At a time when many people feel like they’re working more than ever, some are going to great lengths to never lift a finger again.
The FIRE movement, which stands for Financial Independence, Retire Early, is a lifestyle and financial strategy that aims to empower people to break free from the traditional career trajectory, to retire early and pursue their passions.
Those who embrace FIRE focus on accumulating sufficient assets to sustain their desired lifestyle without relying on traditional employment income.
Key principles are:
- Accelerated saving: FIRE enthusiasts typically aim to save a significant portion of their income, often 50% or more. This aggressive savings approach allows them to accumulate wealth rapidly.
- Frugal living: Living below one's means is a cornerstone of the FIRE movement. FIRE followers prioritise spending on what truly matters to them while cutting back on non-essential expenses. This can involve budgeting, minimising debt, and embracing a minimalist lifestyle.
- Investing wisely: FIRE achievers understand the power of compound interest and often invest in a diversified portfolio of stocks, bonds, and other assets to grow their wealth over time.
- Financial independence number: To determine when they can retire, FIRE adherents calculate their Financial Independence Number (FIN). This is the amount of money needed to cover their desired annual expenses, typically using the ‘4% rule’, which suggests that withdrawing 4% of your investments annually should be sustainable over the long term.
- Side hustles and passive income: Many FIRE advocates explore side hustles or passive income streams to accelerate their journey. These additional sources of income can help them reach their financial goals faster.
History of the FIRE movement
The FIRE movement can trace its roots to the 1992 book ‘Your Money or Your Life’ by Vicki Robin and Joe Dominguez. The book encouraged readers to question their spending habits and prioritise financial independence.
However, the movement gained widespread recognition through early FIRE bloggers and pioneers such as Pete Adeney, who blogged under the name Mr Money Mustache. They shared their personal stories of achieving financial freedom and offered practical advice for others looking to do the same.
Types of FIRE
Within the FIRE movement, there are various approaches and strategies:
- Lean FIRE: Lean FIRE adherents focus on the bare essentials and aim to retire with a minimalistic lifestyle. They prioritise frugality and often have lower financial independence numbers.
- Fat FIRE: Fat FIRE enthusiasts, on the other hand, aim for a more comfortable and luxurious retirement. They may choose to work longer or accumulate more wealth before retiring to support their desired lifestyle.
- Coast FIRE: Coast FIRE people have saved enough money in their early years, allowing them to ‘coast’ or work less in their later years while still achieving their financial goals.
- Barista FIRE: Barista FIRE combines part time or flexible work (e.g., working as a barista) with financial independence to sustain a desired lifestyle.
What are the downsides?
Although achieving FIRE has multiple benefits, the movement is certainly divisive.
Some people have accused it of encouraging workaholism and an ‘all work and no play’ mentality. After all, while the end-goal might be to never work again, most people have to do a lot of overtime to get to that point.
And if they want to achieve financial freedom because they dislike their job, they can end up putting themselves under incredible stress in the meantime. Some people consistently work 12 hours shifts, avoid socialising with friends and become obsessed with counting every penny.
It’s wise to plan for the future, but a balance needs to be found. After all, tomorrow is not guaranteed.
Making FIRE work for you
You can join the FIRE movement without following a strict set of rules.
Instead of copying other people’s success, why not adapt the movement’s key principles such as paying off debt, investing as much as possible and increasing your income in a way that suits you?
Full financial independence doesn’t have to be achieved. With careful planning and good financial advice, you can find a way to make the most of your life in the present while saving for the future.
You might not give up work completely, but financial security can give you more freedom and control than ever before.It’s built on the foundation of disciplined saving, investing, and living frugally, with the ultimate goal of achieving financial independence at an early age, often in their 40s.