What’s the Hype behind F.I.R.E?

If you’re a recent college graduate or are graduating soon, you may be thinking about finding the right career path or paying off your student loans. Retirement is probably not at the forefront of your mind as you make some of the biggest decisions of your life thus far. Many of those who classify themselves as a Millennial or Gen Z, like myself, are less concerned about their income and more about their quality of life. An increasingly popular personal finance movement amongst these younger generations of professionals is known as F.I.R.E. or “Financial Independence, Retire Early”.

The goal of F.I.R.E is to reduce the amount of time that it takes for an individual to achieve financial independence and retire. Advocates of the F.I.R.E. movement propose the possibility of retiring within your 30’s and 40’s if you start within your early to mid-’20s. This concept is very appealing to young graduates who may want to travel, spend more time with family, and try new things. Who wouldn’t want to retire when they’re in their 30’s and 40’s? However, the F.I.R.E. movement requires significant sacrifice and discipline that may cause you to think twice before joining. The purpose of this blog is to give you a general overview of the F.I.R.E. movement so that you can determine whether this is a viable option for you.

The basic premise of F.I.R.E. is to save and invest over half of your income, typically between 50-75%. To achieve this extremely high rate of savings and investment, F.I.R.E. participants practice extreme frugality and find creative solutions to reduce their expenses. The general idea is to be constantly minimizing your expenses while increasing your income year after year. In many cases, once a participant’s savings have reached a value of 30X the yearly expenses they can choose to retire. From the time they retire, F.I.R.E. devotees typically withdraw 3-4% of their savings each year to live on.

The reality is that the F.I.R.E movement isn’t for everyone nor does the F.I.R.E. movement look the same for everyone. There are several different forms of F.I.R.E., including “Lean F.I.R.E.”, “Barista F.I.R.E”, and “Coast F.I.R.E”. Lean F.I.R.E. focuses on extreme expense reduction and living a minimalist type of lifestyle. This often involves cutting back or cutting out non-necessities and reducing the percentage withdrawn from their retirement savings. Barista F.I.R.E involves quitting your full-time job but still working part-time to cover ongoing expenses so that your retirement savings are not drained. Typically, participants of this form of F.I.R.E. have less money saved or invested. Coast F.I.R.E. is similar to the traditional F.I.R.E. method in that their retirement savings are well funded and it is not necessary to work, but the participants still work a part-time job. It’s important to note that it is extremely difficult to implement any of the F.I.R.E. methods listed on a low to middle-income salary, because the relative amount you have to live on may not be feasible.

It’s important to look at other drawbacks when considering the movement. Market swings can have a large impact on F.I.R.E. participants because they often rely on the income produced by their investments. Saving and investing over half of your income can detract from your giving or stewardship and cause you to miss out on life’s meaningful moments and experiences. Constantly nickel and diming every expense can be stressful, time-consuming, and not to mention frustrating for those around you. It’s important that you look at and ask yourself what is the true cost of participating in the F.I.R.E. movement BEYOND dollars and cents.

Despite some of the social and financial drawbacks of the F.I.R.E. movement, there are a lot of positive aspects that can be incorporated within your current lifestyle regardless of whether you’re committed to the movement. At its core, F.I.R.E. is an extreme reinforcement of positive personal finance principles such as planning and saving for retirement, reducing expenses, boosting income, and focusing on the future. Just because you didn’t join the F.I.R.E. movement doesn’t give you a free pass to forgo these practices. Different variations and implementations of these principles can be tailored to meet your personal needs and values.  If you are interested in planning for your future, feel free to schedule an appointment with a NEXUS Coach: http://www.ronblueinstitute.com/schedule-an-appointment.