How Do You Achieve FIRE?
Want to retire early? Who doesn't!? Follow these five steps and you’ll be on your way to achieving financial independence.
First, let’s define our terms.
What is FIRE?
FIRE is an acronym that stands for Financial Independence/Retire Early. Typically people working towards FIRE aim to reduce expenses and/or increase income so that they can invest enough to live off of their savings before they hit “traditional retirement age.” In some cases, people as young as 30 have managed to save the vast majority of their paychecks and reduce expenses to the point that they should be able to live off of their investments indefinitely.
Where did the FIRE movement come from?
The FIRE movement started gaining a lot of attention a few years ago when mainstream media took an interest in a community of bloggers, personal finance personalities, and individuals attending Meetups who discuss the ins and outs of early retirement and best practices for getting there sooner.
It’s a bit unclear why a relatively small group of “frugal weirdos” and finance geeks caught the attention of the NYTimes and Wall Street Journal, but one can guess that the sudden interest came at least in part from some of the contemporary economic, social, political, and cultural trends that align with many movement principles and preferences.
One of these is the fact that the stock market had been on a very long bull run and more recent investors have experienced a lot of growth with very few instances of significant volatility. Another is the increasing democratization of investing and the tools and knowledge it takes to invest wisely. Just like companies like The Financial Gym promise financial services that work for you (we’re not your dad’s finance guy!), options for where and how to invest have expanded and become more accessible to anyone interested in investing. Most of us have investment apps on our phones and new fintech apps make it easy to start, regardless of how much money you have. Jack Bogle created the index fund and popularized an investment strategy that promotes passive investment in index funds instead of active trading through advisors, which is more cost-effective, and many say more profitable over time.
There’s also an increased preference for a more minimalistic and less resource-dependent lifestyle among much of the population. A lot of people find the largess of McMansion life undesirable, and even laughable. Walkable communities and less dependence on cars is a non-negotiable for many younger homebuyers and retirees looking to downsize, whether for environmental or economic reasons. There’s also the much-discussed millennial preference for experiences over things. Although these things are not requirements for those wanting to retire early, they do all have the commonality that they tend to reduce costs.
How do you achieve FIRE?
Track your expenses
You can’t make your money work for you if you don’t know where it’s going. Tracking expenses helps you to identify leaks in your budget, unnecessary expenses, or spending that is out of line with your values and goals. This is also the best way to figure out your FI number.
Reduce your spending as much as you comfortably can
How much you need to retire is a function of how much you need to live comfortably, so the lower you can get your expenses the less you’ll need to retire.
Save aggressively
People on the FI path try to save 50% of their income, at a minimum. The Shockingly Simple Math of Early Retirement shows us that at a 5% savings rate, we’ll need to work for 66 years to retire while a 50% rate allows us to stop working after only 17 years.
Grow the gap
The gap we’re talking about here is the difference between what you make and what you spend. How much you have to save for retirement (or work towards other goals) depends on how big this gap is. There are two ways to grow the gap: can reduce and eliminate expenses or you can make more money. Ideally, you should do both.
Figure out your why
A lot of people are not motivated to save money for the sake of saving money because without a goal it feels a lot like deprivation. But with a goal it’s empowerment. Our founder and CEO Shannon has talked a lot about Finding your Why (including on this podcast). So have other early retirees who stress that you should have an idea of how you want to live during early retirement and that you should start doing some of the things you are retiring to do before you get there, to test them out. Others have expanded on how your goals can help you get through what they’ve called the Middle Years Slog. A good way to get this thinking process going is to check out our podcast with Jessica from the Fioneers, who has an inspiring personal story and lots of resources on intentional lifestyle design.
Between these top five steps, there are lots of tips and tricks and hacks and ways to save and earn, but this post takes a first things first approach. Be sure to check us out on Instagram and sound off in the comments if you want to hear more about how to reach FI, and tell us what you want to do when you get there!
Ready to start working on your plan for financial freedom?
To get started, schedule a free 20-minute consultation call to speak to a member of our team. We will ask you a few basic questions to get to know you more, walk you through our financial training program steps, and answer any questions you may have. No pressure to join! Need advice quickly? Talk to one of our Trainers on Demand.