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What is the FIRE Movement? How to Become Financially Independent and Retire Early

Reaching financial independence takes time, and you have to take constant steps to build it, sometimes making great compromises. So here are the most important things that will help you retire early.

The goal of retiring as early as possible gave birth to a whole movement named FIRE.

What is the FIRE movement?

FIRE stands for Financial Independence, Retire Early, and it came to life in 1992 after the launch of, Your Money or Your Life, a book written by the two financial gurus, Vicki Robin and Joe Dominguez. 

The movement is based on a savings rate of as much as 70% of your yearly income into an investment portfolio to afford to retire early. When your savings reach 30 times your yearly expenses, you can retire or quit your day job. Once you achieve that, you can withdraw 3 to 4% of your savings yearly to cover your living expenses. 

Two things to note: 1) the higher your lifestyle expenses, the more you’ll need to invest 2) Many in the FIRE movement live a frugal lifestyle even with their considerable nest egg.

How FIRE Works

Many invest in stocks (specifically index funds or exclusively in dividend-paying companies), and some allocate portions of their portfolio to bonds. While others invest in real estate as part of their portfolio strategy.

Now, there is no right way to achieve FIRE. It can take different forms depending on individual preferences.

To help you get started, calculate your financial independence number to know exactly how much you must set aside to retire early before the traditional retirement age.

How You Can Achieve FIRE

Reaching financial independence takes time, and you have to take constant steps to build it, sometimes making great compromises. So here are the most important things that will help you retire early.

1. Analyze your budget in detail

To reach any financial goal, you must know how your money flows in great detail. Take your budget (or if you don’t have one, start a budget) to understand your income and expenses.

As you analyze your budget, make adjustments that get you closer to reaching your savings goals for early retirement. Once you dedicate yourself to FIRE, every financial decision should support your progress.

2. Cut down on your expenses

Remember that “70% of your yearly income” should go towards your early retirement fund. Cut out non-value-added expenses and lower costs as much as possible.

Are you using and really benefiting from all your paid subscriptions? Do you really need to go to a restaurant every week/day? Do you really need new clothes every month? 

You’ll need to make a few compromises or sacrifices. The focus is cutting back on your annual living expenses, which reduces the amount you need to save and the amount you’ll need during early retirement.

Remember, you should cut whatever is not a necessity or priority. That money would then go towards the FIRE retirement goal.

3. Pay off debt and your mortgage early

FIRE is harder to achieve when you are beholden to massive debt. Remember, debt is reserving your time to work rather than fun.

Get rid of debt as soon as possible, including student and auto loans, mortgages, and credit card balances.

Becoming debt-free offers two benefits: 1) lower annual living expenses and 2) more money to save.

4. Make sure you have an emergency fund

A significant step towards achieving financial independence is having enough money in your emergency fund to cover 6 months of living expenses.

Maybe your car needs fixing, which is not covered by your insurance, or something needs fixing in your home. Your emergency fund will help cover unexpected expenses without interfering with your FIRE plan. Because you don’t want to tap into your retirement fund before you actually retire.

5. Increase your income

Get a pay raise at work so you’re earning more for your current work. And start doing side hustles to supplement your income. This way, you’ll have more money to save or pay off debt.

6. Start investing

To reach your FIRE goal, you’ll need to invest your money in the stock market. Your money won’t grow much sitting in a savings account. And to have money for early retirement, you’ll need money invested through a general investing account, not in a 401(k) plan.

Learn the steps to achieve financial independence (which makes work optional).

7. Become part of the community

You’ll need support from others who are looking to achieve the impossible. Here are some great books to help you shift your mindset, gain new skills, stay motivated, and offer tips on reaching FIRE.

Many in the FIRE movement advocate DIY investing and financial planning. Because it truly isn’t as complicated as the financial industry makes the general masses think.

But you can sit down with a fee-only financial planner to help you get some guidance.

Things You Need to Avoid

FIRE might sound like a great thing to engage in, and in many ways, it actually is, but before you start this journey, there are a few things you need to consider and avoid.

  • Don’t pursue FIRE if you’re tired of or hate your current job. While retiring early can help you gain freedom and leave your job, this should not be your primary intention. Chances are you just need a career change: a new job where you feel appreciated. You can still pursue FIRE, but first, try to address the issue with your current job situation.
  • Don’t take on additional work or side hustles if you’re chronically tired. Getting an income boost will surely help you reach FIRE, but you should only do this if your body and mind can do it without burning out. Don’t risk your current health for financial independence in the future. 
  • Make sure this is good for you. Keep in mind that all the efforts you need to make for FIRE will have a toll on your lifestyle, comfort, and stress levels. If you can’t afford to put 70% of your income into your savings account without a big negative impact on your well-being, decide if it’s actually worth it. 

Variations to FIRE

Many have embraced the FIRE movement to retire well before the traditional retirement age of 65. While the original concept behind FIER (Financial Independence, Early Retirement) stands as an idealized goal, many variations exist within the FIRE community.

The growing number of FIRE members helped evolve the community. It’s now more inclusive and pursued by professionals from all walks of life, not just those with high-paying jobs.

Based on your lifestyle, these are some FIRE variations:

Coast FIRE: followers who want to continue working and have enough to quit their jobs. Many maximize their 401(k) contributions and Roth IRAs annually.

Learn FIRE: focus on a minimal lifestyle with extreme savings today and well into the future. It’s the most restrictive because it’s only about the basics. Many aim to reach $1 million in their investment portfolio.

Fat FIRE: it’s about more spending capability in early retirement. It attracts those with expensive lifestyle choices who are setting FIRE goals of over $3 million.

The Ideal Life in Retirement: FIRE Tips

I believe people should achieve financial independence. However, people still need to feel productive to experience joy. Reaching financial independence lets you quit bad jobs and find more meaningful work.

If you pay close attention to the popular FIRE personas, they often continue to work by writing articles, publishing books, hosting workshops, coaching others, podcasting, Youtubing, and more.

If you decide that doing FIRE is the right choice for you, keep in mind your main goal and why you want to achieve it.

What are some other ways to achieve FIRE without restricting yourself?

Many FIRE members have created passive income, hold rental property, and earn income from investments. They are diversifying their income streams, and you should consider that as well. Although much of FIRE is focused on index funds, you should think about having multiple sources of income. Don’t let your financial life depend solely on stock market returns.

This is the most important thing: Do the work to understand what you’ll do with your free time.

We tend to romanticize not having to work, but I’ve learned that the vast majority of FIRE’d people still work. And yes, the work is something they choose to do. That’s because the goal isn’t to sit around and binge-stream shows. It’s to use the time on something else.

A good thing to start practicing as you pursue FIRE is doing some joyful things now. Don’t restrict yourself, and believe that happiness will happen after FIRE. It does not. Happiness is experienced in the moment.

Jason Vitug

Jason Vitug is a bestselling author, entrepreneur, and founder of phroogal.com and thesmilelifestyle.com. His purpose to help others live their best lives through experiential and purposeful living. Jason is also a certified yoga teacher and breathwork specialist and has traveled to over 40 countries.

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