#fire (financial independence, retire early)… what we talking about?
Understanding the FIRE Movement: Financial Independence, Retire Early
You heard about FIRE? (AKA “financial independence retire early” AKA “#FIRE 🔥💸🔥”) …. This is a helluva concept, and noble in its aspirations. The FIRE movement (or at least factions within it) has gone off the rails at some points. There’s always a #finfluencer trying to tell you about how you can compound the returns from skipping your latte into escaping debt and becoming a decamillionaire by the time you are 30. That’s some bullshit!
Let’s talk about FIRE, FatFIRE, other #FIREs… what’s worth keeping, and what’s worth tuning out?
What Is the FIRE (Financial Independence, Retire Early) Movement?
The FIRE movement, which stands for Financial Independence, Retire Early, is a lifestyle and financial strategy that has gained significant traction over the past decade.
At its core, FIRE advocates for aggressive saving and investing with the goal of achieving financial independence at a relatively young age. This allows individuals to retire early and live life on their own terms, free from the constraints of traditional employment.
The Philosophy Behind FIRE
The FIRE philosophy is built on a few fundamental principles:
Frugality: Adopting a minimalist lifestyle to reduce expenses and increase savings.
Aggressive Saving: Aiming to save 50-70% of one’s income.
Investing: Putting savings into investments that yield high returns over time, typically in stocks, bonds, and real estate.
Financial Independence: Achieving a level of savings and investment returns that cover living expenses without the need for active employment.
Flavors of #FIRE
The FIRE movement is not a one-size-fits-all approach. Different individuals tailor it to fit their unique goals, lifestyles, personalities, and careers.
Here are some popular variations of FIRE:
LeanFIRE:
This approach focuses on extreme frugality and minimalistic living to achieve financial independence with a relatively modest retirement income. LeanFIRE adherents often prioritize cutting costs and living simply to reach their goals more quickly. Mr. Money Mustache was the LeanFIRE OG, referring to his “mustachios” readers as “a cult” and espousing views such as “luxury is a weakness”.
I think MMM is onto something! Mr. Money Mustache and other acolytes of LeanFIRE often take an anti-materialist angle: America and capitalist society more broadly tricks you into buying crap. That crap is often plastic, and often that crap is crap you do not need. America tricks you into staying slave to your job and ruining the environment while you’re at it. Righteous Money approves, of course. Read enough of MMM though and you realize this guy is either a psychopath or really taking things to the logical extreme for clicks. Or both. Counting pennies, chastising himself for being weak for indulging in minor comforts. I admire the guy, but I can’t operate that way all the time.
The issue with LeanFIRE is that it’s really anxiety-provoking. If you’re always thinking about money so much — and optimizing to the penny — that you can’t focus on anything else, then money wins. What is the point?
FatFIRE:
In contrast to LeanFIRE, FatFIRE targets a more comfortable retirement with higher living standards. This requires a larger savings goal but allows for greater spending flexibility in retirement. Individuals pursuing FatFIRE often continue to live comfortably during their accumulation phase while maintaining a high savings rate.
The problem with FatFIRE, of course, is that most people can’t really do it. Just get a high-paying job, make a bunch of smart investments, and ride off into the sunset…. Sounds good, right? This only happens for people who are some combination of privileged, personally lucky, and lucky with respect to capital markets and investment conditions. We should all strive for FatFIRE, but for the most part we can’t count on it. It isn’t really a strategy as much as a best-case-scenario.
Whether you are thinking about a FatFIRE strategy or you are already there and thinking about bolstering your investment income and lifestyle, alternative investments and real estate (e.g. what EquityMultiple offers) could be a good fit.
BaristaFIRE:
This hybrid approach combines part-time work with financial independence. BaristaFIRE followers achieve enough savings to cover a significant portion of their living expenses but choose to work part-time to cover the rest, often in less stressful or more enjoyable jobs. This allows for a balance between leisure and financial security.
This is a good way to go! You don’t need to be a barista. You can be a musician, a photographer, a social worker. Usually this revolves around freelancing, working as a 1099 employee, having particularly skills that people will pay you for hourly, so that you can reclaim time for more meaningful work that can also help build supplemental income.
CoastFIRE:
This strategy involves saving aggressively in the early years of one’s career until investments can grow sufficiently on their own to cover future retirement needs. Once this "critical mass" is achieved, individuals can reduce their work hours or switch to less demanding jobs, coasting towards full retirement.
Financial Samurai best exemplifies this strategy. He scored a cushy finance job, negotiated a severance package, invested in a very disciplined way, and was ultimately able to retire to a life of blogging and even uber driver (because he felt like it).
This really comes down to striving for a ratio of passive income (mostly from investments) to living costs, and mapping that out across decades ahead of time. The challenge is that not everyone has the discipline and foresight to make this happen (I know I don’t, or at least didn’t early on in my career). The good news is that you can still adopt the philosophy at any stage of life and any income. It’s really about soberly considering your living expenses, investing in a metered, disciplined way, and working backwards from an “escape velocity” of passive income-to-living cost ratio.
You know who else is a CoastFIRE guy? Vanilla Friggin’ Ice. BTW here is a delightful Reddit thread (and plenty of FIRE discussion on ol’ Reddit, of course).
The Path to FIRE
Achieving FIRE requires discipline, planning, and often a significant lifestyle adjustment. Here are some key steps:
Set Clear Goals: Determine your desired retirement lifestyle and calculate how much you need to save to sustain it.
Budget and Save Aggressively: Create a detailed budget, cut unnecessary expenses, and aim to save a high percentage of your income.
Invest Wisely: Focus on investments with the potential for high returns, such as index funds, real estate, and other growth-oriented assets.
Monitor and Adjust: Regularly review your financial plan and adjust your strategies as needed to stay on track.
Ultimately, all of these strategies, or types of “FIRE”, are about wise investment choices. They are all about achieving stable passive income that exceeds living costs. In other words, it’s about alternative investments and it’s about budgeting. You can check out some of the Righteous Reviews to get some ideas.
The Philosophical Pros and Cons of the FIRE Movement
The FIRE (Financial Independence, Retire Early) movement has captivated many with its promise of financial freedom and an escape from the traditional work cycle. While the idea of retiring early and living life on your own terms is appealing, it's essential to consider the philosophical implications of adopting such a lifestyle. Let's delve into the pros and cons of pursuing FIRE.
The Pros of the FIRE Lifestyle
Freedom and Autonomy
One of the most significant advantages of achieving FIRE is the freedom it provides. Financial independence means you are no longer bound to a job for your income. This autonomy allows you to pursue passions, hobbies, or even start new ventures without the pressure of earning a paycheck.
Early retirement opens up the opportunity to travel, spend more time with family, and engage in activities that bring personal fulfillment and joy. This shift from a work-centric to a life-centric approach can lead to greater happiness and satisfaction.
Financial Security
FIRE advocates prioritize building a substantial financial cushion through disciplined saving and investing. This financial security not only prepares you for retirement but also provides a safety net for unexpected life events. The peace of mind that comes with knowing you are financially secure can reduce stress and improve overall well-being.
Additionally, achieving financial independence early allows for better long-term planning and wealth management. You have the flexibility to make thoughtful decisions about your future, including healthcare, housing, and legacy planning.
Personal Growth and Development
Pursuing FIRE often requires developing valuable skills such as budgeting, investing, and financial planning. These skills are not only crucial for reaching financial independence but also contribute to personal growth and self-discipline.
The journey to FIRE encourages a minimalist lifestyle, focusing on what truly matters and eliminating unnecessary expenses. This mindset shift can lead to a more meaningful and intentional life, free from materialistic pursuits.
The Cons of the FIRE Lifestyle
Extreme Sacrifice and Frugality
Achieving FIRE typically involves significant lifestyle changes and sacrifices. To save a substantial portion of your income, you may need to cut back on dining out, entertainment, vacations, and other discretionary expenses. This extreme frugality can feel restrictive and may lead to a lower quality of life in the short term.
The intense focus on saving and investing can also strain relationships, especially if family members or partners do not share the same financial goals. It's essential to strike a balance between pursuing FIRE and maintaining a healthy, fulfilling personal life.
Uncertainty and Risk
The path to FIRE is fraught with uncertainties. Market volatility, economic downturns, and unexpected life events can derail even the most well-thought-out plans. Relying heavily on investments for long-term financial security carries inherent risks, and not everyone is comfortable with this level of uncertainty.
Additionally, early retirees may face challenges in finding affordable healthcare, especially before qualifying for Medicare. The cost and accessibility of healthcare can significantly impact the feasibility of early retirement.
Identity and Purpose
For many people, work provides a sense of identity and purpose. Retiring early and stepping away from a career can lead to feelings of aimlessness and a loss of social connections. It's crucial to have a plan for how to spend your time meaningfully after achieving FIRE.
Engaging in volunteer work, part-time jobs, or pursuing new hobbies can help maintain a sense of purpose and fulfillment. However, it's important to recognize that the transition to early retirement requires careful consideration of how you will continue to find meaning and satisfaction in daily life.
Conclusion
The FIRE movement offers a compelling alternative to traditional retirement planning, empowering individuals to take control of their financial futures and retire on their own terms. Whether through LeanFIRE, FatFIRE, BaristaFIRE, or CoastFIRE, the core principles remain the same: live frugally, save aggressively, and invest wisely. By understanding and applying these principles, anyone can work towards the ultimate goal of financial independence and early retirement.
What is the righteous path? It depends a bit on how seriously you can take it; what your income is; how you want to live. Above all, the Righteous take: look at the FIRE strategy as a way to give a big, fat finger to the corporate overlords and the forces destroying the earth. Buy less crap. Get off the hamster wheel. Reclaim your time and your energy to do things that aren’t at all about money.