What Is the F.I.R.E. Movement?

Have you ever dreamed of retiring early, traveling the world, or pursuing other personal hobbies? The FIRE moment allows you to do this without having to worry about money.

FIRE stands for Financial Independence Retire Early, and it’s one of the most popular personal finance movements to date. If you’ve ever wondered how FIRE works and if it could be an option for you, we’ll break down every aspect of FIRE and how to get started in this post.

What is “financial independence, retire early” (FIRE) all about?

The FIRE movement has a simple but challenging goal: to accumulate enough wealth to retire early and comfortably. To achieve this goal, you need to save aggressively. It’s also important to invest wisely and increase your income so you can save a generous amount of money.

The main goal of FIRE is to save as much as you can, which is typically 50% or more of your take-home pay. This money should be invested in high-yield securities like stocks and mutual funds as well as real estate and bonds.

As time goes on and your investments grow thanks to compound interest, you’ll earn enough to withdraw money to meet your basic needs and then some. Thus, no longer having to work or rely on an active income.

How does FIRE work?

So how does FIRE actually work? It’s really a numbers game. The 4% rule is key in the FIRE movement as this suggests an amount you can safely withdraw from your total portfolio value every year during retirement without running out of money.

In fact, your accounts should continue to grow even white withdrawing a conservative 4% yearly. This rule is based on historical data and assumes a 30-year retirement period.

So let’s say you’ve amassed $1 million in investments and want to follow the 4% rule. You’d be able to withdraw $40,000 per year and live on this money while still maintaining your principal balance since you’d just be withdrawing a portion of your account’s earnings.

It’s important to note that the 4% rule is just a guideline and may not work for everyone, depending on your lifestyle and your goals. Another way to calculate your FIRE goal number is to take the total amount you estimate spending in retirement and multiply it by 25.

So if you feel you need at least $60,000 per year to live comfortably, you’ll need to save about $1.5 million to reach FIRE. Of course, this assumes you will only live 30 years after you retire, so if you plan to retire at 40, you will not have saved enough with the 4% rule to live to 75.

FIRE pros and cons

While FIRE may seem like the perfect solution for early retirement and financial freedom it does have its own benefits and drawbacks to consider.

Pros

• Financial security and independence. With FIRE, you don’t have to worry about being stuck in a job you dislike or feeling stressed about money.
• Flexibility and more control over your time. FIRE allows you to gain control over your time, allowing you to do the things you want to, rather than working.

Cons

• Requires a lot of planning and sacrifice upfront. Reaching FIRE requires that you make sacrifices in your working years by cutting back on expenses on things you want to have and do.
• Takes longer if you don’t have a high income. Anyone can reach FIRE, but if you have more money to contribute, you will reach your goal much more quickly.

How to retire early with FIRE

To retire early and become financially independent, you’ll need to follow a few steps.

Calculate your retirement savings goal

Base this goal on your desired lifestyle, expenses, and retirement age. For example, if you’re 25 now and want to reach FIRE by 50, you need to find out how much you need to save in the next 25 years and how much you’ll need to live on once you reach FIRE. And if you live to be 90, you’ll have to save 40 years worth of money in almost half the time.

Track your expenses and get on a budget

Rework your budget to cut unnecessary costs and prioritize savings. Start paying yourself first and investing early and often. Practice delayed gratification so you can control your spending and identify any problem areas that cause you to waste money each month.

Learn more about investing

Explore your options such as your 401(k), IRA, and brokerage accounts. You can read books and listen to podcasts about investing. You may also even want to talk to a financial advisor about your plan to achieve FIRE and see what they suggest.

Increase your income

In order to save aggressively, you’ll want to make more money. Work toward promotions and raises at your job, go back to school, or start a profitable business to increase your income.

Focus on the goal and make it a lifestyle

While many people are working toward FIRE, several people aren’t, so you’ll need to focus on your goal and adopt a frugal lifestyle, which could look different from others. Limit unnecessary spending. House hack or rent out space in your home to lower your mortgage, ride a bike to work, or use credit card reward points to supplement the cost of travel. There are so many things you can do to manage your spending and lifestyle to be able to achieve FIRE some day.

Should you get started with FIRE?

The decision to get started with FIRE depends on your personal goals, values, and financial situation. If you are willing to make sacrifices, live frugally, and commit to your financial goals, FIRE could be an option worth pursuing.

Also, realize that everyone defines financial independence in their own way. You may not need $1 million to achieve financial freedom. Instead, you may want to set a smaller target or save $500,000 and continue to work part-time doing something you love that’s meaningful.

Define financial freedom for yourself and what that lifestyle looks like. Then estimate how much it will cost and when you want to reach your goal, so you can start saving right away.

Frequently asked questions (FAQs)

How does the 4% rule work for the FIRE movement?

The 4% rule represents the percentage of your investment portfolio that you can safely withdraw during retirement without depleting a significant amount from your investment portfolio. That way, your investments will continue to grow even during retirement. This rule is based on historical data on the stock market, such as the S&P 500 performance over several decades.

At what age should you get started with the FIRE movement?

If you’re thinking about pursuing FIRE, you should start saving as soon as possible. As soon as you begin investing, the more time your money will have to grow and accrue interest. Even if you can’t set aside much at the start, just begin by saving what you can and you can always increase contributions later.

Is $3 million enough to retire at 55?

Everyone’s retirement goal will be different since it’s based on your personal needs and desired lifestyle. However, if you’re following the 4% rule, with $3 million saved, you’d be able to withdraw around $120,000 per year to live on.

What is a good savings rate for FIRE?

It’s a good idea to save around 50% or more of your income to aggressively save for FIRE. So if you earn $80,000 per year, you’ll want to live on $40,000 and save the other $40,000.