F.I.R.E = Financially Independent Retire Early

As stated in the acronym, this movement is a lifestyle movement with the goal of gaining financial independence and retiring early. The goal is to save and invest aggressively—somewhere between 50–75% of your income—so you can retire sometime in your 30s or 40s. That’s right: You need to save at least half of your income, so you can live life on your own financial terms.

It sounds great—but is it a healthy relationship with money and life?

F.I.R.E. is often assumed to be extreme saving, frugality, and generating passive income to fund an early retirement.

However, this can be far from the truth. You don’t have to cut back on all spending to apply yourself to this saving technique.

Let’s break it down step-by-step…

The ultimate goal of F.I.R.E. is traditionally to take early retirement, using your savings and income from investments for all your living expenses.

Often you might hear people saving 50% of their income or more in order to retire so early, but this is not the only way to view the F.I.R.E. movement.

Nowadays a way to define F.I.R.E. is concentrating more on the “financial independence” aspect, rather than retiring early. F.I.R.E. ultimately pushes you to change perspective regarding money and work, making you think about what is most important to you and how you can reach financial freedom.

There are many factors of F.I.R.E., like saving and being conscious about your spending, but the way people choose to apply these factors in their own lives and the actual results they are hoping to achieve may vary.

Types of F.I.R.E.

There are several variations of F.I.R.E. that have developed over the years…

LeanF.I.R.E.

This type of F.I.R.E. pushes a minimalist way of living to reach retirement goals. You would essentially try to live on the bare minimum day-to-day while saving and investing the rest of your income. During retirement you would also live more modestly. This F.I.R.E. is a great method for those who want to achieve F.I.R.E. in a short amount of time

FatF.I.R.E.

This has a similar approach as LeanF.I.R.E., but is less aggressive on the frugal side. People applying this method won’t make as many sacrifices in their spending habits, therefore it will take more time to achieve F.I.R.E.. This is suited for people who don’t want to live an extremely minimalistic life.

BaristaF.I.R.E.

Again, this technique still focuses on saving enough money to allow you to retire from your main job early. But, instead of not working at all, people may use their financial independence to work part-time to make up for not saving as much money prior. It gives you the choice of working for pleasure rather than working to live. This method is suited for people who don’t see themselves quitting work completely during retirement, and would be comfortable still working part-time.

If you are curious to know what your personal F.I.R.E. number is, you can calculate it via the expense method or withdrawal method. Explained here- Calculate your F.I.R.E.

On the flip side there are some negatives to the F.I.R.E. movement that we must discuss….

Drawbacks of the F.I.R.E. lifestyle include:

• Unpredictability. Although many people seeking early retirement thoroughly map out their financial plans, the future is unpredictable. Social programs and tax structures, which may figure into future budgeting, can change unexpectedly.

• Some are unmotivated and find retirement boring. While never having to go to work again might be the goal for some, others may struggle with filling their free time. Without a career or specific non-career goals, the years without work can feel long and unsatisfying.

• F.I.R.E. is hard! Even the most dedicated advocates of the financial independence and early retirement approach acknowledge that the lifestyle can be difficult.

Here are a few tips you can apply to your spending and saving habits to help you retire early…

1. Make a plan

Before doing anything, ask yourself, what are your goals? Specifically envision yourself retired… what age do you want to be? What do you want to do when you are retired? Does it involve more leisure, or is it a more modest lifestyle? Decide when you want to retire, if at all, and, once you know what you want, you can start to plan how you will get there.

Other questions will arise such as: What is your income? What are your current expenses and will they change in future years? How much do you need to save? Do you need to increase your income? Will you have any income during retirement? These all play a huge factor in which F.I.R.E. method you will decide to practice.

2. Reduce your spending

Review your monthly and annual spending, including bills, regular expenditure on shopping etc., and one-off expenses like holidays and presents and work out areas where you can make cuts to your expenditure.

3. Increase the amount you save

Increasing the amount of income you save and invest is intimidating to us all. It’s not easy. Most people enjoy the finer things in life, spending income on bells and whistles… But when you step back and think about how far your income can go if you distribute it in smarter ways, the result is more than worth it. Set yourself small savings goals and gradually increase these as you get more comfortable, as your savings build, this brings you closer to achieving your main goal.

4. Increase your income

If you are uncomfortable aggressively saving your direct income – consider looking for other ways to bring in income. That way your side hustle, or other boosts of income can go directly to retirement funds.
Finding ways to make additional income can help you reach F.I.R.E. sooner. If you save this extra money you earn, you can achieve your savings goals much faster. Another tip that ties into this, is make money from a passion of yours. Whether that be blogging, freelancing, designs, cooking, etc.

5. Investing Beyond 15%—Max Out Your Retirement Accounts

Now that you’ve got your savings and goals in place, the last step to focus on is investing. A rule of thumb is invest no less than 15%. A good tip to begin with is to first concentrate on your 401(k) and IRA and max out your contributions. For 2021, you can put up to $19,500 into your 401(k) and $6,000 into an IRA.6 That’s $25,500 combined. You also can hire a personal financial advisor if you aren’t comfortable organizing retirement funds and investing on your own. You can ask them to diversify your portfolio, at the rate you’re comfortable with.

Still unsure? Check out our previous post on becoming financially independent!

As you can see, there are a lot of different moving parts that go into successfully retiring early, but it is possible! No matter which path you choose, it’s important to maintain a healthy relationship with money!

Here are more resources to help you achieve early retirement!

Calculate your F.I.R.E. number: https://time.com/nextadvisor/investing/retirement/how-to-find-your-fire-number/

Forbes F.I.R.E.: https://www.forbes.com/advisor/retirement/fire-financial-independence-retire-early-down-market/

About F.I.R.E.: https://www.investopedia.com/terms/f/financial-independence-retire-early-fire.asp

Successful Early Retirement: https://grow.acorns.com/successful-early-retirement-fire-plan/?s1=google_DSA&gclid=Cj0KCQjwkIGKBhCxARIsAINMioJH01pNbdNDeeWA5TX-4uoRZ6WGSgPvsmMrkrtt_0-3LNSLU6vFJ4UaAtsjEALw_wcB

Learn good financial habits: https://theartoffinancialplanning.com/financial-planning/financial-naivety/

Major Retirement Planning Missteps: https://theartoffinancialplanning.com/financial-planning/major-retirement-planning-missteps/