If you think that leaving your job and sailing off into retirement is something that only happens when you’re 65 years old, think again! There’s a growing community of highly motivated individuals who are challenging this concept and finding new and creative ways to retire as early as their 20s and 30s.
It’s called the F.I.R.E. movement, and in this post, we’ll explain what that means and why it’s become so increasingly popular. We’ll also talk about how someone achieves F.I.R.E. and what you can do if you’d like to get in on the action too.
What Is F.I.R.E.?
F.I.R.E. is an acronym that stands for “Financial Independence, Retire Early”. In a nutshell, it’s a lifestyle design where the goal is to aggressively build up your assets to a point where they can sustain your living expenses; presumably decades before the traditional age of retirement.
The movement started gaining a lot of attention with the rise of blogging in the early 2000s. Several people who had accomplished this lifestyle started writing about how they had done it and all the great things they were doing with their lives now that working was no longer needed. The idea really started to take off and has become particularly popular among millennials.
One of the most well-known early F.I.R.E. figures was Jacob Lund Fisker. His book and blog by the same name “Early Retirement Extreme” discusses how he retired in his 20s after only 5 years of working by reducing his lifestyle expenses to just $7,000 per year.
Now, you can find thousands of F.I.R.E.-related blogs with very similar stories. There is also a great podcast called Choose FI, a very active financial independence subreddit, and even a documentary called “Playing with F.I.R.E.”
How Does Someone Achieve F.I.R.E.?
The strategy behind F.I.R.E. is mainly the same as traditional retirement planning. However, it uses more extreme inputs to achieve an accelerated outcome.
For example, let’s say you live off of $40,000 right now and want to retire someday. Using the 4 Percent Rule, we can estimate that you should save up a nest egg of roughly $1 million ($40,000 / 0.04). Your goal would then be to save about 10 to 15% of your paycheck for the next 30 years in hopes of reaching your nest egg target.
However, with F.I.R.E., things work a little differently:
- Instead of living off of $40,000, what if you could get your expenses down to $24,000? That would decrease your nest egg target to just $600,000.
- Instead of saving 10 to 15% of your paycheck, why not crank your savings rate up to 50% or even 75%?
By optimizing both ends of the process, the net result is that you achieve financial independence at a much faster rate than the average working person.
Why Do So Many People Want to F.I.R.E.?
People have been retiring from their jobs when they reach their 60s for decades now. So why the rush to retire so much sooner? What’s the allure that’s got so many people excited about their finances?
Here are a few of the most commonly cited reasons:
A huge draw for many people to the F.I.R.E. movement was the concept of having total financial security. Many of the first bloggers to seek financial independence did so because they either lost their jobs during the Great Recession of 2008 or were somehow affected by it.
What’s great about becoming F.I.R.E. is that if you do achieve financial independence, then you’ll no longer be dependent on your job. Whether there’s another economic recession or the company goes out of business, there’s no need to panic. You’re going to be fine.
Escape the Trappings of the 9-5 Grind
Not only does achieving F.I.R.E. save you from a potential job loss, but it also gives you the power to ditch your corporate job and work as you please. No longer do you have to be stuck in some cubicle or working for a boss you don’t like. Many in the F.I.R.E. movement have gone on to pursue other ambitions and interests such as becoming writers, speakers, travelers, and entrepreneurs.
Get Out of Debt
No one likes to be in debt to someone else. But unfortunately, that’s become one of the mainstream ways to buy just about anything these days: a home, vehicle, education, etc.
One of the great benefits of F.I.R.E. is that you’ll be developing financial habits that will keep you out of debt as well as eliminate the debt you have now. That’s a pretty empowering feeling knowing that you’ll get to a place where you no longer owe anyone anything.
How You Can Become F.I.R.E.
You don’t need to have any specialized financial knowledge or even young to become F.I.R.E. Literally anyone at any age or income bracket can do this.
Here’s how you can get started:
1. Optimize Your Expenses
Go through your expenses and eliminate anything that you either don’t need or that doesn’t truly add value to your life. This includes paying down your debts as quickly as possible.
2. Save a Large Portion of Your Income
Remember, those who F.I.R.E. save a big percentage of their paychecks because they value financial independence above all other purchases. A good goal to start with is to try maxing out all of your tax-advantaged retirement accounts like your 401k and IRA. Your retirement accounts are going to give you the most bang for your buck because you’ll be able to delay paying your taxes until you finally start withdrawing your money as needed.
3. Earn More Income
Those seeking to become financially independent don’t just settle for what’s handed to them. They take matters into their own hands and look for every opportunity possible to make more money.
This could be from doing side hustles, owning rental properties, investing in dividend stocks, etc. The more income they can earn, the more savings they can stash. And that means achieving F.I.R.E. that much sooner.
4. Invest for Long-Term Growth
The F.I.R.E. investment philosophy isn’t to bet on speculative investments or take unnecessary risks. Instead, they preach investing in funds that are tried and true.
The most popular of these are index funds. Index funds are mutual funds and ETFs that follow a popular market index such as the S&P 500. You may not make any huge year-over-year gains, but you’ll also be much less likely to lose money over time too.
If you’d like to get your savings rate up, take a deep dive into your spending habits, and plan for a potential early retirement, then let Buxfer help. Buxfer will track and categorize your transactions, helping you to identify where your money is going. Click here to find out more about the Budgeting feature.
Additionally, the Buxfer Plans feature can be used to lay out your long-term goals by forecasting your net worth over time. Click here to find out more about the Plans feature.
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