FIRE, an acronym for “Financial Independence, Retire Early”, is a term first coined by Vicki Robin and Joe Dominguez in their 1992 book Your Money or Your Life. The movement aims to push down the conventional retirement age from 65 to 40, or even 30, through a program of extreme savings and investment. It is also a campaign to counter overconsumption, to demonstrate that people could consume fewer resources while still having a rewarding life, or as Robin put it, “If you live for having it all, what you have is never enough.”
To be able to retire at a young age while also sustaining their living expenses, FIRE followers have to be willing to make small withdrawals from their savings, typically around 3% to 4% of the balance yearly. Whether aiming at a frugal or luxurious lifestyle after retiring, the FIRE movement demands extensive diligence to monitor expenses and dedication to long-term investments.
Recently, the FIRE movement has gained new popularity among millennials. According to Investopedia, these people are willing to stick through the extreme-saving lifestyle while remaining in the workforce for several years and saving up to 70% of their yearly income. Once their savings reach $1 million (approximately 30 times their yearly expenses), they would quit their day job and live off their earned savings.
Three types of FIRE
The goal of Lean FIRE is to reach financial independence as soon as possible. The only way to achieve this is by saving up most of the money you earn and favoring a minimalist and “lean” way of living. You have to be willing to live on the bare minimum and save the rest, and even in retirement, you would also be living modestly. This program is designed so that the followers of Lean FIRE will reach their goal the fastest way.
Instead of a frugal life, the followers of Fat FIRE prefer to take a more moderate approach to achieve FIRE. This means, while they save most of their earnings, they would still be spending some of the money to sustain their current lifestyle. The downside is that it will normally take longer to achieve the goals and you are likely to need a higher income.
Unlike the previous two, this type of FIRE requires you to still be working in your retirement although not for financial purposes. The followers of Barista FIRE usually work part-time or do freelance jobs in their retirement. Some work simply to obtain health coverage, yet most of them are usually pursuing a dream career that is less well-paid.
The ultimate guide to FIRE
In 2020, Rhiannon Philps comes up with the ultimate guide for people who want to pursue FIRE. He lists 4 ways everyone can be financially independent regardless of their age and income.
First, he suggests everyone starts making a plan. Define what you want your retirement to look like and make a plan to get there. What standard of living do you want in retirement and how much does this cost? How much do you need to save? Do you need to increase your income? As you progress on answering these questions, you will slowly be able to conceptualize the real action plan to achieve FIRE.
Second, keep your expenses as low as possible. Review your monthly and annual spending, and try cutting off some trivial expenses that you would be willing to sacrifice. In pursuing financial freedom, saving a few dollars here and there really adds up over time. As Kristy from Millennial Revolution emphasizes:
“The trick is to realize that you can’t spend on everything. You can’t go clubbing every weekend, AND eat out every meal, AND buy purses every month, AND rent an expensive place, AND buy a car every two years, AND etc. You have to pick and choose: what one or two things really make you happy, and then deprioritize the rest.”
Third, increase your income. Whatever your financial condition right now, additional income will play a big role in helping you gain independence and eventually enjoy an early retirement. Boosting your income could be done by advancing your career or engaging in a second job. These days, people have started to take interest in opening their own online businesses or a YouTube channel because apparently, they are a great source of additional income.
Fourth, always save and invest! Investment is one of the most popular ways to generate passive income, meaning your money continues to work for you long after you’ve earned it. Investing could be tricky and everyone should definitely learn the know-how of investing before diving in, else it would be a gamble on your money. However, if you are not sure of how much to invest, try investing 15% of your income first and start saving up 3–6 months of expenses in a fully-funded emergency fund.
The FIRE movement does revolve around the principles of extreme saving, frugality, and generating a passive income to fund an early retirement. However, it is not simply about how to break out from the vicious cycle of 9-5 working life, it is also about giving yourself the financial capacity to choose what you want to do, that could be retiring altogether or pursuing a career or hobby that you can afford only after gaining financial freedom. Ultimately, this movement gives you the choice of working for pleasure rather than working to survive.