Well FIRE stands for Financial Independence Retire Early and as its name suggests, its all about financial freedom and early retirement. Its called a movement as it has gained a cult-like following over the years with some of the top writers becoming internet heroes. It’s a movement that focuses on how an average person can become financially independent and retire well before the general age of 65.
In the past, retirement was always seen as something you do when you are old and have worked a long time. The FIRE Movement challenges that old way of thinking and shows us different paths to retire earlier and live a life of financial freedom. The philosophy is that most people can achieve FIRE, you don’t have to be wealthy to start off with. Also, its not about being rich to a point of opulence and excess. The focus is on not being dependent on money and instead living life as you want to.
Lets face it, most of us spend most of our lives working for 40 or more hours a week. Often we have to work out lives, our families and our interests around work. At a basic level, we exchange our time and skills for money to be able to live and pay the bills.
The Key Principles of the FIRE Movement
The FIRE Movement is a set of guidelines that the community have put together over a number of years that should help someone new get to FIRE, which is Financial Independence Retire Early. Many of these are based on the experiences of some of the success stores of the FIRE movement and some of it is backed by Scientific and Economic studies.
Below are some of the key principles that the starts of the FIRE movement proport. Although these are principles, there are a lot of different philosophies behind FIRE and how to achieve it. There is no one right path or answer as you would expect. It all comes down to personal situation, circumstances. mindset and philosophy. But at a high level, the principles below would suit the majority of the FIRE crowd.
- Saving A % Of The Money You Make: Saving a significant portion of your income is the cornerstone of FIRE. Many FIRE adherents aim to save 50% or more of their income. This aggressive saving allows them to build a substantial nest egg quickly. 50% may not be achievable by many and that is not the absolute number you have to achieve to get to FIRE. However, you really have to be able to save some money to be on your path to financial freedom. A shocking number of people around the world save none of their income and often spend more than they earn thanks to credit cards and loans. If you can’t save at all, the FIRE movement may be a pipe dream as you need money to invest it and live off it.
- Frugal Living: Living within or below your means is essential in the FIRE journey. FIRE proponents often adopt a frugal lifestyle by cutting unnecessary expenses, budgeting rigorously, and avoiding consumer debt. You don’t have to be living in a tent eating baked beans every day but you have to be able to break away from the one-up society that we all live in these days. You are not going to be able to get to financial freedom if you have to buy that fancy car every year, upgrade your house often and buy all the latest phones & electronics that there are. Keeping up with the Jones costs a lot of money and is a sure fire way of staying financially dependent on whatever if paying for it all. So there has to be a balance in terms of the needs and wants of life, with slant towards being frugal. It does also depend on your income situation of course. If you are already a high earner, you don’t have to be frugal as such as long as you save a good percentage of your income. If you are on a minimum wage, you will have to be as frugal as possible to be able to save money
- Smart Investing: Investing wisely is crucial for building wealth and something we have discussed in Investing: Easy Proven Basics You NEED To Know For Financial Independence. FIRE followers typically invest in a diversified portfolio of stocks, bonds, and real estate. They prioritize low-cost index funds and focus on long-term strategies.
- Passive Income: FIRE seekers strive to generate passive income streams, such as dividends, rental income, and interest, to cover their living expenses. Achieving this allows them to maintain their financial independence without relying on a traditional job.
- Geographic Arbitrage: Some FIRE enthusiasts take advantage of geographic arbitrage by living in lower-cost areas or countries, allowing their savings to stretch further.
FIRE Success Stories
The FIRE movement has produced countless success stories of individuals who achieved financial independence and early retirement. Here are a few notable examples:
- Mr. Money Mustache: Pete Adeney, also known as Mr. Money Mustache, is one of the most influential figures in the FIRE community. He retired at age 30 after saving and investing aggressively and now runs a popular blog offering financial advice and lifestyle tips.
- The Frugalwoods: Elizabeth and Nate Thames, known as the Frugalwoods, retired in their early 30s and chronicled their journey on their blog. They achieved FIRE by living frugally, saving, and investing in real estate.
- Brandon, The Mad Fientist: Brandon retired at 34 by optimizing his tax strategies and using various financial tools to expedite his journey to FIRE. He now shares his insights through his blog and podcast.
- Making Sense of Cents: Michelle is a young person on FIRE that has inspired many by building up her blogging business and her assets to be financially independent at a young age. She also lives an enviable lifestyle in a recreational vehicle (RV), travelling around with her family through the year.
Challenges Of The Fire Movement
While the FIRE movement offers a compelling path to financial freedom, it’s not without its challenges:
- Aggressive Saving: Saving a significant portion of your income requires discipline and sacrifice. It may mean cutting back on luxuries and adjusting your lifestyle. The hardcore FIRE movement proponents try to save as much as 80% of their income. Although this sounds amazing, its not practical for the majority of people. Someone in their early 20’s, living at their parents house rent free, with no partner or kids may be able to do this. But that is because they have no responsibilities and have some level of help from someone (i.e. living rent free at parents house). There are some who are quite clever, start early and live almost for free by house hacking, therefore able to save 80% of their income.
- Market Volatility: Relying on investments for passive income can be risky, especially during market downturns. Maintaining a diversified portfolio is crucial to mitigate this risk.
- Healthcare Costs: In the United States, healthcare costs can be a significant hurdle to early retirement, as employer-sponsored health insurance is often a key benefit of traditional employment.
- Psychological Adjustment: Retiring early can lead to a sense of purposelessness or identity crisis for some individuals. Preparing emotionally for early retirement is essential.
- Longevity Risk: With early retirement, there’s a risk of outliving your savings. FIRE followers must plan for a long retirement horizon.
- Keeping a Sense of Self Worth: More often than not, our self worth comes form the work that we do, which to me is definitely not the right thing but it is what it is. So say you are an entrepreneur or a manager in a corporate, your sense of self worth comes from the importance and sense of achievement that you have in the business or the job. Now if you are on FIRE (financially independent), then you are probably not going to have a job or be running a business that’s very hands on. So then where are you going to get your sense of self worth from? That is something it seems many in the Fire Movement community struggle with and have to actively work on.
FIRE Movement: The Good, Bad & Ugly
So what are the Good, Bad and Ugly of the FIRE Movement. Surely, if you are on FIRE and Financially Free, there is only good to be taken from that. Surely money can only buy eternal happiness! As with everything in life, its complicated and there are several things you need to know about being on FIRE. Its one thing getting to Financial Independence but you also have to consider your life while in financial independence
Life will always throw challenged & curveballs at all of us. And its not going to care about your financial status. Many has this misconception that rich people are deliriously happy with no issues to deal with in life. Well here is a wakeup call with a dose of reality. Money has nothing to do with happiness, that is a complete myth. You can have all the money in the world, you will still have to work on your happiness and navigate the challenges thrown to you in life.
The Good
To me there are plenty of good things that come out of the FIRE movement. The main thing that really struck me when I first came across it was that its not just a bunch of greedy people forming a cult to take all the money in the universe, for their own pleasure. The FIRE movement if more about a way of life than about money. Where money plays the important part is that it is taken out of the equation of living one’s life.
Rather than spend your entire life living around the chase of money, the FIRE movement is about building enough money and investing it. So you can live OFF the money not FOR the money. That’s an important distinction and may be hard to fathom. The chase of money is ridden with lots of frustration and pain that the FIRE movement addresses. Once you are On FIRE (as they say), you can design your daily life as you would like to.
Focus On Family
If family is very important to you, you can spend all your time focused on your family. Most people are not able to do that as they have to spend 50+ hours a week dedicated to doing what they do to earn money for their family. The rest of the time you are too tired and need to recuperate. But if you are financially free, you will have the time to spend with your family. For instance, I am able to go to all my kids school events, even if they are during the day. I would have never been able to had I still been in my high pressure corporate job.
Health First
Health should be our main focus as without health, we can’t do much. Everyone says this but the reality is we don’t really focus on our health until something goes wrong and you have to. Often its because we are busy in the quest for money and don’t have the time to do anything about our health. We often hear of people who have expensive gym memberships but don’t have the tie to go to the gym at all. Now if you are financially free, you have the time and choice to focus on your health and go to that gym.
Cultivating Your Passion
Society todays setup such that passion is put to the end of the line, to be pursued if and when you have the time. The good thing about being on FIRE is that you should have the time to work on your passion projects.
The Bad
There are some negatives of being on FIRE, without a doubt. Firstly, you have to be focused on having a focus in life, else you will drift. Having time on your hands sounds great but if not used wisely, can be a two edged sword. You may think that you will sit on the beach from age 35 to 85, sipping pina coladas but that again respectfully is a pipe dream. In reality, you will not enjoy that much after say 3 or 4 weeks. Boredom will set in and then the mind will wander. If not checked, self destructive ways can kick in. The most obvious becoming an alcoholic that sits on the beach all day!
Events outside your control may also significantly damage your investment portfolio. This in turn would affect the income you generate form your investments, risking your ability to stay financially free. Now imagine the mental trauma of having done what you want for a couple of year, only to realise that you have to go back to that terrible corporate job as your investments have diminished.
The Ugly
There is a darker side to the FIRE movement but its not talked about much. Most will talk about how they get to financial freedom and what they enjoy about it. But as discussed previously, the trials and tribulations of life do not stop based on your net worth. So the question is, will you be equipped to face adversity while in early retirement?
One of the biggest risks of being in early retirement is running out of money, especially when you are older. It does not matter how much money you have or earn, you can spend it all if you are inclined to in that way. Take the famous example of the boxer Mike Tyson and several other sports star for that matter. Mike Tyson earned several hundred million dollars and then had to file for bankruptcy as per this Yahoo article. Imagine having $400 million US dollars and still spending it all. What is shows is, if you are not someone who can manage money, it will get the better of you.
