The FIRE Movement — Guide
The Financial Independence, Retire Early (FIRE) movement is one that aims to help individuals achieve financial freedom and gain control over their lives, rather than depending on income from a 9–5 job to fund their lifestyle. The ultimate aim of FIRE is traditionally to take early retirement, using your savings and income from investments for all your living expenses. The definition of FIRE has become much broader and more expansive over the years. Nowadays, many people place more emphasis on the “financial independence” aspect of FIRE, rather than retiring early.
Fire is often characterized by the principles of extreme saving, frugality, and generating a passive income to fund an early retirement. However, it really all about giving yourself the financial capacity to choose what you want to do, whether that’s retiring early, working part-time, or pursuing other careers or hobbies that you can now financially afford.
So how exactly do you get financially independent?
*Before doing anything, you should consider what your goals actually are. Decide when you want to retire, if at all, and, once you know what you want, you can start to plan how you will get there.*
While the answer will vary from person to person, financial independence is commonly cited as having 25 times your annual expenses in investments. This also works out to 300 times your monthly expenses. Having 25 times your annual expenses in investments is a benchmark that comes from the 4% rule. A study entitled “The Trinity Study” showed that you could withdraw 4% of your assets in the first year of retirement. Then, in each subsequent year, you could increase your withdrawal by inflation. If you do this, you have good odds of not running out of money before the end of a typical 30-year retirement.
If achieving financial independence, early retirement of both sounds appealing to you, the concept of how to get there is easier than you’d imagine. Ultimately achieving FIRE boils down to three simple steps: cutting your expenses, growing your income, and investing.
Cutting expenses
This is an extremely powerful move when you’re first getting started on your FIRE journey. Cutting out $100 a month of expenses lowers the amount you’ll need to reach financial independence by $30,000. The other great benefit of cutting expenses means that you’ll have more money available to invest each month. This helps you speed up the accumulation of your investments which helps you reach financial independence even faster.
It’s important to note that you shouldn’t be cutting expenses to an extreme unless you love living that extreme lifestyle. Instead, consider cutting expenses you don’t value and keep the expenses that make your life easier or more fun.
Increase your income
You could also look for ways of boosting your income, whether that’s through advancing your career or from getting a second job or side hustle.
Finding ways to make additional income can help you reach FIRE sooner, as long as you don’t fall into the ‘lifestyle inflation’ trap which is when you’re spending increases alongside your income. Instead, if you save this extra money you earn, you can achieve your savings goals quicker!
Invest
Investments are a way to generate passive income which means your money continues to work for you long after you’ve earned it.
If you invest your money in a broad market index fund, it isn’t unheard of to get an 8% annual return over a long period, such as 20 years or more.
Because FIRE is centered around saving money, you will undoubtedly have to make changes to your lifestyle, which may involve some sacrifices. The sacrifices you are willing to make to achieve your FIRE goals are up to you. Some will be willing to live on a minimalist budget to achieve financial independence quicker, while others will prefer to enjoy more luxuries even though it will take longer to reach their savings target.
Rather than viewing FIRE as a frugal lifestyle involving great sacrifices, you can view it as understanding what makes you happy and making conscious spending decisions!
