A few months ago I discovered the FIRE lifestyle movement thanks to a friend at work. We were discussing possible passion projects / side-hustle opportunities and from memory I was lamenting the “golden handcuffs” of work. We both have families to support, mortgages to pay etc. and the excuses were numerous as to why we weren’t pursuing something more meaningful than our current jobs. He stopped me, looked me in the eye and asked two questions “what if money wasn’t a constraint?” and “what if you could pursue these ambitions without the pressure of needing to work?”
Needless to say he had my full attention and we spent the rest of lunch and subsequent days discussing FIRE. This led me down a very deep rabbit hole where I devoured numerous books, listened to hours of podcasts and dived into countless blogs on the topic.
I was hooked and felt like I was seeing the world differently. I was now more conscious of waste, more intentional about my spending and could see rampant consumerism everywhere I looked. The idea of spending less and saving more didn’t see like depravation anymore. I had a goal and could feel freedom beckoning. It’s a bad pun considering the topic but I felt like a fire had been lit within me as I became increasingly optimistic and excited about future possibilities. A clear path had been laid out for me by thought-leaders in the FIRE community and now it was simply down to discipline and action.
So what is FIRE?
The acronym stands for Financial Independence / Early Retirement (FIRE). The FI bit is fairly self-explanatory but the term early retirement can be a bit off putting for some people. Don’t think “retirement” in the traditional sense but rather it’s about FI providing the freedom to pursue your dreams and ambitions without the week-on-week burden of paid work. Essentially you can design a life you want without taking money into consideration. This doesn’t mean you necessarily need to quit work if you love it, but you now have choices about where to spend your time. People pursuing FIRE typically look to be “retired” much earlier than the norm, in their 40s, 30s and sometimes even their 20s. I’ll explore how this is possible in a future blog post but for now let’s stick to the basics.
The quick and short summary
There are varying definitions of financial independence but the common benchmark is when your net worth is 25x your annual expenses, at which point paid work becomes optional. The goal is to accumulate enough assets and passive income to provide enough money for living expenses for the rest of your life.
First off it’s worth noting that there isn’t one definitive way to reach financial independence and people take many different paths to the same end result. There are however some common principles those in the FIRE community generally subscribe to:
- Eliminate debt. Removing consumer debt (things like credit card balances, car loans, student loans) lays the foundation for your road to financial freedom
- Save more. Aggressively aim to save 50%+ of your income. Yes that sounds like a lot, but it’s possible. Your savings rate ultimately determines how quickly you’ll reach FI
- Lower expenses. Clearly spending less helps you save more. You’ll be shocked at how much you actually spend if you start tracking it closely. Decide whether that spending is meaningful or not. I bet by being more intentional about money your lifestyle will quickly adapt to a less is more, simple living mentality. Lower living expenses also mean you’ll need less money to fund the rest of your life and the 25x goal begins to shrink in absolute terms.
- Leverage tax advantaged accounts. Pay yourself first before the tax man.
- Invest. Recognize over the long term it’s near impossible to beat the market. Picking stock yourself is madness and participating in an actively managed fund just means paying additional fees (ultimately resulting in lower returns). Many studies suggest (and the Oracle of Omaha himself, Warren Buffet supports this view) that it is better to keep things simple and focus instead on low-cost index funds
Ultimately the route to FIRE is relatively simple – spend less than you earn and invest the rest.
I’ll go into more detail in a future blog post but in the interim if you’re interested in learning more check out some of these FIRE focused sites:
- MrMoneyMustache (https://www.mrmoneymustache.com) – his post “The Shockingly Simple Math Behind Early Retirement” demonstrates the power of a high savings rate. A classic! https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/. His site is the gateway drug for many new devotees of the FIRE movement.
- JL Collins (https://jlcollinsnh.com) – His Stock Series takes the mystery out of investing and provides a simple, clear, step by step path forward. https://jlcollinsnh.com/stock-series/.
- ChooseFI (https://www.choosefi.com) – Their podcast is binge worthy and super informative.
- The Mad Fientist (https://www.madfientist.com). Another great blog and podcast.
That should be enough to get you started. I hope FIRE inspires you too.