What is FIRE Financial Independence Retire Early?
If you’re not familiar with the FIRE movement, it is an acronym for Financial Independence Retire Early.
The idea behind this lifestyle choice is to retire from work and live off of your investments as early as possible in life.
When following the philosophy, followers aim to spend less than they earn and invest the difference into their portfolio.
With a well-diversified investment strategy, it is possible to achieve financial independence through earning passive income while still working full-time or part-time jobs.
I know what you’re thinking: “I’m not the person who can retire early.” Well, let me tell you that it’s never too late to start saving and investing for your future.
This article will take a deep dive into the world of financial independence, debunking myths about this lifestyle choice along the way.
I’ll also give some tips on how to get started with FIRE and discuss why we believe everyone should have their own FIRE plan in place.
The Modern FIRE Movement
Yes! It is possible, and I’m a guinea pig of this road less traveled. Allow me to be your guide…
Financial Independence (FI) is not a new concept. People throughout history have always strived for wealth and financial independence but seldom do.
So what makes today any different? Technology.
The Internet has allowed the masses to connect on a level never seen before and subsequently allowed the modern FIRE movement to flourish.
Personal finance bloggers (myself included) are willing to share full details of their financial journeys from start to finish. In fact, I wrote an entire book about how to do it – The F.I.R.E. Planner.
As such, the concept of FI or FIRE has become a lot more accessible to people. We are waking up to the fact that most anyone can achieve FI if they’re willing to be persistent and follow a specific strategy.
Once you realize that YOU too can achieve this, a light bulb goes off in your mind and your hunger for freedom goes into overdrive. (I like to call this inflection point becoming “financially alert”!)
When speaking about FIRE, the most important component is “FI“, or Financial Independence.
Financial Independence is the tipping point when your annual passive income exceeds your annual expenses — indefinitely.
This crossover point is highly sought after, and more people are reaching it every day. What would you do if you didn’t have to work for money anymore?
So, when exactly are you financially independent? Well, let’s take a look at a simple example.
Let’s say your annual expenses are $35,000 per year. And, over the past fifteen years, you’ve been able to save $875,000.
Using the 4% rule, you can make the broad assumption that you could live off of your $875,000 forever! Goodbye 9-5 job, hello beach. 🙂
Of course, that was a simple example. If you really want to dive into specifics, there’s no one better to show you the intricacies of safe withdrawal rates than Big Ern at Early Retirement Now.
Also, it’s important to note, that everyone’s goal is different, and thus there is no one set “FI number” to hit.
“Retire Early” in FIRE
Now “RE”, or Retire Early, is another important concept to this formula. For me, this was a huge goal for me growing up. I wanted to know that I wasn’t bound by the need to work for money and that I could simply sit at home all day long watching TV shows if I chose to. (Ironically, now I barely watch any TV!)
But, it’s important not to get caught up in the traditional definition of “retire”. When most people think of the word “retire” or “retirement”, they assume the complete cessation of work. Perhaps they even envision a senior citizen ending his/her career for a slower pace of life with bingo, cruises, and trips to the library.
Well, thankfully, you can chuck that picture out the window when we’re talking about FIRE. You see “retire early” means whatever you want it to mean, and it has a much looser definition amongst the FIRE community.
The truth is that when people reach financial independence earlier on in life, few take an early retirement in the traditional sense. However, the freedom to do so if desired is priceless.
I’m no different. Even though I FIRE’d at 36, I decided that I still wanted meaningful work after leaving my full-time position… in fact, I needed it.
Today, I simply say that I’ve retired from a traditional 9-5 career. And, I spend my time raising my kids, blogging, coaching, running an Amazon side hustle, and invest in real estate… to name a few. And, that’s the beauty of FIRE! You can do whatever you want when you want to (minus the kids’ schedules…haha).
There is an infinite number of ways to “retire early!”
The Paths to FIRE
There are several different strategies to reach FIRE (including winning the lottery), but I’ll touch upon the most popular paths below.
BTW, don’t feel like you have to choose. I’ve used each of these methods to help further my FIRE journey.
FIRE via Saving/Investing
The most popular and accessible entryway into FIRE is the saving/investing model. In this model, you will aim to save 50%+ of your after-tax income. These savings should be used to pay off any high-interest debts first, followed by the creation of a safety fund. Once you’ve established a safety fund, the savings may become synonymous with investing.
“Investing” in this model will usually consist of putting away as much money into tax-advantaged investment accounts (e.g. using a Roth IRA, backdoor Roth, etc.). FIRE via Saving/Investing isn’t concerned with trying to time the market or actively manage individual stocks. Instead, they are only concerned with getting their money into the market via low-cost index funds. They believe that investing over the long run is their best bet for creating their FIRE nest egg.
Because this model favors saving a large portion of your income, you may find hardcore savers who cut down their expenses to a minimum or even relocate to take advantage of geo-arbitrage (e.g. moving to a state with lower income taxes, cost of living, etc.). The beauty in this is a lot of people realize that their annual expenses don’t need to be sky-high. And, once they’re comfortable with their lower annual expenses, they probably realize their FIRE number is much lower than they once thought (maybe they only need $1M, instead of $3M).
In my case, I saved upwards of 50% annually for a few years. This helped me to build up my portfolio over the years. However, I never adopted a minimalist lifestyle. I’m pretty sure it would have helped me reach FIRE faster, but I was satisfied with the savings portion at the time (more on FIRE flavors later).
To get started with investing around this model, the best resource I can find is J.L. Collins’ Stock Series. He does an incredible job at explaining the strategy of low-cost index fund investing in a detailed and easy-to-understand way. He’s also written a book, The Simple Path to Wealth, which I highly recommend.
FIRE via Starting, Running, & Selling a Business
Another viable path to FIRE can come from entrepreneurial pursuits. There are millions of small businesses that provide product and services to consumers and/or other businesses. As such, these companies have an opportunity to grow, and for the owners, a chance to profit handsomely.
This path, however, is not for the faint of heart. It takes a TON of persistence to run a profitable business and diligence throughout the life of a business. But, if you’re up for the challenge, entrepreneurs can create their entire FIRE foundation in a matter of years vs. decades.
If you’re interested in how I used my own business to accelerate my own path to FIRE, check out the article I wrote for Financial Samurai.
There are also FIRE opportunities for those who are self-employed as a professional. In fact, self-employed individuals could potentially have the ability to save a lot more money into tax-advantaged retirement accounts vs. a traditional W2 employee using SEP IRAs and other strategies. However, self-employed individuals are also amongst the highest taxed individuals in the U.S.
Starting a business has never been easier or more accessible than before. And the great thing is you don’t have to give up your day job to begin. For a ton of side hustle ideas, check out Side Hustle Nation. In addition to my blogging and coaching, I have another side hustle selling a product via Amazon’s FBA program.
FIRE via Investing in Real Estate
If you didn’t already know, I love real estate investing (REI). Real estate investing is quite possibly the best tool for those seeking FIRE. A well-purchased real estate investment can generate a significant stream of passive income, and/or grow your net worth with little to no effort on your end. The main caveat is that you’ll need to purchase your real estate investments wisely. Like any other asset class, there are bad deals too.
Finding a nice cash flow property is not impossible, but it will take some work to find the best ones. So, it’s important to educate yourself properly around REI as much as you can before pulling the trigger. That said, you also don’t want to get caught up in analysis paralysis. Find a balance and take action!
Finding excellent resources can significantly cut down your time to REI success. Learn from those who have already “done it”… there are plenty! And, read books from the best investors out there.
Just this week, Coach Carson came out with a new book specifically targeted towards those seeking FIRE. It’s called Retire Early with Real Estate and it’s awesome. I’m only halfway through it, but so far it’s been spot on. (I’ll be reviewing the book soon, so keep a lookout for that.) Aside from this, check out my resources page for a few more real estate investing books I recommend.
If you find yourself too busy to become a part-time real estate investor, then consider investing in real estate via alternative vehicles. This could be through crowdfunding, private syndications, or even REITs.
Want more inspiration? Here are two bloggers who have reached FIRE using Real Estate Investing as their main accelerator.
ESI Money, or John, owns several properties which cash flow every single month. With the base, he is free to pursue other passions like blogging, running Rockstar Finance, and helping others in the personal finance community.
Eric, from Ideal Real Estate, is a young real estate investor who created 5-figures of passive income per month by the time he was 29. He’s continuing to build out his portfolio and help other real estate investors do the same.
The FIRE Community
As someone who achieved FI in my mid-30s, I simply started writing my blog not really understanding I was discussing FIRE. However, the more I wrote and read other bloggers, the more I learned about the FIRE movement. There’s a lot of information out there and it’s only growing exponentially… “seek and ye shall find!”
The FIRE Community is a fascinating and eclectic mix of professionals, technologists, hippies, physicians, and more! And the more you explore, the more you’ll find. Here are just a few starting points to take you down the rabbit hole…
One of the most prominent bloggers and influencers in this space is Mr. Money Mustache (a.k.a Pete). Pete speaks candidly about living a simple life, without the media-driven frills, in exchange for a life of minimal expenses (and ultimately your freedom). And, his message continues to affect a lot of people who are eager to escape the “rat race” as we say.
In addition to my site, there are countless other sites (10 Provocative Early Retirement FIRE Blogs you Must Read) that cover FIRE to varying degrees.
Just last week, there was a great article published in the NY Times – How to Retire in Your 30s With $1 Million in the Bank, which features my friend, Carl, from 1500 Days and a few others.
Yet another place to get caught up is Reddit which has a very active subreddit on Financial Independence. You’ll find an entire community of FI and FIRE personalities willing to show you the way.
And finally, the go-to book on FIRE is written by Vicki Robin and Joe Dominguez – Your Money or Your Life. Vicki recently came out with an updated version of the book as it was originally written in the early 1990s.
Where Are You on Your FI Journey?
But, shouldn’t you know where you’re at in your FI or FIRE journey?
Recently, I found an excellent breakdown of the different FI milestones over at FI180. Joel really hones in on our desire to know where we are on our path to FIRE.
By tracking FI milestones, you allow yourself to break up the journey into digestible pieces which you can celebrate along the way.
He breaks it down as follows:
FU Money – Defined as having enough money to survive without your current job/position for a year or 2. “The exact amount of money required in order to tell an individual or organization to go f#$! themselves without facing the repercussions.” -Urban Dictionary
Half FI – Defined as having half of our FIRE number
Lean FI – The point where you can passively cover all of your essential expenses indefinitely. Essential items could include food, shelter, and critical utilities. This wouldn’t include discretionary expenses like the newest iPhone, NFL cable subscription, or travel.
Flex FI – The point where you’ve saved 20 times your annual expenses. You’re drawing closer and closer to FI each day from this point forward. Theoretically, if you stopped working here, you’d still have an 82% chance of early retirement success (according to the Trinity Study).
FI – Woohoo! You made it. You’ve saved 25 times your annual expenses. Based on the 4% rule, you’ve got an excellent chance of retiring into the sunset.
FAT FI – Once you hit FI, you’re not required to stop! So, at this next level, you’re going to be at 30+ times your annual expenses. Remember the 4% Rule that we based our FI number on? Now, this places us at an even safer, nearly indestructible 3.33% Rule which is 120% of your FIRE number.
Pretty cool, huh? Joel tells us reaching FIRE doesn’t need to be a binary event of TRUE or FALSE. I’d agree!
My Problem with the FIRE Movement
I believe there are times when frugality can go too far.
What I mean is this. Sometimes people automatically assume that FIRE is associated with extreme frugality.
The “lean” FIRE movement is comprised of minimalists and extreme frugality-focused individuals, with less of a focus on earning more. These advocates not only follow strict budgeting and financial goals, but also follow more philosophical minimalist approaches like those advocated by The Minimalists. I estimate that 80-90% of FIRE movement individuals fall into this camp. (quote from FIRE for Non-frugal People)
- Robert Farrington, The College Investor
I believe this affinity towards minimalism sometimes scares away those who would rather live a more mainstream life. But, the truth is you can have both!
The other problem with emphasizing extreme frugality is that it creates an imbalance. The FIRE equation is controlled by 2 simple variables… income and expense. Extreme frugality places most attention and focuses upon reducing expenses to the bare minimum. But, what about the other half of the equation – income?!
Perhaps it’s because I’m an entrepreneur at heart, but I’m more interested in the income and production side of the equation. You see, the income side is unlimited, while extreme frugality has a finite limitation.
So, I’d rather practice (and always have) – relative frugality.
In this model shared by GenYFinanceGuy, the goal is to save a specific percentage of your income and enjoy the remainder. In his example, GYFG saves 50% of his income, but also spends the other 50% on whatever he likes!
For high-income earners such as physicians, lawyers, executives, or business owners, this model will more likely resonate with them.
Finding Your Flavor of FIRE
So, what flavor of FIRE are you pursuing? Here are a few out there…
LeanFIRE – achieving FIRE by executing a particularly lean budget – an early leader in this space was Jacob of Early Retirement Extreme
FIRE – just plain ole’ FIRE (financial independence, retire early)
baristaFIRE – LeanFIRE with just enough part-time work at Starbucks (or equivalent) to receive healthcare benefits
TBD FIRE – “to be determined” FIRE models… i.e. your own personal FIRE flavor based on what aligns with your core values.
What’s next is anyone’s guess. But let’s not forget what FIRE is really about…
Happiness – Don’t Lose Focus on the Ultimate FIRE Goal
Ironically this is easier said than done. It’s rather easy to get caught up in a FIRE particular path, and subsequently, lose sight of the end goal.
So, don’t wait to be happy until you are finally FIRE’d. Make sure to enjoy the FIRE journey as much as the destination and beyond.
FIRE is definitely a worthwhile goal so long as it allows you to do more of what matters. Just make sure you know what that is before you embark. 🙂
What Happens if I Fail?
So, what happens if you get to the end of your FIRE journey? Is it really fail-proof?
Is sequence of returns risk something I should be worried about?
Let me let you in on a little secret. There are no guarantees in life. But that shouldn’t stop you from trying!
What’s the worse possible scenario for an early retiree who miscalculates his FIRE number?
Easy. Go back to work! Your worst nightmare of having to work for a living is the reality for almost everyone else every day.
Fail forward and learn to be flexible if needed. You’ll do just fine.
How to Accelerate Your FIRE Journey
But, for some, they’d rather add some fuel to the FIRE.
So, here are a few different ways to accelerate your journey towards FIRE.
Immerse Yourself in the FIRE
Immersion into any subject will help you to accelerate your learning. Learning the “lingo” about a particular subject, the thought leaders, and the strategies, will boost your understanding to the next level in a short amount of time.
I’ve mentioned it above, but read the materials of authors and writers who’ve accomplished what you’re seeking to do. Read the best FIRE blogs out there and figure out what made them successful.
Ready to read more FIRE blogs? Check out CampFIREFinance for a round-up of the best FIRE content being generated daily.
The options to immerse yourself are endless.
Get a Coach
Consider getting a FIRE coach who’s already done it.
A FIRE coach can help accelerate your FIRE goals by working with you one on one.
They can help you to plan, give you perspective, keep you accountable, and encourage you along your journey.
If you’re interested in joining my group coaching mastermind, you can find more information here.
Find a Tribe
And if you’re more group-oriented, you could join a FIRE community of like-minded individuals online, or in person.
There are dozens of FI-related Facebook groups available, in addition to local meetups. I know most major cities probably have a local ChooseFI group that meets up at regular intervals.
Attend a Conference
They also host CampFI which is a 3 day/night retreat that accommodates up to 60 campers with events located in the Southeast, Mid-Atlantic, Southwest, Midwest, and South.
Or, consider Jim Collin’s annual FI Chautauqua conference which is usually at some cool international location.
Remember, proximity is power and having people around you who can raise your standards is invaluable.
Hopefully, this guide has given you some additional insight into the world of FI and FIRE. No doubt FIRE is here to stay. The question is where will it go from here?
As a big proponent of FIRE, I will always encourage those seeking it and help the movement in any way I can.
Reaching for FI can bring out the best qualities in us as we reach beyond our comfort zones. Don’t forget,
FIRE can be the gateway to your true passions in life and living in that zone is a blessing for you and all of those around you.
The FIRE is spreading, and it’s a wonderful thing!
*Since updating writing this article, I’ve subsequently written a book on FIRE! It’s called The F.I.R.E. Planner and it’s the first illustrated and fully interactive book on FIRE.
If you’d like to know more about the book, you can find it here.
Readers, are you seeking FIRE? If so, what will you do once you hit FI? For those of you who have already reached FIRE, do you have any advice for those just starting out?