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FIRE is a financial movement where budgeting, saving, and investing are prioritized in order to reach retirement before the typical age of 65 to 70.
The exact origins of the FIRE acronym are unknown. However, it was made popular in the 'Your Money or Your Life' book by Joe Dominguez and Vicki Robin published in 1992.
Those who lead a lifestyle led by FIRE do so by drastically reducing their expenses. Additionally, they will look for ways to not only increase their income but also invest the saved money in a mix of tax-advantageous accounts.
Living a FIRE lifestyle isn't for everyone. It often means cutting expenses to the bare minimum so there's more money to invest. It's common for FIRE followers to save 50% to 70% of their income.
A FIRE strategy should be tailored to you and your needs. Therefore, always be wary of advice designed for the masses.
For example, if your monthly expenses are $US5,000 then you multiply that by 12 to get $60,000. Then you'll multiply that by 25 to get $1.5 million—your FIRE number.
Some FIRE professionals will say that you need to do a certain thing, invest a specific amount, or you can have wiggle room on how much you withdraw. It's not a one size fits all approach so do what's right for you.
Paris Woods suggests saving approximately 70% of your income if your goal is to achieve financial freedom in 10 years or less.
It's possible that your FIRE number may seem too ambitious or even impossible to reach. If this resonates with you, try exploring ways to increase your income and then invest the extra money.
According to author and FIRE supporter Paris Woods, people must figure out a savings rate that matches the speed at which they want to go. It can range from an aggressive goal to one that takes a bit longer.
If you’re interested in early retirement, think about how much money you plan to save and invest annually to reach your goal.
Due to inflation, saving physical cash in a bank account likely won't be enough to hold you over for the next 40 years. It's important to invest in tax-advantageous accounts.
It's essential to ask yourself, "How much money will I need between my goal retirement age and the age I can start withdrawing penalty-free from retirement accounts?"
If you are able to max out your retirement accounts then great! However, that will pose the question of where to invest next. After the retirement account, invest in regular brokerage investing accounts as there are no limits.
You will still have to pay taxes when withdrawing money from a regular brokerage account, however, you won’t have to pay early withdrawal penalties. Additionally, you will also have to pay taxes when your investments earn dividends and interest, amongst other things.
Once you land on a number representing how much you'll need, you should consider saving that amount in your regular brokerage account so you don't run out of cash before you can start taking qualified distributions.
IRAs and 401(k)s are accounts you can use to invest for retirement. With both accounts, you pay upfront but then your investments grow tax-free so that where you're in retirement you can make qualified withdrawals.
FIRE is a long-term strategy so you can't really be too reactive in the short term regarding economic events.
Those in the lean category can typically live off very little and are said to have minimalistic lifestyles. They might save over half of their income in order to achieve financial independence sooner.
If someone is making minimum wage, FIRE is likely not going to be doable for them. But if they make just enough to live comfortably on half of their income and then invest the rest, that's how they'll get started.
Sources: (NerdWallet) (Investopedia)
See also: Investment tips everyone should know
FIRE can be great for many reasons but one complication is that if you aren't working, and live in the US, then you'll be covering medical expenses out of pocket until Medicare kicks in around age 65.
If you're a person who plans to "live it up" in retirement and spend a lot, then fat FIRE might be more for you. Of course, you'll need to save and especially invest much more than someone who plans to live on US$50,000 a year.
A lot of sacrificing happens with FIRE. Things like vacations, meals out, and other purchases are often skipped to prioritize savings.
Living a FIRE or financial independence, retire early lifestyle can be extremely rewarding but how does one start? This relatively modern concept is teaching people worldwide how and when to save and invest so they can retire earlier than the legal retirement age. It gives more freedom to people and empowers them to guide their lives in their time frames. It can be very challenging but it could be exactly what you need!
Curious about FIRE? Click through now to learn more.
Before really diving into a FIRE lifestyle, be sure to save three to six month's worth of expenses. These savings should be able to hold you over during unexpected expenses or other unforeseen issues.
It will be impossible to reach FIRE by simply putting money into a bank, even a high-yield savings account. Start by maxing out employer-sponsored retirement plans then go from there. Seeking professional financial advice can be extremely helpful.
The acronym FIRE stands for financial independence, retire early.
Those who do barista FIRE plan to work less or part-time once they retire. So while they are saving up, there's more flexibility.
FIRE: Financial independence, retire early
What does this mean and how do you accomplish it?
LIFESTYLE Finances
Living a FIRE (or financial independence, retire early) lifestyle can be extremely rewarding, but how does one start? This relatively modern concept is teaching people worldwide how and when to save and invest so they can retire earlier than the legal retirement age. It gives more freedom to people and empowers them to retire on their own terms. It can be very challenging but it could be exactly what you need!
Curious about FIRE? Click through now to learn more.