Raise your hand if you’ve heard of the FIRE movement… (nerdy blogger joke #1)
Since I can’t see your hands through the screen I’m going to assume that you’ve never heard of it or you have but want to learn more about it.
What is the FIRE movement?
FIRE stands for Financial Independence Retire Early and is a lifestyle movement that’s focus is saving and investing strategically so that an individual can retire earlier than the “standard” retirement age.
The majority of people grow up thinking that they won’t be able to retire until the age of 65 and will have to slave away for 40+ years at a job. The FIRE movement says otherwise. Many people have followed FIRE strategies and have been able to retire at the ages of 45, 35 , 30 and even younger! Before hearing about the FIRE movement, I had never even met an early retiree under the age of 55. If this whole retire early portion has caught your eye then keep on reading đŸ™‚
How Does It work
There is not one single unique strategy to reach FIRE. You could be a teacher who saves aggressively and invests wisely. You could be a real estate mogul who has dozens of properties and uses the income as monthly cash flow. The point here is that just about anyone can join the movement and be successful. Even though there is not one sole strategy there are core principles that you want to focus on if your goal is to retire early. These three principals are 1) understand your FIRE number, 2) increase your saving rate and 3) invest appropriately.
#1. Your FIRE Number
In order to find your FIRE number you will want to follow this formula:
FI number = yearly spending / safe withdrawal rate
To calculate your yearly spending you simply need to track your monthly expenses and then multiply that by 12. Your safe withdrawal rate is the rate at which you can safely withdraw funds from your investment portfolio with out running out of money… so you can stay retired. A common rate used in the FIRE community is 4% and that’s based on the trinity study, but we will cover that in another post.
*Update: Check out this post to learn more about the 4% rule – The Trinity Study & The 4% Rule.
So let’s run through a quick example. Let’s say that you have tracked your monthly expenses and have found that you spend $3,000 per month or $48,000 annually (3,000*12) and plan on using a safe withdrawal rate of 4%.
$1,200,000 = $48,000 / 4%
After plugging your number into the formula you find that your FIRE number is $1.2 million. That means that you need to have $1.2 million saved up in order for you to retire and live off of $48,000 per year. When calculating your number, I would recommend rounding up and being conservative with your forecast. Things can change over time, 10 years down the road you may be spending $10,000 more each year than you anticipated because you maybe exaggerated how frugal you can be. Doing this will seriously affect your number and could send you back into the employed world.
Note that you can also be FI if you have enough monthly cash flow to satisfy your monthly expenses.
There is no right or wrong way to be FI, it all depends on your personal situation.Â
#2. Increase Your Savings Rate
Now that your number is calculated, you need to figure out how to save that amount of money. Many followers of the FIRE movement having a savings rate of 50% or more. This takes sacrifice and discipline but if your goal is to retire early then it will be worth it. If you want to learn more about increasing your savings rate then check out Gina’s post How I Budget to Save 65% of My Income.
Cut all things that aren’t mandatory and don’t directly correlate to your happiness. Maybe you don’t need Starbucks every morning? Maybe you can pack your lunch for work? Figure out what works for you and stick with it. Focus on improving your lifestyle by increasing your savings rate.
#3. Invest Appropriately
A lot of proponents of the FIRE movement are huge believers in index fund investing and real estate investing. It’s crucial to educate yourself on the different investment opportunities that are available to you. When you are saving up to reach your FI number, these investment vehicles will allow you to get there much faster.
For example let’s say you are invested in Vanguard Total Stock Market Index Fund or VTSAX for short. The 5 year average return is about 11%, so if in year 1 you invest $100,000 you can expect that to grow by 11% or to $111,000. You are now $11,000 closer to your goal and if you had not invested that money you would still be at $100,000.
For more articles on investing, check out these great ones!
- How Should I Invest My Money?
- Everything You Need To Know About Index Funds & ETFs
- Should I Invest Before Paying Off Debt?
Real estate investing can bring even greater returns but often costs more to get into and is more hands on. There are a number of different real estate investment strategies such as fix & flip, buy and hold, and the BRRRR method. If you want to learn more about real estate investing be sure to check out BiggerPockets.com.
Check out this article to learn How To Never Pay Rent Again!
If you are trying to build up a portfolio of assets that generate enough monthly income to satisfy your needs, educate yourself on the right king of investments to do so (i.e. real estate, a blog or other business venture). One thing to be wary of is to set yourself up for success by investing in passive investments that result in your necessary cash flow. A passive investment will make money for you while you are sleeping, an active investment requires your physical time and energy to produce the desired cash flow result.Â
Read this article if you are interested in learning how to start a blog!Â
Resources Books, Podcasts, Blogs
One of the cool things with the FIRE movement is that there is a huge community around it. This community provides a great deal of knowledge that will help you reach financial independence and retire early. Below I have listed out some of my favorite books, podcasts, and blogs that support the FIRE movement.
Books
- Your Money or Your Life by Vicki Robin
- Financial Freedom by Grant Sabatier
- Set For Life by Scott Trench
For more book recommendations check out our Reading List!
Podcasts
For more podcast recommendations check out this post!
Blogs
Closing Thoughts
Gina and I are big fans of the FIRE movement and love the idea that you don’t have to work until you’re 65 to retire. We plan on “retiring” early but that doesn’t mean that we plan to sit on a beach and do nothing for the rest of our lives. Rather, it means we can retire from doing work that we are not truly passionate about. Retiring early will allow us to pursue our passions and work on jobs with deeper purpose.
It’s clear that FIRE is possible from the number of success stories out there. From listening to these stories I’ve learned that if you want to be successful you need to have a strategy built around your goal and you need to have the discipline to execute that strategy. Becoming financially independent is definitely not easy but it is definitely possible. If you enjoyed this article please share with a friend and leave us with your thoughts in the comment section.
Want to earn more money and get to financial independence faster? Check out these article
