As a keen student of personal finance and related topics I consume ridiculous amounts of content from books, blogs, podcasts and the like. In recent times the term FIRE seems to be generating a cult like following in the personal finance community. FIRE is for those of us that believe the traditional work till your 60 something model the masses are following is broken. What is FIRE and is it the right choice for you?
What Is FIRE?
FIRE stands for Financial Independence and Retire Early. The aim to retire at a very young age by living an extremely frugal life and pouring money into investments. Perhaps the most well known FIRE advocate would be Mr Money Moustache. MMM and his wife retired by age 30 and managed to save more than 70% of their modest incomes in order to achieve it. FIRE is a goal for all of us to aim for even if the Early component wont be as early as we would like.
How You Can Achieve FIRE
Saving 50% Or More Of Your Income
To many this goal sounds absolutely absurd and unachievable. It is hard enough trying to save 10 percent of your income let alone saving 50 percent or more. How do they do it you might ask? They live in very modest houses for their income level opting to buy a house in need of repair and fixing it up DIY style.
They aim to keep their expenses as low as possible by driving economical used cars and holding on to them for a long time. Living close to work to reduce commuting expenses and owning one car or even opting for no car at all. Using alternate means of transport like walking, riding a bike or catching public transport.
Not eating out frequently and instead opting for home cooked meals. Taking cheap holidays such as camping, hiking, back packing and the like. Budgeting maliciously to see where every dollar is going and making sure it is spent in-line with financial priorities.
Having A Reasonable Income
Earning large six figure salaries is definitely not a requirement for FIRE. Many have never made more than high 5 figure combined salaries and successfully achieved FIRE. It is not so much the amount you earn but what you choose to do with it that makes the difference. You will find it is going to be considerably harder to achieve FIRE on a minimum wage so this factor should not be ignored.
Making Good Investment Choices
Utilise Tax advantaged or Tax deferred investment options such as retirement accounts for the bulk of their investments and subscribe to any employer matches.
Invest heavily in stocks, many building an 100 percent stock portfolio. Investing primarily in index funds and ETF’s with good diversification. Ensuring that the expense ratio of the funds are as low as possible. They are well aware of the effect of fees on their portfolio.
Is FIRE right for you?
This is ultimately a question that you will have to answer yourself. Saving such a large percentage of your income involves making some serious sacrifices. Do the pro’s outweigh the con’s? Even If you are not willing to take FIRE to the same level as others there is a lot of great personal finance information to be learned from the FIRE community.
My personal goal is to retire earlier than the standard 60-70 age by achieving some level of financial independence. I am however not prepared to make as many sacrifices as an extreme approach requires. I am happy with the balance and knowledge that I will have to work a few more years.
Do you have the Burning FIRE to Retire? I would love to hear your opinion. Leave a comment below or email me.