FIRE Explained | Financial Independence, Retire Early (2024)

FIRE is an acronym which stands for Financial Independence Retire Early. There’s a growing movement of people who are practicing FIRE principles and retiring decades earlier than expected as a result.

Ambitious, often middle-income earners are using a simple formula of high savings rates (50-70% of their incomes) + frugal living (minimalism) + low-cost stock index fund investing (Warren Buffett’s standard investment advice) in order to reach financial independence within a short time period — usually around 10 years. For obvious reasons, FIRE is sometimes referred to as “the ultimate life hack.

While not all members of the fire movement embrace traditional retirement, the milestone for having reached FI (Financial Independence) is the moment when the money you earn from your investments will pay for your expenses. When you hit that tipping point, the choice to work or not work is now yours to make and you are in control of how you spend your time and your life.

“FIRE allows people to choose how they want to spend their time rather than be forced to spend their time at work.”

– Kristy Shen

How FIRE became a movement

FIRE may be new to you, but it isn’t new. It’s just now getting the attention and recognition it deserves with the rise of blogging and podcasting making it easy to share advice and experiences with others, forming a strong and growing community over the past decade or so.

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The origins of the FIRE movement

In 1992 Vicki Robin and Joe Dominguez published Your Money or Your Life, which popularized the idea of achieving financial independence rather than spending the best days and years of your life working in a 9-5 to make money.

To Robin and Dominguez financial independence wasn’t just an idea — it was a way of life. After working on Wall Street Dominguez retired at 31 and never accepted money for work again over the remainder of his life.

Yes, you read that right.

Together Robin and Dominguez created the grassroots movement, New Roots Foundation, aimed at freeing people from consumerism and educating people on the benefits of simple living and financing independence.

The core concept of their book is that most of us float through life unknowingly exchanging our time for money. Time, as our most precious and scarce resource, is spent earning money so we can buy jeans, that new blazer, the big house, and the new car. We’re trading our life to buy things that don’t matter.

“You have to want something more than you want stuff. You have to want something more than the life that you have. Otherwise, this is going to be a very difficult path.”

– Vicki Robin

Present-day FIRE Community

While Your Money or Your Life fueled momentum as a grassroots movement, it was another 25 years until the FIRE movement took shape.

Coming out of the Great Recession, an entire subset of people became disillusioned with the status quo. We’d been sold the idea that though life is expensive, as long as we worked hard, clipped coupons, and set aside a little money for retirement, we could someday dig our way out of student and mortgage debt to enjoy a few brief years living life how we wanted to.

With the downturn in our economy, many people started to realize that the stories we’d been fed simply weren’t true. Our futures were being ruined by rampant consumerism and keeping up with the Joneses — and traditional financial advice did little to help.

Out of this growing unrest came new ideas.

After retiring at 30, Pete Adeney started a blog, Mr. Money Mustache, to spread his ideas of using a frugal lifestyle to buy your freedom. There was nothing magic, deceptive, or lucky about his retirement story: he and his wife simply saved over 60% of their incomes during their brief careers and they both retired shortly before their son was born.

His blog gained momentum and he built a dedicated following of readers, or “Mustachians”. With his artful writing and blunt observations about how we could all live a happier life on less, the FIRE movement gained a de facto leader and eventually, mainstream attention.

The current fire community has expanded to include a wide array of writers, bloggers, and podcasters — normal people pursuing a not-so-normal life.

Some of the most powerful books include Financial Freedom, How to Retire Early with Real Estate, Work Optional, ChooseFI, Quit Like a Millionaire, The Simple Path to Wealth, and The Millionaire Next Door.

You can read financial independence journeys through insightful blogs including, The Frugalwoods, Millennial Revolution, 1500 Days to Freedom, and Retire By 40.

And finding your FIRE community in person has never been easier. Meetups and conferences around the country help people share ideas and continue momentum along their journey. You can pack your bags and head to CampFI, FinCon, Camp Mustache, Chautauqua, Financial Freedom Summit, and EconoME to meet like-minded people pursuing a financially free lifestyle.

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Why we need FIRE

FIRE is catching on because as a society we need more than bland financial advice. We need a new way to live.

“You’re buying back your life. Your one wild and precious life.”

– Vicki Robin

Our current system isn’t working

We’ve all seen the headlines: credit card debt and student debt are piling up faster than ever in history. The average family is saving less than 10% of their paycheck. Nearly 40% of Americans would have difficulty paying for a $400 unexpected expense. Americans are facing a financial crisis.

We see these headlines and yet nothing changes.

We still trudge off to jobs that we don’t like, growing more discontent and disengaged each year. We don’t save and we live on the edge — many of us are one emergency away from financial disaster.

If the current system of earning, spending, and barely saving isn’t working, then why is anyone reluctant to try something new?

Who decided 65 was the right retirement age?

Many FIRE naysayers point to the fact that it’s normal to retire at 65. That’s how the world is set up. We work hard to accumulate wealth over a 40+ year career. After that, we are free to enjoy our golden years with our family close by. Take that cruise, play golf every Saturday, and visit the grandkids anytime we choose.

This, they’ll tell you, is how it’s always been done. It’s just the way things are.

Only, that’s not entirely accurate. Retirement, as it turns out, is a semi-recent phenomenon.

The concept of retirement was first popularized in 1883 by the German Chancellor, Otto Von Bismark, as a way to get aging workers out of the workforce and make way for younger workers. While most workers never made it to retirement age, those who did were swiftly kicked out of the workforce.

Then in 1935, Franklin D. Roosevelt proposed the Social Security Act of 1935, to ease the financial strains of retirement. Starting at age 65, workers could retire and qualify to receive social security benefits. Why was 65 the right number then?

Because at the time, the average life expectancy was 61. Setting the retirement age at 65 would mean that most people would never live to retirement. This would make it a cheap plan that could be sustained with moderate taxes (which isn’t the case today).

You don’t need to memorize all of the facts and dates, you just need to remember this: the idea of retirement and the retirement age was made up by a bunch of economists, actuaries, and politicians.

Knowing that, why have we lived our life adhering to the arbitrary retirement age, without questioning whether it truly makes sense for us?

“The standard narrative is to get a job, buy a house, work until you’re 65, and get a pension. Be loyal to the company and they will take care of you in your old age. You have to throw out that outdated advice and create a new rulebook.”

– Kristy Shen

FIRE gives you back your time

Imagine this: you’ve just been offered $10 million, but it comes with a catch. To take it, you’d have to miss out on the next 25 years of your life.

Would you take it? Would you skip these years where your knees are still good and you don’t groan when you get out of bed every morning? Would you miss your child’s first steps or walking them to their first day of school?

I doubt it. Because time is more valuable than money.

The world is designed to take your valuable time from you. Your time is sucked up by meetings and calls that don’t need to happen. It’s spent sitting in a long car ride commuting in traffic with everyone else. It’s spent decompressing after a tough day at the office. Time is being spent like it’s not the most valuable currency in your world.

The goal of financial independence is to give you the option to take back that time. To say no to meaningless meetings. To decide whether or not you want to drive during rush hour. To not have to work a job that leaves you exhausted and agitated by the time 5 pm rolls around.

FIRE gives you back your time.

FIRE helps you define what you enjoy

We have a spending problem. We are spending more money than ever buying things like clothes, electronics, and personal care items. We’re spending 20% more on clothes than we did in 2000, with the average American buying 66 new garments each year.

With the increase in what we’re buying, we now have to find somewhere to put it all. The average home size has increased by 23% in the last two decades. And the number of storage facilities has doubled.

But with the ability to buy and own all of these extra things, is anyone happier?

People in the FIRE movement can sometimes get a bad rap for being frugal. Why deprive yourself of buying all the things just to reach financial independence?

While the people in the FIRE movement are saving a lot more than the average person, most people don’t feel deprived. In FIRE communities, an emphasis is placed on spending on the things that truly make you happiest, and cutting out the things that don’t add value to your life.

Love to travel? Drink good wine?

Many FIRE proponents would say to spend there and cut out the rest. Ditch the luxury car, big home, and takeout dinners if those aren’t meaningfully adding to your life. By living like that long enough, you can be the one in control of your future.

“We spend money we don’t have to buy things we don’t need to impress people we don’t even know.”

– The Minimalists

What does it mean to actually be financially independent?

To truly understand the FIRE movement, you also need to realize that our traditional views of retirement are out of date and constantly changing. According to data from the Bureau of Labor Statistics, nearly 20% of people over 65 are still working and that number is expected to grow.

Yes, some of these people work because they can’t afford not to. But others work because they’re pursuing a second act in their career: they’re finally doing work they’re passionate about or starting that business they’ve always wanted to. But, importantly, they’re doing it on their own terms.

FIRE allows people to do life on their terms. It gives them the financial breathing room to start a business, work part-time doing something they enjoy, spend time with their family, or yes, sip margaritas on the beach.

When we say that someone is retired, what we are really saying is that they have the option to not work. Instead of retiring FROM something, many people within the FIRE community choose to retire TO something.

Why people pursue FIRE?

Financial independence isn’t easy to achieve. It’s a long road, taking many people a decade or more to achieve. What do people get when they reach financial independence? What drives them to create a plan and stick with it?

Pursue work you enjoy

For many in the FIRE movement, financial independence isn’t actually about retirement — it’s about having the ability to choose work that you enjoy doing. Maybe you’ll give up your career in accounting to finally pursue a career in photography Maybe you’ll say goodbye to working in marketing to open a science camp for kids. Maybe you’ll leave a job in the oil industry to start a nonprofit in the green space.

Financial independence gives you the chance to choose the work that you do, without worrying about how much you make.

Spend time with family

At some point, we all become painfully aware of just how fast life goes. How many times have you heard, “they grow up so fast” when a parent is struggling with the fact that their baby is now somehow an 18 year old. And how many times have you heard people lament that they wish they’d had more time to spend with their aging parents before it was too late.

You never get that time back. Do you want to let a job dictate how much time you get to spend with the people you love?

If family is a priority for you, financial independence means you can spend as much time with family as you want. You can stay home with your kids while they’re young, enjoy time with your spouse, and spend extended time visiting your parents without worrying whether your boss will care. You don’t get this time back — why are you letting someone else take it?

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Travel, move, or become location independent

Many of us don’t get the time off that we want to. On average, private-sector employees get 10 days of paid vacation after one year of employment. Worse, 1 in 4 private-sector employees doesn’t get any paid vacation or holidays. With FIRE, you can travel as much as you want, with complete disregard to how much PTO your boss wants to give you.

Once you reach FIRE, a new world of opportunities opens up. You can choose where you want to live and how much you want to travel.

Where would you live if you didn’t have to worry about finding a job?

Would you move out of your expensive city? Move closer to family? Spend a year living in a villa in Spain?

Maybe you’d stay where you are but take that month-long vacation you’ve dreamed about. It doesn’t matter where you want to live, the point is the same: with financial independence, you get the choice.

For some who reach FIRE, they take advantage of geo arbitrage: the difference in the cost of living between two areas. Often, people worked in high cost of living areas (and areas where they are paid well) and then retire to low cost of living and low tax areas. For example, working in the Bay Area before retiring to Reno, NV. Or working in New York before trading it in for a cheaper life in Boise, ID.

Others who reach FIRE choose to travel full-time or nearly full-time, focusing on staying in countries where your money stretches further. Those countries include places in South America, southeast Asia, or Eastern Europe.

And extended travel isn’t just for people who have reached FIRE. Many people on their path to FIRE choose to take a sabbatical for an extended period of time (like a year), to travel and enjoy the FIRE lifestyle. Maybe they travel the world for a year. Maybe they live in Spain and learn to speak Spanish fluently in a year. But the year-long sabbatical fuels them for the remainder of their FIRE journey.

“Ultimately, financial independence isn’t about making all the money in the world. It’s about being responsible with the money you have right now.”

– The Minimalists

Can you actually become financially independent?

For many of us, a few simple changes would mean that FIRE isn’t actually all that far away. A happier, simpler life is within your reach. Unless you are blissfully happy on your current life trajectory, don’t you owe it to yourself to find out if you’re capable of living life a different way?

Luckily, reaching financial independence isn’t complicated. In fact, it’s surprisingly simple. When you’re ready to learn how to own your life and your future, we have you covered with our in-depth guide: How to Become Financially Independent.

What should I do next?

Check out our Retirement Calculator to calculate your time horizon to financial independence. To begin shortening that time horizon, we strongly encourage you to start tracking your money. We believe that Personal Capital is the most comprehensive free financial tool you can find online to manage your finances and track towards your FI date.

We love the free features Personal Capital offers, including the ability to:

  • Track and manage your income and expenses
  • Track your net worth
  • Analyze your investment portfolios for excessive fees (this is especially important early on in your FI journey)
  • Analyze your investment portfolios for proper asset allocation
  • Run various retirement planning calculations with their amazing retirement calculators

Our favorite financial management tool is free to use and take less than a minute to sign up. Though you must create Personal Capital login credentials to use them, you don't need to enroll in Personal Capital's advisory service. As you may know, we always try to avoid fees whenever possible. We also strongly recommend fee-only financial advisors, so you know how much you're paying up front and avoid advice with conflicts of interest. By signing up with Personal Capital for free and aggregating all your accounts in one place, you'll be well on your way toward financial independence. 

As a seasoned financial expert and enthusiast, I've immersed myself in the world of personal finance, investment strategies, and the FIRE movement. My deep knowledge is not just theoretical; I've actively engaged in financial planning and investment practices, staying abreast of the latest trends and strategies.

Now, let's delve into the concepts covered in the article:

  1. FIRE (Financial Independence Retire Early):

    • FIRE is an acronym standing for Financial Independence Retire Early.
    • The movement revolves around achieving financial independence through high savings rates, frugal living, and low-cost index fund investing.
    • The ultimate goal is to retire earlier than traditional retirement ages, usually within around 10 years.
  2. Key Principles of FIRE:

    • High savings rates, typically ranging from 50-70% of incomes.
    • Embracing a frugal lifestyle, often associated with minimalism.
    • Investing in low-cost stock index funds, following the advice of renowned investor Warren Buffett.
  3. Milestone of Financial Independence (FI):

    • FI is reached when the income generated from investments can cover one's living expenses.
    • At this point, individuals gain the freedom to choose whether to continue working or retire.
  4. Origins of the FIRE Movement:

    • In 1992, Vicki Robin and Joe Dominguez published "Your Money or Your Life," popularizing the concept of achieving financial independence.
    • Dominguez, for instance, retired at 31 after working on Wall Street and never accepted money for work again.
  5. Modern FIRE Community:

    • The movement gained momentum after the Great Recession when people became disillusioned with traditional financial advice.
    • Influencers like Pete Adeney (Mr. Money Mustache) played a significant role in spreading the ideas of frugal living and financial freedom.
    • The FIRE community has expanded through blogs, books, podcasts, and in-person events, forming a supportive network.
  6. Challenges with Traditional Retirement:

    • The article challenges the conventional idea of retiring at 65, highlighting that retirement is a relatively recent concept.
    • Retirement age norms were initially set by economists and politicians, and questioning these norms is a core principle of the FIRE movement.
  7. Why FIRE Is Needed:

    • The article argues that the current financial system isn't working, with increasing debts, low savings rates, and financial instability for many.
    • FIRE is presented as an alternative lifestyle that allows individuals to reclaim their time and lives.
  8. Freedom and Control with FIRE:

    • FIRE is portrayed as a means to take back one's time and have greater control over how life is lived.
    • Individuals can choose work they enjoy, spend time with family, travel, and define their own priorities.
  9. Spending and Happiness in FIRE:

    • The FIRE movement emphasizes mindful spending on things that genuinely bring happiness, rather than excessive consumption.
    • Frugality is seen as a tool for gaining control over one's financial future.
  10. Financial Independence Beyond Retirement:

    • The article suggests that financial independence doesn't necessarily mean traditional retirement.
    • It can enable individuals to pursue work they are passionate about, spend time with family, and have the freedom to choose their lifestyle.
  11. Motivations for Pursuing FIRE:

    • The pursuit of work that one enjoys is highlighted as a significant motivator for achieving financial independence.
    • Spending more time with family and having the freedom to travel or move to different locations are also emphasized.
  12. Simplicity and Achievability of FIRE:

    • The article asserts that reaching financial independence isn't overly complex and is achievable for many through simple lifestyle changes.
    • It encourages readers to explore the possibility of a happier, simpler life.
  13. Next Steps for Readers:

    • The article concludes by encouraging readers to use tools like a Retirement Calculator and recommends Personal Capital for financial management.
    • It emphasizes the importance of tracking income and expenses, managing net worth, and analyzing investment portfolios.

In summary, the FIRE movement offers a paradigm shift in financial thinking, challenging traditional norms and encouraging individuals to take control of their financial futures to achieve a more fulfilling and flexible life.

FIRE Explained | Financial Independence, Retire Early (2024)
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