The FIRE Movement: Four key lessons to help your finances get lit so you can retire early!

May 16, 2018

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Financial Independence, Retire Early. Sounds nice, right? But what exactly about the FIRE Movement is so lit? And why are so many people talking about it these days?

First things first

The FIRE Movement (FIRE stands for Financial Independence, Retire Early) is something that has been gaining momentum, especially with a younger demographic, over the past few years. It’s not a new concept, but basically, the driving force behind it is achieving financial independence in order to retire in your 30s or 40s (or 20s if you’re really ambitious).

What is financial independence?

According to Wikipedia, financial independence is defined as having enough wealth to live on without having to work. Or in other words, when you have enough assets to generate enough income to cover your monthly expenses. This could be in the form of interest from savings accounts, dividends from your investment portfolio, etc.

The general theory behind FIRE is you need to save about 25 times your annual expenses before you can live off of your investments (so, if your annual expenses are $40,000/year, you would need to save around $1 million to make this work).

Sounds easy in theory, right?

FIRE in practice

Quite literally, FIRE is about financial independence and retiring early. Those are the two primary goals behind it. But it’s actually more of a lifestyle choice. Saving that amount of money requires a lot of discipline. And while many ardent FIRE supporters have big salaries that make achieving those goals a little easier, a $100,000+/year income isn’t a requirement.

What you can learn from FIRE

Going all-in on FIRE might not be for everybody, but that doesn’t mean there aren’t some interesting things to take away from the movement.

Here are four key lessons you can take away:

Before all else, save your money! FIRE followers save a minimum of 50% of their income, but many often save a lot more than that. If that’s not realistic for you, figure out what is, and make a point to save as much as you can every month.

Make and stick to a budget. Hardcore FIRE followers track every single penny spent and earned—it’s what helps them understand what it takes to reach the point of financial independence. While that might not appeal to you, the take away here is the importance of making a budget and sticking to it. Knowing where your money is coming from and going to will help you have a better understanding of how you can manage it.

Be creative. Many FIRE followers live frugally to say the least, which can be tough on the ol’ social life. While your budget might not always be in line with your friends’ love of hitting up a happy hour on Friday nights, it doesn’t mean you need to live a life of loneliness at home pouring over spreadsheets every night. Remember the part above about FIRE being a lifestyle? This is a good lesson on being more creative about how you have fun and socialize. There are plenty of cheap/free activities you can do if you’re willing to think a little outside of the box.

Think about what you need vs what you want. Because many FIRE followers live on a very restricted budget, the question of need vs want when it comes to spending money becomes an important factor. Sure, you may want that new shirt or a daily latte, but do you really need it? By being more mindful about when you’re forking over your hard-earned cash to buy stuff, you might find that a lot of what you’re spending your money on falls on the want end of the scale, not the need side. Cutting back on your want spending means you’ll have more to put away for the future.   

Ultimately, it’s important to make sure you don’t get burned when it comes to your finances. Talk to a financial expert at your local credit union if you need a little help getting started!

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