What is The F.I.R.E Movement?

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Today we are going to be talking about the F.I.R.E movement!

What would you do all day if you didn’t have to work? Most people answer saying they would get bored and want to go back to work. Now is this because they genuinely love their work? Or is it because society conditions us to tie our identity and self worth into our profession? That’s a pretty hefty statement isn’t it, just think about that for a second….

I’m going to break down the definition of financial independence, what exactly the F.I.R.E movement is, the different types of F.I.R.E and the pros and cons.

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Table of Contents

Definition of Financial Independence.

As you probably gathered from the title, “FIRE” in the F.I.R.E Movement stands for financial independence, retire early. But let’s break it down one step further.

What exactly is the definition of financial independence? I used to think financial independence meant my parents were no longer paying for my things. However, it doesn’t just mean your parents aren’t paying for things. It means no one is paying for your things, including your job.

Let me explain.

The definition of financial independence is having the freedom to choose if you want to work or not. It means having enough money saved up to pay for ALL of your living expenses for the rest of your life, without working anymore (if you don’t want to).

In other words, the return from your investments should be enough to cover all your spending.

This seems pretty impossible, but let’s keep going!

Understanding the F.I.R.E Movement.

The F.I.R.E movement was born out of the idea that most of our life is spent at work. Well what if the majority of our time didn’t have to be spent at work? What if we could enjoy our youth with our family and friends or travel the world and pursue our hobbies before 65?

Financial independence early retirement entails saving as much money as possible (meaning around 60 to 70% of your income), in the hope that you can retire in your 30s or 40s and not sit in a cubicle all day.

People in pursuit of the F.I.R.E movement don’t want to rely on their 9-5 job. They want to have full control over their lives and not be reliant on one source of income.

At first this concept was difficult for me to wrap my head around. I could only picture retirement as someone, an old person, sitting in their living room watching tv. However, early retirement doesn’t mean not doing anything or even not working.

Financial independence early retirement means having the freedom to choose what you want to do. If you want to go play tennis all day you can. Maybe you want to travel or spend all day with your kids?

IT DOESN’T MATTER WHAT YOU WANT TO DO.

You could even work if you wanted to! The distinction is, you get to choose. You aren’t reliant on your corporate income.

How to Calculate your F.I.R.E Movement Number.

So sure, early retirement sounds nice doesn’t it, but is it feasible? How is it possible you could retire in your 30s or 40s?

If the F.I.R.E movement is something that’s piqued your interest I would exercise extreme caution. Do your research. It takes years of planning and saving. You don’t want to run out of money. Just wanted to throw this in here before explaining the math.

The magic number that means you can retire early is: 25x your annual spending or 4% withdrawal rate..

What the heck does that mean?

Research from the (recently updated) Trinity Study, has found that if you have 25x your annual spending saved, your money will grow faster than you can spend it in retirement. Meaning, theoretically, you should never run out of money.

Let’s put these numbers into action. I personally try to not spend more than $2,000 a month. That doesn’t always happen, honestly, most of the time it’s around $2,500. So for this example we’re going to assume the monthly spending is $2,500.

$2,500 monthly expenses X 12 months = $30,000 annual spending

$30,000 X 25 = $750,000 theoretical retirement number, aka your F.I.R.E number!

Note: For this example I’m using my current annual expenses. However, when calculating my actual retirement goals I’m way more risk averse. This means I add a MAJOR cushion. Although my expenses are about $2,500 I almost double that amount for any theoretically F.I.R.E movement number.

This means that if you saved and grew your money to $750,000 your first year of retirement you would withdraw 4% or $30,000, leaving you with $720,000. However, that $720,000 would still be growing because it is invested! So although you’ve withdrawn money, that $720,000 still goes up by 7% annually (on average); leaving you with $770,400.

Aka the money is growing faster than you’re withdrawing.

Yes, the math is more complicated. But you get the point.

Inflation and market return can vary year over year. Additionally, you would never want to underestimate what you need and run the risk of running out of money.

Even though this might be simplified, this exercise shows you how it may actually be possible to retire before the dreaded 65! Additionally, the earlier you start investing, the more time your money has in the market, the larger it can grow without you doing anything!

If you want to calculate your F.I.R.E. movement number check out this F.I.R.E. calculator!

Types of F.I.R.E.

We’ve covered the most basic type of F.I.R.E, the traditional F.I.R.E when you don’t need to work anymore because your investments cover your expenses. However, there are several other types of F.I.R.E.

Coast F.I.R.E.

My personal favorite F.I.R.E. movement type of F.I.R.E!! Coast F.I.R.E makes me feel like anything is possible! It can be attainable for you as well.

Coast F.I.R.E is when you no longer need to contribute to savings, but you are NOT withdrawing yet. You can stop contributing to your savings for retirement because the money you already have will grow enough on its own to support you in retirement.

Walletburst has an amazing coast F.I.R.E calculator you can find here. He also has an fantastic in depth guide explaining everything you need to know about coast F.I.R.E and the numbers behind the calculation.

Barista F.I.R.E.

The next step after coast F.I.R.E. Barista F.I.R.E means your investments can cover some of your expenses but not all. This allows you to pursue a passion that may not make as much money, but you really enjoy.

You use this extra money to pay for your lifestyle and only withdraw from your retirement account for 50% or less of your expenses.

Lean F.I.R.E.

Lean F.I.R.E means you’ve reached F.I.R.E by adopting a more minimalist lifestyle. You have reached your F.I.R.E number because you’ve chosen to live with less and not need as much money funding your retirement.

I would use lean F.I.R.E as a simple stepping stone in your F.I.R.E journey instead of as a metric you should actually apply in retirement. But my risk averse, enjoys massages and wants to eat steak all the time, self may be projecting through.

Fat F.I.R.E.

Lastly, fat F.I.R.E is achieved after the traditional F.I.R.E. Opposite to lean F.I.R.E, fat F.I.R.E plans for a more expensive lifestyle. It will take longer to save up for fat F.I.R.E. However once achieved, retirement won’t need to be minimalistic.

You are accounting for your retirement spending to be more than your current spending. You won’t have to hold back (within reason) with fat F.I.R.E.

Pros and Cons of F.I.R.E

Positives of the F.I.R.E Movement

Although the math seems confusing and the F.I.R.E movement can seem a bit unrealistic, I’ve found thinking of a life with early retirement as a possibility incredibly refreshing!

If you were going to get paid the same amount, no matter what you did all day, what would you do? Would you stay at your current job? You could spend more time with friends or family. Or go after a hobby that you love!

My point is, the reason the “what would you do if you won the lottery” question is so popular is because we like to imagine a world where we could do anything we want all day. Instead of buying a fancy yacht (as some people do with that theoretical lottery activity), maybe there is a realistic way you could do whatever you want all day.

“TGIF” and “Sunday Scaries” are normalized in our society. However, these expressions just show how burnt out we are. How we all seem to crave an end to our traditional work life. Except we don’t see that as an option, at least I never did.

Thinking about retirement, ESPECIALLY while being so young is powerful. Compound interest is powerful.

If we start changing the way we think about money, make a budget, and get to know our spending habits we can live the life we want to live, before 65. Obviously we don’t want to do anything crazy and be malpreppared. However, you can set yourself up for success if you start now!

Drawbacks of the F.I.R.E Movement

You never want to put yourself in a situation you’re not comfortable with. The most important aspect of pursuing F.I.R.E is to be realistic. What kind of lifestyle do you want to be living?

The F.I.R.E movement can unintentionally encourage people to make riskier decisions with hopes the payout will be greater, which in turn would mean you can retire sooner. However sometimes those riskier decisions can leave you worse off.

Additionally, unless you make an exorbitant amount of money, in order to save as much as you need for early retirement, the F.I.R.E movement requires a more frugal lifestyle. I don’t mean frugal living as in, limiting yourself. More so, it requires you to be very aware of your spending. Very aware of where all your money is and how you can maximize it. Which isn’t the case for the average person.

Financial independence early retirement seems great in theory but it is difficult. You don’t want to run out of money.

Final Thoughts

Before learning about F.I.R.E I saw retirement as old people sitting on their couch doing nothing. I didn’t realize retirement could be pursuing your hobbies and spending time with friends and family while still being relatively young.

I never saw “not working” or doing something that knowingly would make hardly any money, simply because I enjoyed it, as an option. However, now I do.

Getting in control of your spending habit NOW can be incredibly beneficial for your future. Start your journey the right way with my FREE budget templates for google sheets! Shameless plug, I know. Or you can purchase them at The Budget Empire.

What is your F.I.R.E number or F.I.R.E goal? Let me know in the comments or send me an email!!

Comments

Brava S Reitumetse says

August 9, 2021 at 11:01 am

This was so interesting to learn about. definitely not drawn to the lean f.i.r.e. because minimalist lifestyle for who? lol! I am definitely more interested in and will do research more on coastal and fat f.i.r.e.

- Sofi says
  
  August 11, 2021 at 7:14 pm
  
  Hi Brava! Yes lean FIRE is definitely risky and comes with a different lifestyle choice. So glad you liked the post!

What is The F.I.R.E Movement | Financial Independence, Retire Early