FIRE seems to be the new buzzword lately, but it’s actually been around for over a decade. The FIRE movement is under the spotlight of mainstream media lately, which is why I want to talk about it because it goes hand in hand with everything MDW stands for.
Living life on your own terms by first gaining financial independence.
So what is FIRE?
FIRE stands for Financial Independence, Retire Early. It’s an entire lifestyle of living frugally, well below your means and investing religiously for a few years to reach FIRE.
Financial independence and retire early.
Most people in the movement focus a lot of the saving part and not so much on the investment side, but the goal is the same and the results are the same as well. Retiring in your 30’s, 40’s and even 20’s in some cases.
The basics on how it works
People who join the FIRE movement aim to save as much as possible, and we’re not talking about 20% of your take home pay. We’re talking about what ever you can manage. 50%, 60%, 70% if its possible and you’re willing.
This might sound crazy at first glance but by increasing your saving rate to this level, many people find they can realistically retire within a decade or so.
So how does it work?
You calculate your take home pay and then you find the amount you can live on. The rest goes into your savings. Now, when I say “live on” I don’t mean keeping your $5 coffee habit and late night chipotle runs. I really mean, the amount you need to function. No frills.
Your expenses don’t go up, just because you got a promotion. Everything goes into the ultimate goal of retiring early and quitting your job one day.
The money you save will all go into high yield investments that bring you at least 5% interest. You compound this interest while still saving and don’t touch it until you reach your nest egg goal.
A “nest egg” is the lump sum of money you have that will be enough to generate enough income for you to live off on, without actively working.
Once you reach your nest egg goal, you can live off the gains in investment without touching your nest egg so the money lasts until your last breath. Most people in the FIRE movement follow the 4% withdrawal rule.
Why are people getting excited about it?
We’re not in the post war era, where everything is improving and things can only go up. It’s actually the opposite.
Millennials are going to be the first generation in history to earn less than their parents, state pensions are tanking and unreliable. Personal debt levels are an all time high, job security is not a thing anymore with modern corporate culture and, finally people are working REALLY long hours.
If you’re going to work hard to have a mediocre life, why not work a little harder to actually have a life you enjoy.
And I think that’s what everyone is thinking of now. With the whole digital nomad, location independence movement and the FIRE movement, the core idea is the same.
Make the sacrifice now by putting in some hard work and reap the rewards for the rest of your life, to live a life you actually enjoy.
Why you should start adopting the movement as well
Like everything, on MDW, I don’t ever tell people to take a system off the shelf and then follow it blindly. You need to take into account your own situation and goals before jumping on a bandwagon.
FIRE isn’t for everyone, it’s not for the faint of heart.
BUT, that doesn’t mean EVERYONE can’t benefit from learning about it. Always be open to new concepts and learn about new ways of thinking, because it’s the best way to pick and choose what works best for you. And I think FIRE has a lot of fundamental concepts that everyone can benefit from.
If you don’t actually want to quit your job, but want to be plan for retirement, FIRE can help you. If you neglected your retirement and you need to catch up, FIRE can help you. If you want to quit your job, change careers, but not actually retire early. FIRE can help you. And there’s so many more situations where learning about FIRE will be beneficial.
Understand your situation and goals and then take what you learn to use it to your advantage.
The fundamental concepts
You need to get out of debt to start building wealth and retire early with a sizeable nest egg. Good debt management is vital to effectively paying off any high interest debt quickly to not delay your FIRE goals.
LOWER YOUR EXPENSES
Keeping your expenses low is one of the most effective ways to saving more money and retiring early. Even if you don’t want to be an extreme saver, learning how to lower your expenses will help you get into a better financial situation.
INCREASE YOUR INCOME
Lowering your expenses is easy and effective, but if you’re not earning much to begin with, then it is very limited. What you want to do instead is to increase your take home pay.
For most people, this will take the form of side hustles you can do online in your spare time, at home.
Your saving rate is the percentage you are saving from your take home pay. Your saving rate will help you calculate how early you can retire. It’s an important number within the FIRE community, because you calculate your progress and trajectory with it.
INVESTING – 4% WITHDRAWAL RULE
The FIRE movement keeps the whole journey as simple as possible by using very old investment and retirement concepts, but accelerating it with the huge saving rates.
You save x amount of money that is enough to generate recurring income through high yield investments and you live off the gains without touching the initial investment capital, a.k.a the nest egg.
And the rule is to only withdraw 4% on an annual basis. That 4% is what you will be living off on for the rest of your life.
My thoughts on the FIRE movement
I think the FIRE movement is great. It’s the best option for anyone who wants to keep their regular jobs and still retire early.
It’s not easy in todays culture of consumerism to save so much of your pay check and it might hurt your social life a little bit, BUT I think it’s nothing but good to empower people to become financially independent and retire early.
I personally wouldn’t mind being very frugal for 10 or so years so that I can retire in my 30’s and travel the world.
However, saying that. I’m in my 20’s and I’m already travelling the world thanks to my online passive income streams. So, if you were to ask me what the perfect solution to finding freedom in modern civilisation, it would be to merge the online passive income streams that allow me to travel and see the world, with the money saving attitudes of FIRE to secure my future until I kick the bucket.