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FIRE: Financial Independence, Retire Early

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Forge Your Wealth is meant for education and entertainment and should not be used for financial advice.

There is a more recent movement going on called FIRE. As you can tell from the title FIRE stands for financial independence, retire early. The movement started in 1992 with a book Your Money or Your Life.

The book asks the reader many questions:

  • Are you happy with your work?
  • Do you spend the time you want with your family?
  • If you lost your job tomorrow would you see that as an opportunity?
  • Do you feel like a sell out at your job?
  • Do you feel that you have time to do the things you want to do?
  • How do you feel with money?
  • Do you have enough money to live for six months?

You know, the things a caring mother and father would ask (maybe not in those exact words). The book will tell you that if any of these questions bring you negative feelings, you must change your emotions about money, and essentially try to start living for yourself.

How Does It Work?

As the name suggests, you would be financially independent and possibly be able to retire early. People who follow FIRE can quit their jobs in their 40s, 30s, or even 20s. Most people who follow the FIRE movement still have to work, but not the 9 to 5. Some even find different types of jobs such as freelance, but either way, they have almost full control of their schedules and their lives.

How Do You Achieve FIRE?

The concept is to be extremely frugal. How frugal? 70% of your income goes into savings or investing assets for at least a few years. I don’t do that. Just to be clear my wife and I have a solid budget, we watch what we spend, and altogether the amount my wife and I save is just about 30% of our income.

Just to be clear, saving 70% of your income is very possible, just difficult. You almost have to not spend a dime on anything you do not need, and maybe even change your mindset on what you need. It may even be impossible to achieve if you have a loan. While the amount you need saved/invested to retire varies the consensus is that when you have the portfolio, you only ever need to withdraw 4% annually. For traditional lifestyles, this should be close to a million.

What Types Are There?

There are multiple types of FIRE, some can provide a traditional lifestyle while others require a more minimalist lifestyle. Some require work while others do not. But either way FIRE is not something to follow if you want a Lamborghini, a large house, exotic vacations, or any other thing associated with a rich lifestyle. If you want a rich lifestyle there are plenty of other posts I have put up that could help you, this is not one of them. These are not the official names for the types of FIRE, but I believe these are good ways to describe them.

Traditional FIRE

This is the one where you can retire with a moderate house, and a modest lifestyle. This one requires the hefty portfolio that is comparable to financially sound portfolios. Remember, you must be able to withdraw at least 4% annually for several decades without running out. This will be at least several hundred thousand right now (most likely more in the future). Keep in mind a good portfolio with growth and dividends will be sufficient. Sometimes a non-traditional job such as freelance is needed, especially if you have a family to care for.

Minimalist FIRE

This is one I have heard where people have a minimalist lifestyle. The definition of a minimalist varies from person to person (and most definitions are BS). My mother believes I am a minimalist, and I laugh at the very idea of that. However, I would have to say if you have anything larger than a studio apartment, eat meals worth more than I’d say a dollar each, have a car or other liabilities, you probably do not have a minimalist lifestyle. I have seen the lifestyles of many minimalists, some hardly have a mattress, some even sleep on towels, eat only ramen (not the quality ramen), some even live in a van. However, assets are still needed to provide you with the bare necessities. And sometimes some non-traditional job is needed.

Part-Time FIRE

This one is not even really a retirement plan. You have enough assets to provide you with an income that covers most of your expenses, but almost never all of them. To close the gap a small job, usually part-time job, is needed to prevent your portfolio from expiring early. Just to be clear I am not talking about anything non-traditional, but instead something that provides you with a stable paycheck. A freelance non-traditional job never hurts though, especially if it picks up.

There are a few other ways I have heard people have achieved FIRE including sustenance agriculture, but that technically should qualify as freelance. Every other one I have heard of is more or less a variation of one or more of the three I mentioned.

Final Thoughts

Truth is, many of the concepts of FIRE are the same as any other retirement, but accelerated. I would only ever recommend FIRE for people who hate their jobs. Forbes reported almost 87% of people are less than enthralled with their work, so FIRE may be a good goal for most people. However, if you like your job keep going for it.

Some ask if I would follow FIRE. Not yet at least, I like my work. I know many people say that, but to illustrate this I will tell you a story. One of my students asked if I liked my research. I said “you could give me an army of scientists, immortality, and a blank check for research and we would keep researching what I am researching right now. Although we may have forever, we will only need a few years to change the world as much as the internet did.” So yes, I feel like my work is fulfilling and I hope it stays that way. That may sound egotistical, but I actually love the research I do and I can see it impacting the world, if not in my lifetime, then sometime in the future.

If you cannot say what I said to my student while being honest, truth is you may not find your job fulfilling and maybe FIRE is the right path to forge your wealth.

Author: Papa Foxtrot

Most of my life I was careful with money and learned where I should invest it. I was very lucky to have parents who taught me financial literacy when I was young. Unfortunately, I am very lucky because many people lack the financial literacy I know. The purpose of Forge Your Wealth is to teach people who are just starting out in life how to obtain their wealth or anyone who just realized they may need to learn more to handle their finances. I currently have a PhD in biochemistry, just started a job in industry (will not disclose where exactly for personal and professional reasons) and am currently married to the love of my life. I am one of the lucky few people in America who graduated with no student debts, my wife was not. Over the series of a little over 3 years we paid for our wedding with no debt and paid off her federal student loans.

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