The FIRE Movement: Achieving Financial Independence Early

Financial Independence Retire Early (FIRE) is the philosophy of retiring as early as possible by becoming financially independent at a young age. The aim is to give you financial freedom when you get older without having to worry about expenditure, as you have already made enough money to last you the rest of your life. Achieving this isn’t easy, as you need to make smart money decisions, live frugally and be cautious with any investments you make.

While the prospect of FIRE is attractive and can lead to many amazing experiences when we are older, it does come with a lot of sacrifice. You will have to spend a lot of your young adulthood building up your finances, which could mean missing out on some life experiences. However, as long as you understand this, it can be very beneficial for you in the long run when you achieve FIRE.

In this article, we will look at the fundamentals of FIRE and the steps you need to take to achieve this in the modern age.

The Three Pillars of FIRE

Minimalism

Adopting a minimalist lifestyle and being frugal to save money is an important aspect of the FIRE approach, as it can reduce expenses. This is because living a simple life without slashing out on anything fancy can help you save more money. Meanwhile, you can increase the chances of achieving FIRE by downsizing your home, driving a cheaper vehicle and reducing unnecessary expenses.

Financial Independence

Living expenses are increasing, making it more difficult to maintain financial stability and independence. You must accumulate enough savings to cover your long-term living expenses if you want to retire early and be financially stable. You can accomplish this by reducing your spending, controlling your investments and setting aside more money.

Early Retirement

Retirees are around 64 on average around the world, as people around that age either stop working and receive their pension or have built up enough accumulative income. Retiring before this age would be great for giving you time to accomplish other things in your life that you might not have the time to do if you continue to work. The more ambitious side of FIRE looks to have you retired by your late 30s. However, this is unrealistic.

FIRE Considerations

Before embarking on your FIRE journey, you need to ensure that you have a planned out structure on how you are going to achieve it. Here are some key things to consider that could help you with your FIRE plan.

Emergency Funds

Remember, FIRE is a long-term process that can take decades to accomplish successfully. There will be some challenging hurdles along the way that can have some risks to your finances, so it’s important to save three to six months worth of expenses built up as an emergency fund. This will help with unexpected expenditure and unforeseen circumstances.

Wise Investments

FIRE is very difficult to achieve with a regular 9-5 job and keeping that money in your bank account. Making wise investments can play a big part in helping you multiply your savings and get closer to achieving early retirement. This doesn’t mean being reckless, as you need to be cautious as to what you invest your money into.

FIRE Number

The number you will need to reach financially to achieve early retirement will different from person to person. Calculating your FIRE number, which is usually equal to 25 times your annual expenses, will help you figure out how much money you will need to comfortably retire and live freely. This Rule of 25 used by many FIRE participants depends on a 4% maximum portfolio withdrawal rate.

Is FIRE Achievable?

Achieving FIRE is determined by a variety of factors, including amount of monthly income, spending habits and your priorities. Not many people are successful with only 1% of 40-44 year olds achieving this level of financial stability. This means that even though it’s very difficult, it can be a success with the right planning in place. Before implementing an effective FIRE plan, you must first conduct a thorough assessment of your personal situation, objectives, and principles.

Conclusion

Many people aspire to be financially independent and retire early so they can enjoy life to the fullest once they reach a certain age. If you want to reach FIRE, you must make sacrifices, practise self-control and heavily plan for the future. Not everyone will achieve this; only those who work extremely hard will have a chance.

Prioritise the things in life that are most important to you and avoid becoming overly ambitious. If you want your life to be consistent and financially stable, make wise choices that keep you out of debt. You can seek debt advice if anything ever gets out of control.