Is FIRE for you?
FIRE… Financial Independence, Retire Early. Sounds nice, doesn’t it?
It’s easy to see why the FIRE movement is burning hot across the younger generations. The notions of financial independence and early retirement are surely appealing to the majority. But as with most good things, it comes at a price, and it’s important to weigh up the pros and cons to decide what is right for you.
What is ‘FIRE’?
‘A movement of people devoted to a program of extreme savings and investment that aims to allow them to retire far earlier than traditional budgets and retirement plans would permit.’ – Investopedia
Essentially, it’s a shake-up of the retirement status quo – of working a 9-5 everyday for 45+ years to then retire at age 65 into a life of golf, grandkids or grey nomad-ery. The core philosophies of the FIRE movement are believed to have originated from the book ‘Your Money of Your Life’, by Vicki Robin and Joe Dominguez, which outlines a nine-step program to transform your relationship with money and achieve financial independence. It grew in popularity among millennials in the 2010s alongside the rise in online communities.
It generally involves maximising income, extreme frugality, saving up to 70% of income, and investing, to grow a nest egg that can be lived off, either fully or partially. A common rule of thumb among FIRE subscribers is to save 30 times their yearly expenses, or roughly $1 million.
While the extreme and aggressive nature of the movement does send up some red flags, the principles of the FIRE movement can be quite practical. And with some discernment, can be used to create healthy financial habits.
Three practical takeaways from the FIRE movement:
1. Have a plan
If you fail to plan, you are planning to fail! – Benjamin Franklin
The FIRE movement requires participants to have a detailed plan for how they will achieve their financial independence which covers income, spending, saving, investing, and goals for their early retirement amount and date.
Setting financial goals and establishing a plan to achieve them is something everybody should do (and continue to do), movement or no movement!
2. Mind your spending
While a 70% savings rate can be considered extreme, being mindful and re-examining our relationship with spending can help with cutting back unnecessary expenses and boosting savings.
3. Start investing
It is commonly said that you cannot save yourself to wealth. Investing is a critical ingredient for anyone looking to achieve financial independence and a core element of the FIRE movement. Small amounts, invested regularly, over the long term, will go a long way in helping to build wealth. The key here is to just get started!
While there are no doubt FIRE purists, the introduction of FIRE variations (Fat, Lean, Barista) within the movement shows a need for adaptation to different people’s lifestyle needs. We suggest a balanced approach and that you apply and adapt the principles to fit you and your needs.
If financial independence or early retirement appeals to you, reach out to speak with an RS financial professional. They can assist you in putting in place a FIRE-inspired plan for your finances that best suits your individual circumstances and retirement goals.