Financial Independence Retire Early is a popular financial movement that has gained some media traction.
You may think early retirement and financial independence are impossible, but FIRE members prove this wrong by reaching FIRE status.
If you want to aim for FIRE, here are five things every successful FIRE Movement member has done to reach their goal.
Does the 4% rule work for FIRE?
Before going into FIRE movement tips, it’s important to understand how FIRE is possible.
Retiring at 35 sounds impossible because how can someone save enough money for the rest of their life? FIRE works because every FIRE member has their FIRE number. A FIRE number is how much they need to retire using the 4% rule. Most FIRE members invest in index funds.
The 4% rule is the idea that you can withdraw 4% of your retirement savings each year without running out of money.
This rule is based on trends in the stock market, and you can expect your portfolio to grow. Many FIRE members use the 4% rule for their retirement, and it has been something they can rely on for a comfortable retirement.
What is better than the 4% rule?
The 4% rule is the golden rule of FIRE, but if you can use less than 4% of your investments a year, then that is even better!
Many FIRE people use the 4% rule as a baseline to help them calculate how much they need to save. However, most FIRE members don’t use 4%. A huge part of FIRE is reducing expenses, and many FIRE members can live off of less than 4% of their investments each year.
The less you take out, the more comfortable you will feel the longer you are retired.
There are different levels of FIRE, from Fat FIRE to Lean Fire and even Barista FIRE.
- Fat FIRE is for someone who may live a more luxurious lifestyle.
- Lean FIRE is for someone who has cut all unnecessary costs and lives on a very lean budget.
- Then you have Barista FIRE which is working a part-time job, like a barista, to supplement your investments.
If you are choosing Barista FIRE, you may not need to consider the 4% rule as much. You may use the money you earn from a part-time job for your yearly expenses, and once you don’t want your work, you will start to use your investments.
FIRE movement tips
If you ask anyone working towards FIRE or has achieved FIRE, there are five key things they all do.
Live Below Your Means
Living below your means is one of the most important things for someone who is FIRE to do.
FIRE can be difficult to achieve and maintain if you are spending all of your income. People who are aspiring towards FIRE will try to save over 50% of their income. Some people even save 80%. Cutting costs and living below your means is one way to save more money.
Long Term Investments
FIRE is all about growing your savings through long-term investing. FIRE members are all investors. Most invest in index funds. However, there is a small percentage that invests in dividend stocks. Both methods rely on long-term investing strategies. The longer your money is in the market, the more it can grow.
Increase your earnings
To save all of your retirement savings in 10-20 years rather than the typical 40-50 year working period requires a lot of dedication and money to save such a large amount in a short amount of time. You do not need to have a large software engineer salary to still achieve FIRE. Increase your income by:
- selling things you don’t use
- starting a side hustle
- starting a business or online service
Increasing your income can allow you to save more. Pairing this with reducing your expenses is the fastest way to save a large amount in a short period of time.
Have advanced financial literacy knowledge
Every person who is part of the FIRE movement understands personal finance well and has a solid relationship with money. Having a good understanding of finances is crucial for achieving FIRE.
You need to have the basics covered, like budgeting, being debt free, and tracking your expenses to even begin FIRE.
FIRE requires advanced knowledge of investing, and many FIRE members read books about investing, watch YouTube videos on other FIRE members, or read blogs about other people’s experiences to learn how they are investing and reaching FIRE.
Have a support system
Everyone who is going through FIRE has a support system. It’s difficult to live this type of lifestyle without someone on your side. Many FIRE members have spouses who are also working towards this goal. Explaining FIRE to your family and friends is also important.
When you are living a frugal lifestyle, there are things you will have to say no to. If you have support from family and friends, it can make this journey easier.
FIRE goals
FIRE isn’t for everyone, but the people working towards FIRE or achieving FIRE have similar goals and reasons for pursuing this extreme lifestyle.
Financial Independence
While FIRE is about saving money for retirement, the goal is not to save money. The goal is to be financially independent to do what you want to do. This mindset allows many FIRE individuals to understand that extreme consumption will not make them happy, but having a simple life full of experiences is more meaningful. Individuals who pursue FIRE want to have time to enjoy their life. They want to:
- be with their family
- have a relaxing morning
- work on passion projects
- Travel the world
Freedom
Financial Independence and early retirement give you more freedom in your life choices. So many aspects of your life are chosen for you if you are not FIRE. If you work a job, you have to:
- Live close to work
- Have a car and drive to the office
- Wake up at a certain time
- Have a certain schedule after work and on Sunday
With FIRE, these are all choices you can make. You can decide to live anywhere in the world. You don’t have to spend your evenings prepping lunches for the next day. This freedom lets you pursue your dreams.
Final Thoughts
The FIRE movement takes dedication and careful planning. To achieve Financial Independence and early retirement, you need to focus on reducing your expenses (and keeping them that way) and increasing your income. These are two challenging things alone, but add investing and advanced financial literacy skills to that, and it can be daunting. Use these five tips that every FIRE member uses to help you achieve FIRE or even other financial goals you have.
Editor’s note: This article was originally published Apr 4, 2023 and has been updated to improve reader experience.
