What is FIRE?
FIRE stands for Financial Independence, Retire Early. The fire movement has a lot of different types of philosophies and strategies that people embrace, but the commonality that ties them together is the idea of achieving financial independence so that your life isn’t dictated by earning an income.
Financial independence is typically defined in FIRE as having enough passive income or savings to not rely on a job. Retire early is typically defined as leaving traditional work and embracing other interests like travel, hobbies, or volunteering.
The basis pillars of FIRE are about simplifying and redesigning your life to reduce spending, looking for opportunities to increase income, saving a large percentage of your income to achieve FI (30-50%), and investing to make your money work for you.
The basic concept of FIRE is simple, but the execution can be difficult which is why it’s important to know your Why.
Questions of Fire – The Why
What would you do with your life if you didn’t have to work for money?
Are you making a living or a dying?
“How many people have you seen who are more alive at the end of the work day than they were at the beginning? Do we come home from our ‘making a living’ activity full of more life? […] Where’s all the life we supposedly made at work? For many of us, isn’t the truth of it closer to ‘making a dying”
Joe Dominguez and Vicki Robin | Your Money or Your Life
Are you building a life that you enjoy?
Looking at the goals and activities you would pursue if you didn’t have to dedicate time and energy to working, would reducing your consumption (spending) be worth it to do those activities more?
Investing and Saving in FIRE:
Traditional retirement savings rate is 10-15% over 40-45 year range
FIRE tends to target between 30-50% to shorten that time horizon (lots of online calculators to help determine that number for you – such as this one by Playing with Fire)
The standard advice is to invest in index funds on an automated schedule and have the dividends reinvest automatically for you – take the decision making out of it.
The target savings amount is usually 25x your annual expenses, so that you can safely withdraw 4% of it each year.
The lower your expenses, the easier it is to reach FIRE. Top places to save on expenses are housing, vehicles, and food. But don’t reduce your expenses so much that you don’t enjoy the ride – build a life you enjoy and work to save to enjoy it more.
Real Hourly Wage Calculation:
We all know that the works dedicated to work aren’t just the clock in/clock out hours. You have to drive to work (even ten minutes adds up), you have to get ready, you need to decompress at the end of the day, and so on. How many hours are you actually spending on your job including the ones you aren’t directly paid for?
What about additional costs? Do you buy lunch at work? How much do you have to spend on clothes that you only bought to wear to work? Commuting costs? Co-worker gifts or fundraisers that you chip in for? (My work does this a lot)
Add up the additional weekly costs and deduct this from your weekly income. Add to your timesheet hours the hours you spending on work related tasks outside of work. Divide your new income figure by your new hour figure and this will be your real hourly wage.
(Gross weekly income – additional work related costs) / (timesheet hours + additional work related time) = real hourly rate
Wrap up:
FIRE asks the question: Am I making a living or a dying? It’s not about building wealth for the sake of wealth. FIRE is actually more about reducing your consumption so that you can live more freely without being held captive by a job or fear of losing your income. It’s about creating freedom financially and reframing your relationship with spending and money. It challenges you to really examine if certain spending habits are really bring your fulfillment or holding you back from enjoying your life.
Where to learn more:
Your Money or Your Life by Joe Dominguez and Vicki Robin – The original FIRE book, before the FIRE movement was named and become a thing
Playing with FIRE – A documentary and YouTube channel
Plenty of other resources available, but those are the ones I have personal experience with.
KalinaH 