The FIRE movement — which stands for “Financial Independence, Retire Early” — encourages people to intentionally take the financial steps necessary to achieve financial independence at an early age. While most FIRE enthusiasts aim to do it by their 40s, many do so in their 30s or early 50s. There’s no one-age-fits-all goal in the FIRE movement; it’s about knowing what’s ideal for you.
FIRE is also about knowing what financial independence looks like for you. For most practitioners, that’s getting to the point where they can do whatever it is they want in life without having to depend on an employer for money.
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How much is right for you?
Telling someone how much to have saved can be tricky because retirement expenses vary based on many different factors. Someone retiring in South Beach, Miami, will probably have a higher cost of living than someone retiring in Cleveland, Ohio. Someone who plans to travel the world likely needs more than someone who wants to enjoy retirement by relaxing as much as possible.
If you’re not sure how much yearly income you’ll need, a rule of thumb is to have at least 80% of your annual income to maintain your current lifestyle. So, if you currently make $80,000, you’ll want $64,000 annually. If you plan to be more frugal, you can lower the percentage, and vice versa.
Once you know your annual goal, you can find your total savings goal using the 4% rule. The 4% rule encourages people to save up at least 25 times their ideal annual income. For instance, if you would need $64,000 per year to live your life how you want, you’d aim to have at least $1.6 million saved.
Getting to your goal
The best way to reach your FIRE goal is to use all available resources and go at it from multiple angles. To begin, you should make a plan to get rid of expensive debt like credit cards, because that debt will lower your cash flow and potentially offset your investment gains. Paying more in debt interest than you’re earning from investing is counterproductive.
Regarding investing, you don’t need huge returns. With discipline and consistency, all you need are low-cost index funds to ensure you’re not overpaying for pricey mutual funds that, compared to the S&P 500, often underperform over the long run.
The difference in expense ratios (charged as a percentage of your investment value) may not seem like much on paper, but over time, the slightest difference can easily amount to thousands.
It also helps to build a solid stake in dividend stocks because that can turn into consistent passive income — especially if you’re investing in Dividend Aristocrats, which are companies that have increased their yearly dividend for at least 25 consecutive years.
Dividends likely won’t be the bulk of your income, but they can be a great supplement. For perspective, if you accumulate $100,000 in dividend stocks that average a 2.5% dividend yield, that’s an extra $2,500 in yearly income. Anything is better than nothing.
It’s not all work, no play
There are undoubtedly sacrifices you must make in the FIRE movement, but it doesn’t have to mean giving up everything that doesn’t get you closer to your financial goals. You don’t want to rob yourself of any and all satisfaction or pleasure along the way.
A lot of what the FIRE movement is about is being very intentional with your spending; when your income comes in, every dollar of it is accounted for, and has a “job.” That job could be investing, bills, charity, entertainment, or whatever you choose.
Assigning every dollar a job makes you much more deliberate about your spending and makes it easier to ensure it aligns with your values and goals.
It’s bigger than retiring
A very important thing to note about the FIRE movement is that the “retire early” portion doesn’t mean you have to quit working jobs completely and do nothing. It could very well mean that for you if you want it to, but it doesn’t have to mean that.
The ultimate goal isn’t just to retire early and never touch a job again; the goal is to retire “into” a lifestyle, job, or career that fulfills you. For example, you may have a passion for teaching kids but couldn’t do it as a career because of the pay. If you’re able to get to the point where money is no longer a factor, you may be able to finally pursue it. FIRE is about getting more people in a position to do such things.
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