A collection of articles and resources to get you started and keep you on track during your journey to financial independence.

The Basics Article Series

Get started learning the basics of financial independence retire early (FIRE) with The Basics Article Series.


 

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    FIRE FAQ’s

    Frequently asked questions pertaining to the FIRE movement.

    + What is 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.

    + Who is FIRE for?

    FIRE is for anyone who dares to reach it. If you can budget, save for emergencies, increase your savings rate and invest then you can reach financial independence.

    + Do you really want to retire early?

    Retire is a subjective word. Retirement means something different to different people. Many people in the FIRE community do want to quit the workforce, but I believe many do not. I don’t ever foresee not working. The goal is to be free to choose who I work for, where I work and what projects I work on. I don’t ever want to work a job I hate because I have to pay the bills or wait for a pension. You can have your cake and eat it too.

    + Is FIRE a fad?

    FIRE and all of its different flavors are definitely worthy of fad status, but the principles have been around for ages. The simplicity of the message is its strength. I’m a believer in getting people interested and spreading the message of FIRE. Financial Independence Retire Early can be considered a fad, but the idea of saving more than you earn and investing for a more secure future will be around as long as there is money.

    + Can I FIRE with a Family?

    Yes, absolutely! Many people who have achieved FIRE have a family. Kids are expensive there's no doubt about that, but it's still possible. It’s all about your savings rate, investment returns and time in the market.

    + Types of FIRE

    There are many different flavors of the FIRE movement. FatFIRE, LeanFIRE, BaristaFIRE, FamilyFIRE, CoastFIRE and I’m sure there are more I haven’t heard of yet. They are simply different ways to achieve FIRE and what level of FIRE you can reach.

    + How long will it take to reach FIRE?

    Time to financial independence retire early (FIRE) will be dependent on your savings rate, investment returns and time in the market. The higher your savings rate, the higher your returns and the more time in the market, the quicker you can reach your financial independence number.

    + What is a savings rate?

    A savings rate is the amount of money you save compared to your total income. If your income is $100,000 a year and you save $30,000 per year, then your savings rate is 30%.

    + How does savings rate affect FIRE?

    The higher your savings rate, the more cash you are able to invest. The more you invest, the more potential your wealth has to grow. A higher savings rate is directly related to reaching financial independence quicker. More savings also helps reduce debt and ability to pay for costly emergencies.

    + What is an emergency fund?

    An emergency fund is an amount of cash set aside for emergency expenses. Typically held in a high-yield savings account to reduce the effect of inflation on the emergency fund. The emergency fund needs to be readily available for quick access should an emergency occur.

    + How much should I save in an emergency fund?

    Opinions differ when it comes to the size of an emergency fund, but I recommend getting started with at least $10,000 and work your way up to 6-12 months of living expenses. If you have $4000 a month in expenses, a 6-month emergency fund would be $24,000 in a cash savings account.

    + Where do I keep an emergency fund?

    A high-yield savings account is one of the best places to keep an emergency fund. This money is not intended to provide you a strong return on investment (ROI). A high-yield savings account reduces exposure to inflation and keeps your emergency fund far away from risk. You could say an emergency fund is similar to an insurance policy.

    + What is a high-yield savings account?

    A high-yield savings account is a type of deposit account offered by financial institutions. They usually offer a higher interest rate than traditional savings accounts.

    + How much do I invest for FIRE?

    Most in the FIRE community will say to invest everything above your emergency fund. Once your emergency fund is in place, anything above that should be invested towards financial independence retire early. This is where the balance comes in between current vs. long term desires. Do you want XYZ item right now, or 4x that money in early retirement? It’s not uncommon to invest 20%, 30% or over 40% when working towards FIRE.

    + What is compound interest?

    Compound interest is how your money works for you. Investing will earn you a return on your initial deposit as well as the earnings. In other words, if you invest $1000 and earn 8% you will earn $80. The next year, your return will be from the $1080 rather than the original $1000. The more time in the market, the more dramatic effect compound interest has.

    + Where to invest for FIRE?

    When investing for FIRE, you may have several options when it comes to investment accounts. Accounts like Traditional/Roth 401k, Roth IRA, 403b, 457b are all good choices depending on your situation. These are called “tax-advantaged accounts” and some provide benefits like tax breaks, early dispersal without penalty and more.

    + Why index funds for FIRE?

    Low-fee index funds are the most popular way to invest in FIRE. These are attractive investments because:

    • Passive nature
    • Low-fees
    • Diversification
    • Long history of market returns

    + What index funds for FIRE?

    The most popular index fund within the FIRE community is the Vanguard Total Stock Market Index Fund (VTSAX). It has a long history of tracking the S&P 500 and has an extremely low expense ratio. Another low-cost index fund I have been interested in is the Vanguard Growth Index Fund (VIGAX).

    + What market return should I expect?

    An index funds rate of return vary's from index fund to index fund. That's why it's important to look at the performance history for the past 10,20,30+ years. An index fund like VTSAX has historically averaged ~7% annual returns.

    + Can I beat the stock market?

    Statistically, it's highly unlikely that an average trader (or even pro trader) will consistantly beat the market over the long term. It can be done and people do it, but for the purposes of the FIRE movement, the risk is not required. You can achieve FIRE by earning 6-10% annual returns provided by investing in the overall market.