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The FIRE movement aims for early retirement through deep frugality

The FIRE movement aims for early retirement through deep frugality
Posted at 6:30 AM, May 17, 2022
and last updated 2022-05-17 06:13:30-04

The FIRE movement refers to the acronym for Financial Independence Retire Early. While it has been trending recently, the idea has been around for several decades.

In 1992, Vicki Robin and Joe Dominguez published “Your Money or Your Life.” Dominguez retired from his Wall Street career at 31, and the duo created the New Roots Foundation, an organization aimed at educating people about the benefits of simple living and financial independence.

Recent blogs, podcasts, social media content and a 2019 documentary discussing the FIRE movement have made it increasingly popular. The COVID pandemic has also prompted a significant percentage of younger adults to seek out ways to retire early.

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Many people who work toward FIRE try to retire in their 30s and 40s. For example, Pete Adeney, who writes the popular FIRE blog Mr. Money Mustache, retired at 30 with a paid-off house and $600,000 in savings and investments.

“I think part of the ‘Great Resignation’ we’ve been reading about in the news is people taking early retirements and choosing to stay home with their kids or start something new,” Adeney told Kiplinger. He added that he believes the core of the FIRE movement is “prioritizing happiness, health, family and friends, hard work, connection with nature, and a certain amount of simplicity instead of just focusing on getting rich.”

Pros And Cons Of The FIRE Movement

Although many people like the idea of early retirement, some are wary of the FIRE movement because they have heard it is a cult. Adeney has used the term frequently himself.

“It’s supposed to be a bit of a cult,” Adeney told The New Yorker. “The rest of society oppresses us. We have our own symbols. The bicycle, the hatchback.”

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“People think of a cult as a bad thing, because they’re thinking of Waco, Texas and Kool-aid,” he clarified in an interview with Y Combinator. “But really, it’s just a social organization structure, which is a basic built-in thing to human beings, and it’s what allows us to live together and cooperate.”

Experts say the FIRE movement isn’t a cult, although it can have some extreme tendencies. One example: Upon separation, Adeney and his wife saved a bundle by handling the paperwork for their divorce themselves, bringing the cost down to $265 in court fees.

Here are some pros and cons to consider.

Pros:

  • Retiring early to have more flexibility.
  • Learning to live below your means.
  • Gaining a better understanding of your finances.
  • Learning to control your schedule and prioritize your time.

Cons:

  • Cutting spending can be difficult with limited resources.
  • The cost of living may increase more than expected over time.
  • Not all investments perform as planned.
  • The day-to-day changes required to save enough to retire early can be challenging.

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Types Of FIRE

There is no one-size-fits-all approach to the FIRE movement. However, if you are intrigued, you can compare various strategies to determine which one suits your life best.

  • Traditional FIRE: Multiply your expected annual expenses by 25 and then work to save up that amount.
  • Lean FIRE: Cut costs now and plan on a minimalistic lifestyle upon retirement.
  • Fat FIRE: Plan to live more lavishly than average in retirement and have the funds to afford it.
  • Barista FIRE: Have invested assets that cover most of your living expenses, and do enjoyable work to make up the difference and keep your health insurance.
  • Slow FI: Reach financial independence at a slower pace.
  • Coast FIRE: Aim to invest enough money to cover a traditional retirement and then “coast” until retirement by working only part-time.

Tips To Get Started In The FIRE Movement

If you think the FIRE movement might suit you, these ideas can help you begin.

1. Understand Your Why

Having a clear sense of what you want to do with the rest of your life can help you buckle down and do what it takes to retire early. For instance, you might want to travel the country with your children or perhaps you want to open a vineyard. Everyone’s reason is unique.

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2. Do The Math

There’s a big difference between having a general idea of how much you need to live and identifying specifically how much you can afford to save or invest. So, take the time to determine realistic annual household expenses and set a solid budget. Calculate your current net worth while you’re at it.

3. Build An Emergency Fund

Having cash available to cover unexpected bills will help you avoid accumulating more debt. Work toward an emergency fund of $1,000 to start and build up from there. Experts recommend having enough saved in an emergency fund to cover three to six months of expenses.

4. Work With A Pro

Planning for retirement is a big deal. A financial planner can make sure you understand everything from investment accounts and pensions to how you will pay for health insurance or if you will pay income tax.

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5. Create A Budget And Live By It

Many FIRE movement followers aim to save between 50-75% of their income. You will likely need to eliminate debt, identify wants vs. needs, and find ways to trim spending. This can mean swapping a vehicle for a bike, moving to a smaller home, or finding roommates and eating all your meals at home.

6. Boost Income

Paring down costs isn’t the only way to increase your savings. You can also add to your income. For some, this looks like finding a higher-paying primary job. For others, it can mean picking up one or more side gigs.

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7. Save And Invest

Decide the best way to invest the money you squirrel away. Many FIRE followers build a diverse portfolio of stocks and bonds that can endure market volatility. It is also helpful to maximize savings in 401(k)s, IRAs, HSAs and other tax-advantaged accounts.

8. Focus On The Big Picture

You may feel like the odd one out with friends or colleagues. While they spend money on restaurants and vacations or pricey clothes and cars, you are socking your money away. When you do, remind yourself again why you are doing it. Surrounding yourselves with like-minded people is invaluable, too.

This story originally appeared on Don't Waste Your Money. Checkout Don't Waste Your Money for product reviews and other great ideas to save and make money.