So, you’ve made a budget and started building your savings. Maybe you’re not enjoying office life as much as you thought you would, and you’d like that retirement age to come a bit sooner. In that case, FIRE might be for you.
The FIRE (Financial Independence, Retire Early) movement is based on minimizing expenses and maximizing savings and investments. Its main goal is to allow people to break free of the traditional 9-5 as soon as they can by aggressively saving and investing to fund an early retirement.
The ultimate goal of FIRE is to accrue enough money that your living expenses can be covered by your profits from investments. The amount of money this requires is different for everyone, and depends on your living expenses and how soon you want to retire.
Before getting started with FIRE, it is a good idea to pay down your debt completely or at least almost completely. You should also have an emergency fund with 3-6 months living expenses ready to go. Then, you’re ready to get started.
First, you should lower your living expenses as much as possible. The less money you spend in a given month, the more you can save. This probably goes without saying, but you should also do whatever you can to maximize your income.
Since your goal here is to retire early, IRAs might not be a great choice because they’re mainly meant to be used after you reach 59 ½ years. If you still want to have one, make sure it’s not your main avenue for saving.
Your main savings should be made up of mutual funds or index funds that have a low but consistent return. Ideally, you want to get to the point where you have enough investments to live off of only your gains and dividends for the most part.
Fitting FIRE to You
Everyone who decides to try FIRE will do it differently. Analyze what your current lifestyle looks like versus what you think it should look like, and go from there when deciding how aggressively to save.
If you decide to be one of the more dedicated followers of FIRE that saves 70% of their income, you must be prepared to make some lifestyle sacrifices. You won’t be able to eat out, see movies, or do other activities as much as before. To some people, this is worth it to achieve an earlier retirement. For most, however, it’s a lot easier to save a little less aggressively and enjoy life more now, rather than after retirement.
If you want to save less, you’re probably going to have to work longer. It’s all a numbers game. But, if you are somewhat frugal and manage your investments well, you can still push your retirement age up significantly.
Ultimately, the way you approach FIRE depends on your income and how much you’re willing to sacrifice. It’s not for everyone but, if early retirement is something you’re willing to make sacrifices for, FIRE might be for you.