The FIRE Movement is a lifestyle movement that has been gaining popularity, especially amongst Millennials, whose goal is to gain financial independence and retire early. And by early, we mean retiring in your twenties, thirties, and forties, as opposed to the standard age of 65. One point that FIRE enthusiasts stress is that this movement isn’t for those who simply hate their jobs and wish to retire early. Instead, it’s for those who have a vision of an alternative lifestyle that they’re eager to pursue but cannot because they are working full time.
The concept behind the FIRE movement is simple. Grow your income, decrease your expenses, and determine how best to optimize the difference. If you’re willing to make some changes and sacrifices in your life, then the FIRE movement may be for you. The quantifiable goal is to have your net worth equal to 25x your annual expenses. For example, if your annual expenses are $30,000, then you are financially independent when your total net worth is $750,000.
If you’re interested in the concept of ‘FIRE,’ read on to learn how to get started.
- Tracking your expenses: Review your bank and credit card statements to determine exactly what you’re spending money on and whether those purchases bring value to your life. The less money you need to live on, the more money you will have to save. For every $100 per month that you can cut, you will be $30,000 closer to achieving your financial independence ($1,200 yearly expense x 25 = $30,000).
- Compare your net income: Subtract your fixed mandatory expenses from your net income to see how much you can save every month. Next, adjust your discretionary expenses as necessary. From there, it’s just simple math. What you earn minus what you spend is equal to the difference in the gap. The bigger the gap, the less time it will take to achieve independence. Then it’s simply a matter of working on increasing your savings rate and waiting for the money to add up and compound.
Advocates of the FIRE movement seek to reduce or eliminate big line items such as housing and automobile expenses, which combine for approximately 50% of most people’s expenses. For example, they will employ a technique known as ‘house hacking,’ which involves buying a single-family home and living out of one room while renting out the additional rooms for enough money to cover most or all their rent so they can live for free. Some even buy duplexes or triplexes to completely cover the cost of housing and earn additional income. When combined with walking or cycling to work, it’s possible to cut expenses by almost 50%. For FIRE enthusiasts, the challenge - and excitement - is in increasing their savings rate. A 1% savings rate would take 100 years to replace one year of expenses. A 50% savings rate can get them to a point where working becomes optional within 10-15 years.
FIRE enthusiasts also try to maximize their savings by being very intentional with credit card use. For example, they target specific cards that offer lucrative signup bonuses. Most signups offer rewards that have a value of $700-$1,000. The caveat is that they must pay off their bills in full each month, otherwise, it isn’t worth the cost. Other cards will offer a “spend $3,000 in the first 3 months and earn 50,000 airline miles” type of promotions. Instead of eliminating travel from their lives, they have found a way to get more for less.
At first glance, this life of frugality might seem extremely sacrificial, but every enthusiast of FIRE will tell you that frugality has nothing to do with deprivation. To the contrary, individual’s that are engaging in the FIRE movement become highly intentional with their spending habits, and only buy things that bring value into their lives. By lowering expenses, they’re on a quicker path to financial independence, and that’s always a good thing. The FIRE movement isn’t for everyone but if you’re interested, it can be obtained if you are resourceful, diligent, and willing to make some sacrifices now for a payoff at a later date.