The FIRE movement is a lifestyle that helps you become financially independent so that you can retire early or fulfill other goals. But in order to do this, you’ll need to save large portions of your income - usually 50 percent or more. If you can do this, the FIRE movement might work for you.
Let’s learn more about FIRE, the benefits to expect and if this is the right savings strategy for you.
What is the FIRE Movement?
Financial Independence Retire Early (FIRE) is a movement that prioritizes saving and investing at least half of your income so that you can retire before your 60s. The term FIRE comes from a 1992 book tilted Your Money or Your Life, which discusses changing your relationship with money to achieve financial independence.
Financial independence looks different to everyone. For some people, it might be taking a pay cut to do the work they love. For others, it’s not working at all. You have to determine what is important to you, and if your future financial independence is something you can financially support today.
How Does the FIRE Movement Work?
FIRE is an aggressive savings strategy, so you must be committed to it. It requires you to save 50 to 75 percent of your income so that you can live off these savings in your 50s, 60s and beyond, and sometimes, even in your 40s. FIRE also requires extreme discipline and lifestyle changes that you must be willing to make for the time being.
People who use FIRE to retire early do so by reducing their expenses, increasing their income and investing their money. They also tend to follow the Rule of 25 and the 4 Percent Rule.
- The Rule of 25. This rule says you need to save 25 times your annual expenses to retire. Multiply your monthly expenses by 12, and then multiply this by 25 to get your answer.
- The 4 Percent Rule. The 4 percent rule says that retirees can withdraw 4 percent of their savings the first year, and then adjust for inflation in subsequent years without running out of money.
FIRE Movement Methods
The FIRE movement is not feasible for everyone, especially if you have a lot of expenses each month. But if you are interested in this retirement strategy and feel that you have some extra income to put away, know that there are different levels of FIRE.
- Lean FIRE. People who follow lean FIRE live a modest lifestyle now, and plan to live one in retirement. For lean FIRE, you’ll need to save 25 times your yearly expenses.
- Fat FIRE. Those who follow the fat FIRE movement save more money because they plan to live more comfortably in retirement. They may want extra money for traveling or shopping.
- Barista FIRE. The goal of barista FIRE is to save enough money to retire from full-time work. You’ll need to save enough to cover some of your retirement needs, but not all. This allows for a more flexible work-life balance.
Do you think that the FIRE movement might be right for you? Book an appointment with Leonard Financial Solutions to learn more about this retirement strategy and if you have the income to make it work. We also have suggestions for other strategies you can follow that might fit better with your income and lifestyle.