What is the FIRE Movement?

What is the FIRE Movement?

What if I told you that you could stop working when you’re 40 and never really have to work another day in your life?

What if I told you that your current job now is only a very temporary means to a much better end that’s not very far off in your future?

What if I said that if you saved, worked hard and invested prudently that early retirement is actually obtainable?

What if I finally stopped asking all of these stupid rhetorical questions and got to the point already?

Well, according to a new movement brought forth by who else than our own Millennial and Gen Xer’s this lifestyle of early retirement can happen.  I am talking about the FIRE movement and it is indeed catching on like fire.

What is the FIRE Movement?

The FIRE Movement is a philosophy, a mindset if you will whose basic premise is exactly what its acronym basically reveals; become financially independent now so that you can retire early.

There are two parts that make up what the FIRE Movement truly represents.

  1. Financial Independence

The first part is the Financial Independence aspect of the movement.  Financial Independence refers to the ability of an individual being able to live comfortably off of their investments or savings.

This allows them to pursue their life-long dreams and passions while not having to worry about a 9 to 5 job that they must derive their income from.

  1. Retire Early

The second aspect of the FIRE Movement is being able to retire early and quit that 9 to 5 job.  When I say retirement most would think age 60 to 65 and spending the rest of your years playing golf or traveling.

Not these FIRE people.  They have their eyes set on retirement in their 40s or in the most extreme cases their 30s so that their best years of retirement can be enjoyed while they are still young and vibrant.

What’s required to be part of the FIRE Crowd?

Now if you’re thinking to yourself that wow, becoming financially independent so I don’t have to worry about a salary and retiring in my 30s sounds awesome, you’re right!

Also if you’re muttering under your breath that this sounds too good to be true then you’re also half right… sort of.

In order to participate in the FIRE Movement there are some significant sacrifices you must make now while you’re young to reap the benefits of early retirement in that not too distant future.

What are the key components to retiring in the first place?

There are two main aspects that contribute to your ability to retire, whether you want that date to be 5 years from now or 40 years from now.  The FIRE Movement simply expedites and pumps up these two retirement savings methods to extremes.

Those are compound interest and the rate at which you save. 

  1. Compound Interest with time as your ally

Seeing as the FIRE Movement is all about minimizing your time until retirement, it is rather tough to rely on compound interest as the only means to an early retirement.  After all, as referenced in previous posts, the main driver behind compound interest is time.

The longer one has until retirement (or any financial goal for that matter), the more compound interest can work in their favor.

With a shortened time horizon until retirement, for FIRE participants, time and compounding may not necessarily be on your side.

So what does that leave us with? Well for that would be the rate at which you save the money you currently make…

  1. The amount you sock away aka your savings rate

This is what truly separates the FIRE crowd apart from the rest of the population; the rate at which they save their income.

Most members of the FIRE movement dedicate 50% or more of their entire income to saving.  Needless to say most of the population doesn’t even come close to this figure but those are the sacrifices the FIRE Movement requires you to make if you want to retire in your 30s.

How in the world do you sock 50% of your income away and are still able to live?

You have to make serious concessions that’s how; frugality is the name of the game.  Don’t eat out, camp instead of staying at the high-class resort and find low-cost living.

Easier said than done I know but this is how the FIRE Crowd is able to retire early.

What are the key characteristics of these FIRE people?

  1. They earn a decent to relatively modest salary

Members of the FIRE Movement didn’t retire early because they earned millions of dollars in the beginning stages of their careers, quite the contrary.

They earned median salaries from their average to above average jobs and put over 50% of that average salary into savings or different investment vehicles.

  1. They save a large percentage of their income

Mentioned this point before but it bears repeating; the FIRE Movement is all about saving as much of your income as possible.

For most of the FIRE Crowd, this consists of 50% or more of their income.  Say goodbye to those weekend benders in Vegas and or weekly trips to Starbucks.

  1. They max out different savings accounts (IRAs, 401ks, savings)

To retire early it would make sense that you have to boost the savings in the retirement accounts that are available to you.

IRAs, 401ks and investment savings accounts are completely maxed out by the FIRE Crowd.  Not only does this help build their early retirement nest egg but also can significantly decrease their current taxable income.

  1. They invest their savings

It’s not enough to just place all the money you saved under the mattress and hope that it will accumulate when the day for early retirement comes.

Those of the FIRE Crowd understand that in order to have enough money for an early retirement, they must have the money they’ve saved working for them as well.

These measures sound pretty extreme..

Well they definitely are.

Let’s also be real with ourselves, most of us aren’t going to live on ramen and be able to make significant cuts in our housing costs in order to sock away 50% or more of our income.

The FIRE Movement is more of a financial mindset to aspire to.

Maxing out retirement accounts, eating out at restaurants less, skipping the Starbucks and investing your extra savings are all financial sacrifices that we can make today.

While you don’t have to live to the strict cutbacks the FIRE Movement requires in its purest sense, seek to aspire to some of the movement’s principles.

Who knows, financial independence and early retirement may not come when you’re 30 but who’s to the FIRE Movement principles can’t get you to retirement 10 or 20 years quicker?

Now that may be a goal that’s more realistic to aspire to…

For more resources on the FIRE Movement check out Mr. Money Mustache, a blogger who documents how he was able to achieve full-on “FIRE status” and provides resources into the FIRE Movement.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making any investment decision, you should consult with your financial advisor about your individual situation. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Any opinions are those of Jacob Dahlstrum CFP® and not necessarily those of Raymond James.

Comments are closed.