Financial Independence, Retire Early (FIRE or FI/RE or even FI) is a financial movement and program that emphasizes extreme savings and investment. The goal of FIRE is to allow participants to retire earlier than if they subscribed to traditional budgeting or retirement planning.
Developed from the book Your Money or Your Life by Vicki Robin and Joe Dominguez, FIRE encourages participants to calculate the number of hours at work vs. expenses in their lives and decide whether purchases and expenses are worth the number of hours of work it takes to pay for that purchase or expense, and determine whether the trade was a fair one. If not, the program recommends followers either go without the purchase or find a way to reduce their expenses, so there’s more income to invest.
Followers of FIRE are encouraged to commit up to 70% of their income to savings allowing them to eventually quit their jobs and live off small withdrawals from their portfolios. Essentially, save as much as you can, and then invest what you save. Let your money work for you while you work towards financial independence (FI).
Participants generally want to retire much earlier than previous generations – in their 40’s and 30’s instead of the expected 60’s and 70’s age range. While early retirement is a goal, the primary focus is on financial independence and embracing the decision to work or not to work.
What is financial independence?
Financial independence(FI) generally means having enough income to pay your living expenses for the rest of your life without having to work full-time. FI is achieved through savings, investments, and building businesses with passive revenue streams that don’t require daily supervision.
The Rule of 25 references how much money you’ll need for financial independence. The rule was created for retirement planning. It works by estimating anticipated annual income and multiplying it by 25. Followers of FIRE estimate that you’ll be financially independent when your net worth is 25 times your yearly expense.
What are the rules
At the heart of the FIRE movement are three core concepts:
1. Save
Save more than you spend. A lot more. To save 70% of your income, participants are always looking for ways to keep their expenses extremely low and raise their income; this way, they can reach financial independence.
2. Frugal Living
Reduce living expenses – the less money you need to live, the less money you need to save to reach financial independence. This frugality isn’t about giving up lattes or living an utterly barren lifestyle; it’s more about evaluating and considering purchases and understanding the level of effort or how many hours of work it took to make that purchase.
3. Invest
Savings from traditional employment and other sources of income gets invested in low-fee investments like index funds. Other investments, such as rental properties and passive income streams, are also a big part of reaching financial independence.
Variations of FIRE
There are a couple of variations that evolved out of the core FIRE movement. They’re different styles that help define lifestyle choices.
- Fat FIRE: followers with more traditional lifestyles who save more than the average retirement investor
- Lean FIRE: followers who live minimalist lifestyles, subscribe to extreme saving, and restrict expenditures.
- Barista FIRE: followers who have quit their traditional job but still employ some kind of part-time work to cover current expenses that would erode their retirement fund.
- Coast FIRE: followers usually have a part-time job and haven’t saved enough to fund their retirement and current living expenses.
Quick steps to start planning for early retirement
1. Figure out your why
Understanding why you want to subscribe to FIRE will help you determine your path, why you want to retire early and achieve financial independence. FIRE can be a radical shift in thinking about money and a significant impact on existing lifestyles.
2. Track and reduce your expenses
Check your bank statements, credit card statements, online budgets and start deciding which purchases are right for you and which are not. Getting a handle on your income and expenditures will help you determine if FIRE is possible for you and if there’s room in your monthly budget for a massive increase in savings.
3. Increase your income
Determine your current income and look for additional income streams or develop passive income streams to augment your savings plan.
4. Invest
Investing is the crucial part of the FIRE movement. Finding investments that will make your money multiply and work for you is essential in the long run. Discover if active investments like rental properties or managing your own stock portfolio or passive investments like a REIT are better suited for your current lifestyle and investment goals
Why FIRE may not be right for you
- You need to have a significant enough income. If you’re just starting your career, your living expenses will take up a larger share of your income, especially if you have student loans. Saving part of your income may still be possible, but not at the suggested rates.
- If you’re looking to escape a job you hate. If you struggle with your current employer or even career choice, looking for a way to achieve financial independence is probably VERY attractive. Solving your current satisfaction issue with your employment is something you should handle outside of your FIRE goals because your paycheck feeds directly into achieving those goals.
While FIRE may not be right for every individual with dreams of financial independence, core principles can be useful for everyone looking to, one day, retire or achieve financial independence – mainly focusing on saving, thoughtful spending, and investing.
About Upside Avenue
For decades, the ultra-wealthy and financial institutions have been putting their money to work in real estate—now with Upside Avenue, you can too. We provide access to a professionally managed, diversified portfolio of income-producing multifamily real estate for as little as $2,000. Learn more about the Upside Avenue Multifamily REIT with targeted returns of 10-15% IRR.
