What Is The F.I.R.E. Movement?
/If the thought of retiring before the age of fifty and pursuing all of your life-long passions ever crossed your mind, then the F.I.R.E. movement may be the financial strategy for you. People all over the world are raving about the movement and creating financial freedom for themselves by following its methodology.
F.I.R.E. stands for Financial Independence Retire Early. It started with a book entitled Your Money, Your Life by Vicki Robin and Joe Dominguez. The basic premise of F.I.R.E. is to cut expenses drastically and live off of 25-50% of your income. With the extra money you have, you invest it into low-fee funds such as index funds. Once you have enough money invested, you will be able to live off of the interest of your investments.
The freedom to choose to work or not combined with the flexibility to pursue your ambitions and dreams is appealing to just about anyone. While the F.I.R.E. method does require a great deal of sacrifice, this path can be the solution to your dreams of being financially independent.
Me and Nick’s goal is to retire by 40. F.I.R.E. is one strategy we’ve looked into to make this dream a reality.
What Does It Take To Succeed At F.I.R.E.?
The generally accepted definition of financial independence is a net worth 25X your annual expenses. Therefore, if your annual expenses are $40,000 (roughly $3,400 per month) then you will reach financial independence once you have a net worth of $1 million.
From my perspective, you net worth will have to be liquid in order to be considered financially independent. There are plenty of folks who live in homes that are worth $1 million and therefore would have a net worth north of a million dollars. However, they may not be financially independent if the majority of their net worth is wrapped up in a house because it is an asset that can not easily convert to cash.
What Are The Downsides?
With any financial strategy there are downsides to consider. The biggest one with F.I.R.E. is this is a new strategy and has not been vetted. Most of the folks who have found success with this movement are still relatively young, have saved over $1 million, but only time will tell if their savings will last through retirement.
The other downside, from my perspective, is the extreme frugality. It seems akin to an extreme diet which we all know is not sustainable- and if prolonged it is actually detrimental to your health. I believe that extreme frugality not only harms the individual and their ability to enjoy life, but it is also devastating to the economy. A healthy economy can only thrive when there are ample sellers AND buyers. When people restrict their spending, they are harming small businesses and the economic flow.
Who Is F.I.R.E. best for?
If your money love language is safety and you thrive off of living frugally, then this approach to financial independence may be the ticket for you. A quick Google search of the movement will provide plenty of examples of success stories for you to gain inspiration.
To get started on your F.I.R.E. journey, check out the Choose Financial Independence (Choose FI) podcast. In this episode they examine the ten pillars of financial independence in depth.
These ten pillars, according to the hosts of the podcast, are:
Lower your housing costs
Drive used cars
Cut the cable cord
Lower your tax liability by maxing out your tax-deferred vehicles such as your 401(k), 457, 403(b), IRA, HSA, etc.
Switch to cheaper cell phone service
Use credit card rewards and smart financial habits to help fund your travel
Reduce your grocery bills
Increase your income and consider adding multiple income streams
Invest via low-cost index funds
Use the 4% rule. This is one equation to achieving financial independence. This is when you can withdraw 4% from your nest egg with ease each year to cover your expenses and still have enough money for the future.
Who Is F.I.R.E. Not Good For?
Everyone has to find the financial approach that works best for them. For me, F.I.R.E. is not my approach. I would prefer to focus my energy on increasing my income and practicing mindful spending as I work towards financial independence.
Now I’d love to hear from you! Are you a F.I.R.E. fan? Let me know in the comments below.
Disclaimer: the content presented in this article is for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.
