If you’ve ever wanted to step away from the hustle and bustle of life and enjoy financial independence, the FIRE Movement might be right up your alley. With a name that stands for “Financial Independence, Retire Early,” this stringent lifestyle is all about helping people break free from traditional employment early enough in life to enjoy the fruits of their labor. Here’s a look at how FIRE proponents manage their money, as well as the pros and cons of this financial philosophy.
How FIRE works
This intense lifestyle is all about maximizing savings and aggressively budgeting, with the goal of being able to live off of your investments and retire well before the standard age of 65. According to Rhiannon Philps, a contributor to Nerdwallet, FIRE followers work towards this goal by saving upwards of 50 percent of their income. In order to achieve this, adherents need to radically change the way they manage their finances. While there are several ways to follow FIRE, a few things stay the same between lifestyles. Alexandra Kerr, a writer for Investopedia, explains that most devotees have the goal of saving enough money to cover their expenses for 30 years — or roughly $1 million. Furthermore, FIRE proponents spend as little on living expenses as possible, and try to keep their withdrawals to no more than 3-4 percent of their savings, Kerr states.
Different ways to FIRE
As previously mentioned, not all FIRE followers manage their finances the same way. According to Kerr, there are four distinct ways to follow the movement. First, there’s Fat FIRE, which refers to people who are employed, but save more than most others. Lean FIRE adherents live a minimalist lifestyle, but maximize their savings as much as possible. If they walk away from conventional employment, but still work part-time to cover expenses, they’re living the Barista FIRE lifestyle. And those who have a part-time job to supplement savings, but have enough savings to put towards expenses and investments, are followers of Coast FIRE.
Ways to meet your savings goals
No matter what form of FIRE lifestyle you follow, it can be tough to meet your savings goals. To help you do so, The Motley Fool contributor Jason Hall suggests finding ways to supplement your income outside of work, such as a side hustle, taking on freelance work, or investing in low-cost index funds or real estate. Furthermore, you can cut back on expenses by trying out free entertainment options, canceling unused subscriptions, and paying down your high-interest loans, Hall recommends. Save even more by learning to repair your goods, buying pre-owned products, and keeping your vehicle instead of buying or leasing a new one every few years. And to help bolster your retirement savings, Hall recommends taking full advantage of employer-matched retirement plans, like a 401(k), as well as using a tax-advantaged retirement savings account, such as a Roth IRA.
As with all financial strategies, following FIRE comes with its own risks. For instance, your later years may be more expensive than you’d expect, or your investments may not yield the returns you were counting on. In the short term, you may not want to undergo the drastic spending cuts that FIRE proponents recommend. But if you’re still interested in becoming a FIRE adherent, consider consulting an investment expert or a financial planner.