What’s The FIRE Movement and Is It Right For You?
Who wouldn’t want to quit their jobs right now and retire? I think it’s safe to say most people would, maybe even you. Unfortunately, that may not be realistic at this point in your life. We’ve been told since we can remember that we need to work until we’re 65 years old, then we can retire. This is how its always been and it won’t be any different for you, or will it? There is a group of people out there working to change the status quo and they’re doing this using FIRE.
The FIRE movement means you strive for financial independence and retiring early. It is a drastic shift of thinking that means you need to be extremely conscious of your finances. This means you know exactly how much you are spending and where your money is going every single day. The goal is to save more than 50% of what you bring in. Which if you track your savings rate, this is a pretty lofty goal. Personally, I save about 25% and that can be a struggle. That paragraph may scare some of you away but keep reading. I promise I have a great suggestion at the end.
The most interesting fact about followers of FIRE is that their goal isn’t to be a billionaire. It’s actually the opposite. They instead want to keep their current lifestyle but just not have to work. This is where one of the big disadvantages of FIRE comes in but we’ll get to that later. So the first thing they do is calculate how much they need to have saved total. This amount is usually figured by using the 4% rule. I wrote about this a couple weeks ago in the article How Much Do You Need To Retire? – Part 3. In essence, they are taking their yearly expenses and dividing it by 4% to get a total retirement account value.
As you can probably guess the next logical step is to see how much they need to save per year and so on. This article isn’t about the math, rather the rationale behind it all, so I’ll save you all the calculations. In theory, this all sounds great. You get to retire extremely young and enjoy the rest of your life. So, let’s learn how to apply FIRE!
How Can You Practice FIRE
The first thing you must do is change your mindset. We are flooded with advertisements and products every day. We are humans which means we naturally want things, at least I do. I want to travel to Asia, buy that new truck, and go get that expensive scotch. To succeed as a follower of FIRE you need to flip your whole mindset about money.
Rather than thinking about what you are going to spend your paychecks on, you need to focus on how much you are going to save. It’s all about saving and THEN whatever is leftover can be used for expenses. FIRE followers suggest having a certain percentage of your paycheck, usually over 50%, automatically being transferred to your retirement fund. I agree with this tactic. Out of sight, out of mind absolutely works.
The second big mentality you will have to change is how you approach your social life. Creativity is a must when trying to find ways to be frugal yet still enjoy your time out. There are hundreds of things to do that don’t involve spending money. Personally, anything that involves the outdoors has my interest. Hiking, fishing, or just going on a walk through the city are all enjoyable and free activities. Listing dozens of ideas isn’t the goal of this article but the team over at the Simple Dollar made a list for you: 103 Things to Do on a Money-Free Weekend.
The last major way you can practice FIRE is to do things yourself. This is one of my top savings tips and perfectly aligns with the FIRE mentality. We have tons of information at our disposal, yet we are still calling the plumber to come fix a leaky pipe. There is a YouTube video for just about anything nowadays so why pay someone else to change your own oil? Sure, it is convenient but you are paying a premium to have that done for you. If you are serious about retiring early and saving that 70%, you need to learn to do things yourself. Mowing the lawn, cleaning your house, and painting that bedroom are all things that can be done by you.
Joining this movement takes work but for some of you, it may be worth it.
The Disadvantages of FIRE
Let’s not drag our feet on this one and get to the point. For most of you, it just won’t be realistic (myself included). The math just isn’t there sometimes. If you make $50,000 a year and try saving 70% that means you’ll only have $15,000 leftover. If your rent is $500 per month, which is $6,000 a year, that only leaves you with $9,000 for all other expenses for the entire year.
I know I’m throwing a ton of numbers out here but only having $750 a month ($9,000/12 months) for things like food, gas, and utilities can make it difficult to make ends meet. This situation only gets more impossible when you start adding in kids or student loan repayment.
Another major disadvantage is managing relationships. The first being with your friends and family. People are going to think you’re crazy. Anything that goes against conventional wisdom is always going to seem somewhat crazy but that doesn’t mean it’s wrong. Society tells us to retire at 65 when we’ve “put in the work”. I don’t believe in this at all. Of course, I want to and will put in the work like most of you. But I’m planning to have the ability to retire far before then.
The second relationship that may question you is with a significant other. If you want to save such a high amount, you are going to have to act extremely frugal. This doesn’t necessarily mean cheap and if you read Quit Being Cheap and Start Being Frugal you already know the difference. You are going to have to be creative in your activities though. This means limiting or possibly never going to concerts, on vacations, to movies, or any other extracurricular non-free activities.
My Suggestion
To me, following FIRE is a little on the extreme side of where I want to be saving. Of course, I want to save as much as possible so I have the option to retire when I want. On the other hand, I want to enjoy where I currently am in my life as much as possible. Saving over 50% of my income wouldn’t allow me to do that. Yes, I could do it but I would probably never leave my house and would have to eat pork and beans every day. Like I said when talking about the disadvantages of FIRE, you would need a pretty significant amount of yearly income to make it plausible and I just don’t.
What I’d suggest is to find a balance. If you aren’t saving then you’ll be working for the rest of your life, that’s no secret. 70% is tough, but if you can do it then more power to you. Personally, I’ll always shoot for 25%. It is my balancing point.
Wrapping it Up
Have I scared you off yet or are you ready to dive head first and become a FIRE follower? FIRE isn’t for everyone but there are some great traits to it. The mentality shift needed is something I think everyone should strive for as well as adopting an out-of-sight, out-of-mind system with your money. We are all going to have different circumstances but finding something that works for you is what it’s all about.