What is F.I.R.E.?
You may have heard of or seen the the word FIRE thrown around and not known what it was or only had a vague idea of it. Here is you guide to what FIRE is, why people do it, and if its right for you!
FIRE stands for Financial Independence, Retire/Relax Early.
This essentially means that the goal of FIRE is to reach financial independence at an earlier age than traditional retirement (before 65), and retire early. It can also mean to relax early, which can mean working part-time, changing to a lower paying job you enjoy more, working only part of the year, etc.
How do you reach financial independence?
In order to retire or relax early, you have to reach financial independence. For the FIRE community, there is thorough planning and calculation that make it possible to get there.
Generally to reach financial independence, FIRE followers save and invest carefully over the course of 10-20 years (usually from the early career stages), so they can have enough in investment accounts to live comfortably for the rest of their life. This usually means investing in the stock market in brokerage accounts (Rorth IRA, 401k, traditional brokerage, etc), but can also include real estate investing. This amount looks different for everyone, and there is a way to calculate it for you
Your FIRE Number
You can get your number by multiplying your annual expenses by 25. The number you get will allow you to withdraw about 4 percent per year for the rest of your life, without running out of money.
Here’s an example:
I spend $4,000 a month.
$4,000 x 12 months in a year= $48,000
$48,000 a year x 25 = $1,200,000
In this example, I would need 1.2 million dollars invested to reach my FIRE number and retire early. This number means I can comfortably withdraw 4 percent ($48k in this example) every year, for the rest of my life. I can do this because the 1.2 million invested will continue to grow at least 4% per year so I can continue to live on investments.
Some people now adhere to a 3% rule to be extra careful, in which case you would take your Annual Expenses ÷ 0.03 = Your FIRE number.
Investing to reach your FIRE Number
Once you have your FIRE number, you just need to start investing consistently and heavily. Some people pursuing FIRE are very drastic and invest up to 80 percent of their income, while others are less rushed and invest closer to 30 percent of their incomes. The important part is you start to invest ASAP and you stick to it.
What I think isn’t discussed a lot in the FIRE community is to reach FIRE earlier, you need to have a high income, or a low cost of living. With my previous example of a FIRE number of 1.2 million, to reach FIRE in 15 years, you would have to invest about 40,000 dollars a year. This of course means you would need to be making at least 80k a year or more (depending on your cost of living). Of course this is possible, but you will need to focus a lot on increasing your income in order to afford investing such a high percentage of your salary because no matter how you slice it, if you are making under $50k, it will be hard to reach FIRE before traditional retirement age.
Why do people pursue FIRE?
FIRE is a very tempting concept because of the end result, not necessarily the journey there. In order to successfully pursue FIRE especially on an under six-figure salary, you have to live way below your means, and invest the difference. You have to be comfortable doing this for many years, which can be difficult especially as you see your peers spending more and more with age and salary increases, and you have to continue to spend the same or less. Some people enjoy the challenge and it may drive them to make more money and invest more because they have such strong conviction in their FIRE journey.
Despite the years of saving and investing, people still pursue FIRE because they believe in the end result of of being able to retire or relax earlier than 65. This means you can enjoy the lifestyle of retirement while you are still healthy or while your children are young or while you can still travel etc...
Is FIRE Right for Me?
If you can hustle for a while, with the continued goal and determination of early retirement or relaxation, then yes FIRE may be right for you. If you are ok with pursuing a work-life balance, and don’t want to worry too much about saving or money, then it’s probably not.
FIRE resources
In order to decide if FIRE is right to you and if you want to pursue it, here are some great resources to learn more.
Our Rich Journey has a lot of great videos on FIRE, their strategy to get there, retirement in Portugal, and achieving FIRE with young children.
Compound Interest Calculator to calculate how far your investments will get you after a a certain amount of years. This is a fantastic tool for anyone who wants to see where investing can get them.
Money with Katie is a great personal finance blog with so much information on how to start investing, how to live below your means, and lots more.
I Will Teach You to Be Rich Book to read if you want to increase your income and change your money mindset. Great for people interested in entrepreneurship.
Quit Like a Millionaire A really easy to read, funny, well-written book detailing how anyone can reach FIRE. Great if you don’t want to read a boring book and are interested in travel!
