So FIRE stands for Financial Independence, Retire Early. When we think of retirement, we often picture a 65 year old, or now more typically, a 70+ year old, who trades in an office cubicle for a life of leisure and playing golf. We’re sold the idea that the norm is to get a job out of college, work hard for the next 40-45 years, and then once we’ve saved enough, be rewarded with a leisurely life of traveling, playing golf and strolling along the beach.
The FIRE movement flips that narrative on it’s head and instead asks the question, “what if you could retire in your 20’s, 30’s, or 40’s instead?
“How in the world can you do that?” I asked myself that same question when I first came across this community of people. The more I read and dug into other people’s stories, like this guy, and this girl, I was floored. These people were doing something completely different than anything I’d ever been taught about saving for retirement.
Typical financial advice is to save 10-15% of our paycheck. But at that rate, it will take people between 41-53+ years to retire. The goal with FIRE is to instead save and invest at least 50% of your income (really between 50-75%).
“Say what?” I don’t know about you, but when I first heard that, I was thinking “how in the WORLD can people save half of their income? In order to be able to save that amount, folks in the FIRE community are trying to both keep expenses as low as possible and find ways to raise income.
A Simple Formula
The formula is simple but not necessarily that easy. To reach financial independence, a person will need to save and invest 25X their annual expenses.
So let’s say your annual expenses are $50,000. $50k X 25 = $1,250,000. Once you reach that number, you’ve reached FI. This assumes that they will withdraw 4% ($50k) of their invested savings each year going forward.
For most people in the movement, the ultimate goal of “financial independence” is not to necessarily stop working altogether and just sit poolside drinking pina coladas (although that is definitely my drink of choice on vacation).
The goal of being financially independent, is to get yourself to a point where you have more choices. Where you can decide to leave a stressful job for something you’ve always wanted to pursue, go part-time, quit altogether or just sleep more soundly at night knowing that if anything happens, you will be secure financially.
Were you familiar with FIRE before reading this post? Does it sound like something you would be interested in exploring? Drop a comment below. I’d love to hear from you.
