The Financial Independence Retire Early (FIRE) movement is a personal finance model. It originated from the 1992 best-selling book “Your Money, Your Life” by Joe Dominguez and Vicki Robin. The movement’s main premise is that you should live a frugal lifestyle for early retirement. The personal finance model or lifestyle has become popular amongst the millennial generation.
Is the FIRE movement suitable for you? Well, let’s find out the answer to that question in this blog post.
How To Build The F.I.R.E Retirement Savings?
Unlike the 10-15% savings commonly recommended by financial gurus, the FIRE movement encourages individuals to set aside 50-70% of their annual earnings for early retirement plans. During retirement years, a safe withdrawal guideline of 4% is advised not to exhaust the retirement savings quickly.
The goal is to build up retirement savings of $1 million or more in their 30s, 40s, or 50s. The retirement age largely depends on the investors’ income and how aggressive their savings strategy is. If you increase your savings rate, you decrease the years of reaching the Financial Independence Retire Early method.
This can be accomplished in one of two ways. First, your annual income must comfortably cover overhead expenses. Rent/mortgage, transportation, and food are less than or equivalent to the amount of money being put aside for savings. The second ability to save fifty to seventy percent of an annual income is accomplished by having minimal living expenses. Not having large contribution obligations such as rent, mortgage, or childcare expenses will enable the F.I.R.E retirement strategy.
FIRE requires a lot of self-discipline. The promise of attaining financial freedom at an early age is very alluring. If you go on saving your money furiously and invest them until you have reached a passive income that will enable you to pay for your living expenses and enjoy your retirement years, the idea behind F.I.R.E isn’t that far-fetched.
FatFIRE vs. LeanFIRE vs. BaristaFIRE
Some strategies tailored to the annual income during your employment years and the lifestyle you’re currently adopting. It also considers the life you want in your retirement years.
● FatFIRE – a variation of FIRE that requires an individual to accumulate a large amount of wealth and retire early without restricting oneself to a more financially restricted or frugal lifestyle during retirement. However, this might mean that one should save more than the typical retirement investor during his/her employment period.
● LeanFIRE – refers to a retirement strategy based on the premise of retiring early on a sufficient accumulation of savings to live frugally during retirement.
● BaristaFIRE – refers to a hybrid of the two FIRE strategies just mentioned. It means that you have to take on a part-time job to cover your retirement years’ living expenses, or it can also mean you go on early full retirement but with the help of a spouse who continues to work.
What are the Challenges of Financial Independence Retire Early (F.I.R.E)?
The biggest challenge noted within the FIRE movement is being able to save 50-70% of your income. For many achieving financial independence by saving such large portions of their income is difficult.
Some people quit following this strategy because it’s hard to save six-figure money for early retirement despite living frugally. Especially if you only receive an average income every year. Critics and doubters of this movement argue that F.I.R.E only sounds good and simple in words but is difficult to implement. The retirement age largely depends on the investors’ income and how aggressive their savings strategy is.
Besides income, another problem with the FIRE movement is that it often forces newbies to use credit cards. Given the average debt balance – approximately $28,000 – that millennials are carrying today, it’s hard to imagine promoting the idea of using credit cards.
Saving and investing are difficult to do when a part of your income goes toward paying your credit card debt. According to research, using credit cards is more expensive than using hard cash. Take into account the interest and other fees charged on your credit card for you to realize how it contradicts the FIRE movement’s maxim of living frugally.
Why use the FIRE Movement?
Advocates of the FIRE community will say that your saving rate is key to this financial strategy’s success – not a large income. They say that if you can save 25% of your annual spending amount, this financial strategy is attainable.
The ability to discipline yourself and control your disposable income to retire early is also irresistible to millennials. We can’t control many things nowadays, such as the interest rates of loans, market conditions, and even our annual income. But the FIRE movement promotes the idea of controlling the things that you can control -your spending.
The self-discipline that you learn from adopting this financial strategy extends to other aspects of your life. That’s another incentive why adults should follow the FIRE movement and how you should strive to make it work for yourself.
Moreover, the idea of retiring early and enjoying life while your body is still strong and able is a significant motivator. Many individuals who are adapting to the F.I.R.E movement want this kind of lifestyle.
Retiring at 60 years old can be an obstacle for you to enjoy your retirement years because you might already have a weak body by then. But retiring in your 40s or 50s will still enable you to do the things you want in life. For example, if you love to travel, you can still travel to destinations in your 40s or 50s.
Lastly, you can still receive income while you retire by doing what you love doing. If you love to write, you can create a blog about something relevant or write a book. You can also be a paid musician in your retirement years if you have a penchant for music.
Takeaways on Financial Independence Retire Early
The Financial Independence Retire Early, aka F.I.R.E movement, is a popular financial strategy among millennials. It’s popular because of its advantages, such as gaining financial freedom to retire early. Knowing the challenges of this financial model enables better decision-making for reaching retirement goals. Furthermore, inflation will contribute to chipping away any retirement savings. For many, it means that you may need a much bigger nest egg to cover your expenses once you retire. Accumulating simple savings can be difficult for some. If you owe creditors you will need proper debt management. The F.I.R.E Movement works best with minimal to zero debt. An early retirement account using the FIRE method can be a real challenge for most.
