The Basics: Financial Independence Retire Early (FIRE)

The financial independence retire early (FIRE) movement is a personal finance lifestyle movement focused on amassing enough assets to “retire '' prior to the traditional retirement age. The FIRE movement is a community of people that identify with this financial philosophy.

Simply put, the goal is to save and invest more money than what’s required to reach traditional retirement. In order to maximize your finances and increase your speed to financial independence, you’ll need to consider some basic ideas.

We’re going to cover the basics of the FIRE movement and how you can get started on your financial independence journey TODAY!

What’s Financial Independence?

Financial independence (FI) is defined as, having enough income to pay one’s living expenses for the rest of one’s life without having to be employed or dependent on others.

To me, FI means that I have enough net worth to decide when, where, and what projects I work on.

It means I can walk into the office tomorrow and tell my boss that I quit (I can’t do that… yet).

It means I can pay myself a salary from my investments.

Financially independent people have assets that generate income that is at least equal to their expenses.

Financial independence comes with time, effort, and sacrifice. It’s not easily obtained and is not obtained by most.

Our perpetual desire to hoard stuff and have better stuff than our peers keeps us from ever reaching it.

The interesting part is that you can become financially independent in 10-20 years depending on your savings rate and investment performance.

What’s the FIRE Movement?

The FIRE movement is a community of individuals, families, parents, etc… that have something in common. They all want to reach their own level of financial independence.

Some people want to leave the workforce early, some want to feel financially secure, some simply treat it as a challenge. There’s a broad range of personalities and strategies within the FIRE community.

The philosophy of the FIRE movement is simple, but the execution is extremely difficult. It’s akin to being on a diet your entire life while everyone around you is eating whatever they want.

The basic tenets of the FIRE movement are to increase your income, spend much less than you earn, pay off high-interest debt, and aggressively invest the excess money to take advantage of compounding interest.

We all will need to achieve some level of financial retirement someday. Traditional retirement is typically around the age of 65, but who says we can’t be financially capable of retiring sooner?

There are many tools and resources available to you as you begin your journey. Consider this FIRE Flowchart as a way to see the path that lies before you.

Types of FIRE

There are many different flavors of the FIRE movement. Many people in the FIRE community wear their FIRE type as a badge of honor and a way to differentiate themselves.

The most common types of FIRE are FatFIRE, LeanFIRE, CoastFIRE, BaristaFIRE.

Who Can Achieve FIRE?

Financial independence retire early is not just for the high-income earners of America. In fact, I was surprised to see the amount of “average” people able to achieve financial independence.

Tune into Dave Ramsey’s Millionaire Theme Hour any Wednesday and you’ll find many blue-collar workers who have amassed millions of dollars.

You can achieve financial independence with an average income. It simply takes you doing the basics, budgeting, saving, investing consistently over time.

Would I Really Retire Early?

I’m often faced with the accusation that I or my generation simply doesn’t want to work. My response, “I make over $100,000 per year selling software from my home office in my pajamas. I enjoy what I do and I don’t intend on stopping anytime soon.”

I’m definitely not going to lose my 401k match, health benefits, and above-average income simply to pay myself $50,000 per year from my retirement account.

Why We Want to FIRE

Kayla and I are not radical people, nor do we wish to quit working. We simply want to maximize our income, live within a budget, and invest as much as we possibly can.

Our ultimate desire is to free ourselves from the limitations a job places on us. I don’t want to be told where I have to live, how much I can make, what kind of work I’m doing, etc… for the rest of my life.

If we live paycheck to paycheck we’re less free to change employers, to move across the country, to take risky opportunities. Personal finance is one of my hobbies.

I love being an extremely efficient person. From my diet and fitness to our budget and spending. I like to know what I’m spending (including time and energy) and understand what my expected outcome will be as a result of those inputs. 

How to Join the FIRE Movement

Just by reading this overview of the FIRE movement, you’re one step closer to achieving it. I’m going to briefly outline what’s needed to achieve financial independence.

I’m showing you the door, it’s up to you to walk through it. It’s important to understand there is an infinite number of ways to achieve financial independence. No way is the perfect way.

I understand that my audience is intelligent and understands that taking on credit card debt with 15-25% interest rates is a bad financial move. In an effort to avoid insulting your intelligence, I’m going to refrain from telling you to cut up your credit cards.

For a deeper dive into the philosophy I use, check out The B.E.S.T Method to Achieve Financial Independence.

Start a Budget

If you haven’t already, creating a budget is an absolute must. It may seem difficult at first and you’ll probably fail, but it will become easier each month.

Simply begin by tracking your income. How much do you make each month?

Then, start tracking your expenses. How much do you spend each month?

We have really enjoyed using the EveryDollar Budget app by Dave Ramsey. both Kayla and I connect to it and it automatically tracks our spending. Then we can place each expense into the category we have created.

If you prefer, you can use this quick Excel Budget Template Tutorial.

Start an Emergency Fund

An emergency fund is self-insurance against unforeseen financial events. Emergencies.

If you don’t have cash set aside for emergencies, it’s likely you would resort to utilizing a credit card to pay for whatever financial event may occur.

For example, you take your car in to have the tires rotated tomorrow. The tire company determines you need 4 new tires. How would you pay for it? Would it cause you to be short on cash by the end of the month?

A common rule of thumb is to save 3-6 months of bare-bones expenses in a cash savings account. I recommend a high-yield savings account as you’ll at least be earning some interest on your money.

Increase Your Savings Rate

Your savings rate is the catalyst for achieving financial independence. The higher your savings rate, the quicker you may be able to reach your goals.

Savings rate is the percentage of your income that you save each and every month. For example, if you earn $10,000 per month and you spend $5,000 per month, then your savings rate is 50% ($5,000).

That is the money that you will put to work either paying down debt or investing in wealth-generating assets. The more you save, the more you can put to work.

The two levers you can manipulate when it comes to savings rate are your income and expenses. We can only reduce our expenses so far (ultimately $0), but your income can grow infinitely.

You can get started today, by cutting your monthly expenses as far as you can. Remove anything that’s not absolutely necessary and see how it feels. Take that extra cash and use a compound interest calculator to see what that money could do for you if put to work.

Invest Your Savings Rate

The only investment I will ever recommend is low-fee index funds like the Vanguard Total Stock Market Index Fund (VTSAX).

This is because it is seriously easy and checks all of the boxes. It’s highly diversified (over 3,500 stocks), it has a low expense ratio (0.04%), it has been around for 20+ years and it can be found in many employer retirement plans.

The way to financial independence is to put your savings rate to work in some sort of investment that will provide you a return.

If you just hoarded cash your whole life, you’re not going to amass the kind of wealth you’ll need to retire in a reasonable amount of time.

Summary

I want to officially welcome you to the FIRE movement. If you are just learning about it, you are officially past the point of no return.

You cannot unlearn what you have just read. It will stay with you in the back of your mind until you gather the courage to plant a flag in the future and take the necessary steps today and each day to get yourself and your family to the destination.

I’d like to say I’m sorry for doing this to you, but gaining control of our finances has been the single greatest thing we could have ever done for our family.

FIRE worksheets & budgeting course

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