The book “Your Money or Your Life” by Vicki Robin was the book that is credited with launching the FIRE Movement. FIRE stands for “Financial Independence, Retire Early.” The FIRE Movement has exploded and become popular among Millennials. So what is the FIRE Movement? In this episode of Best in Wealth, I will share the three non-negotiable rules and three variations of the FIRE Movement. Do not miss it!
Outline of This Episode
- [1:01] Best in Wealth reaches 200 episodes!
- [3:38] What is the FIRE Movement?
- [10:35] The variations of the FIRE Movement
- [15:03] The three non-negotiables of the FIRE Movement
- [18:22] Do you want to become part of the FIRE Movement?
What is the FIRE Movement?
FIRE is the retirement movement that takes aim at conventional retirement (retiring at age 65). It is all about finding a way to retire early. Those who adhere to the FIRE Movement dedicate a majority of their income to savings, with the hope they can quit their full-time jobs and live off of small amounts of their retirement portfolio for decades. You might quit your job, switch to part-time, or retire entirely.
FIRE followers are proponents of an extreme saving lifestyle—up to 70% of their yearly income. But can you imagine saving that much? You need your savings to reach 30x your yearly expenses. Let’s say that number is $1 million. That gives you a little over $33,000 to spend each year. But you want to keep investing and growing that money.
If you are 40 years old with $1 million, you will need to live off of 4% of the income each year. That is only $40,000. If you think about the 4% rule, adjusting for inflation, there is a high probability that you will make it through a 30-year retirement without running out. That sounds great, right? So what is the issue?
If you need to make the money last more than 30 years, 4% might not be the way to go. Maybe you need to operate closer to 3%. But this all depends on your desired lifestyle. You need to track how much you are spending and make sure you do not overspend in retirement. The same holds true for any retiree.
You need to do everything you can to drive your expenses down to reach financial independence to retire early. This requires extreme diligence to monitor expenses and remain dedicated to saving.
The three non-negotiable rules of the FIRE Movement
So what are the three rules anyone following to the FIRE Movement must adhere to?
- A detailed plan: Anyone that wants to retire successfully must have a plan. According to the Board of Governors of the Federal Reserve System, 1 in 4 Americans has nothing saved for retirement. That is why you need a plan.
- Economic discipline: To achieve a FIRE retirement, you have to maximize your income while minimizing expenses. If you want to retire by 40, you have to take extreme measures to succeed. Everyone can benefit from making and sticking to a spending plan while saving as much as possible.
- Wise investment: No one can achieve a secure retirement without investing their retirement savings. People who adhere to the FIRE Movement invest large portions of their income. They need their money to work for them for 30+ years. You need a plan that is highly diversified with strategic planning that gives you the greatest chance to succeed.
But what if this lifestyle does not work for you? You are in luck—there are three variations of the FIRE Movement that may be a better fit for you!
The three variations of the FIRE Movement
- Fat FIRE: You are an individual with a traditional lifestyle who aims to save substantially more than the average worker but you do not want to reduce your current standard of living. You are not concerned with reaching financial independence as quickly as possible. You still want to enjoy your life—while still saving at a high rate (maybe closer to 30%).
- Learn FIRE: This requires stringent adherence to minimalist living and extreme saving. This lifestyle is extremely restrictive. If Learn FIRE is for you, you will have to live on $25,000 or less per year. That is only $2,000 a month. But if you make $10,000+ a month, think how quickly you could reach financial freedom.
- Barista FIRE: Folks in this subset want to exist between the two choices. If this is you, you want to retire as quickly as possible so you are saving at a high rate. But what makes you different? You are okay with working a bit once you quit your traditional 9–5 job. That may look like a combination of part-time work and living off of your savings to obtain the lifestyle you desire.
Listen to the whole episode to learn three things you need to be careful of if you decide to adhere to the FIRE Movement! Do you think it could work for you?
- “Your Money or Your Life” by Vicki Robin
- Board of Governors of the Federal Reserve System
- How to Retire Early with FIRE
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The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.