The Basics of FIRE (Financial Independence and Early Retirement)

The Basics of FIRE (Financial Independence and Early Retirement)

FIRE is becoming popular. And there is a very good reason for that. Everyone wants to attain financial independence and retire early. So, get ready to learn everything about this movement.

What Is FIRE?

When someone mentions retirement, you automatically think of people aged 50 0r 60. This is what you are used to. 

People striving for FIRE, however, retire earlier; in their 40s, 30s, or even 20s. 

It is easy to dismiss FIRE, especially if you don’t make much money. Take the example of someone making about 35k a year. Also, assume that they have a huge student loan debt. How can someone like this retire early? Well, be patient. You will know shortly. 

The FIRE movement is mainly about retirement. But there is more. When you look deeper into its principles, you will realize that it is about flexibility. 

Once you attain financial independence, you can make life choices without considering money. Most people have to take finances into account every time they plan something. But with financial independence comes freedom. 

FIRE is also not about quitting your job. It is a movement that supports being free to go after your ambitions and dreams. You can decide to continue working or not. 

Who Is Eligible for FIRE?

Did you become interested in FIRE because your job pays well but makes you miserable? This may actually not be a good idea.

An expert says that you should not retire early just because you hate your job. When you finally retire, you will be aimless and bored. FIRE takes determination and focus. It is not for you if you just hate your job or want a get-rich-quick scheme. 

If you job sucks the life out of you, get into a different path or position. 

That said, a good number of people believe that any person can achieve FIRE. They argue that, if you can’t it is your fault—you need to cut back more expenses or save more. 

But wage stagnation is a problem for many people. To be honest, a decent income is necessary for FIRE.

FIRE Rules

The math is simple: earn more than you spend then save the difference. You can invest the savings in index funds and other low-fee investments. 

Frugality is also important. With time, you can get into other investments such as rental properties. 

The rules seem simple, but carrying them out can be challenging. You have to train yourself. 

Steps to Attain FIRE

The first step to reaching FIRE is asking yourself why you want to do it. This will be your motivation. Next, track your spending. Make sure you spend mindfully. 

To help you, here are 10 financial independence pillars:

  • Reduce your housing cost.
  • Buy used cars.
  • Eliminate cable.
  • Reduce your tax liability (max out tax deferred vehicles).
  • Find a cheap cell phone service.
  • Utilize credit card rewards.
  • Lower grocery bills.
  • Raise your income.
  • Invest in low-fee index funds.
  • Adhere to the 4% rule. 

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