Good news: Retiring early can be more than just a photo of a boat on your inspiration board, thanks to the FIRE movement: a lifestyle and financial strategy that aims to enable people to help retire way earlier than the traditional retirement age by aggressively saving and investing a significant portion of income.
The goal behind FIRE is to achieve financial independence, where your savings and investments make enough passive income to cover your living expenses.
If the hope of retiring early and gaining financial freedom sounds good to you, read on to learn what the main principles of FIRE are, different types of FIRE, and how you can actually get started with FIRE.
Why is it called the FIRE Movement?
FIRE stands for Financial Independence, Retire Early.
What are the main principles of the FIRE Movement?
Save, save, save
Participants in the FIRE movement typically save 50-75% of their income. This high savings rate allows them to accumulate a hefty sum in a relatively short period.
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Be frugal
FIRE enthusiasts often embrace a frugal lifestyle to minimize expenses. (Because you can’t save for early retirement if you upgrade to the newest model of your car every year.) This might include cutting back on non-essential spending, downsizing housing, and building cost-effective habits (like skipping that $18 salad for lunch).
Invest smart
The money saved can be invested however you like, from low-cost index funds to mutual funds to high-yield savings accounts that grow over time thanks to the power of compound interest.
Become financially independent
Achieving financial independence means that the individual’s savings and investments generate enough income to cover their living expenses without needing to work a traditional job.
Retire early
Once financial independence is achieved (cue applause), individuals can choose to retire early and pursue other interests, hobbies, or part-time work that they love.
Types of FIRE
What’s your fire style? Figure it out here.
Lean FIRE
Living a minimalist lifestyle; spending as little and saving as much as possible.
Fat FIRE
Saving more money to retire with a more comfortable lifestyle and higher spending. (See: boat pic mentioned above.)
Barista FIRE
Achieving partial financial independence and working a part-time job to cover some expenses while drawing from savings to cover the rest.
Coast FIRE
Saving enough early on so that future investment growth allows early for retirement without needing to save as much money.
How to get started with FIRE
Set clear financial goals
Determine how much money you need to achieve financial independence based on your personal goals.
Create a budget
Track your income and expenses to identify areas where you can cut back and save more money.
Increase your savings rate
Aim to save 50-70% of your income. This might involve reducing discretionary spending, finding ways to increase your income, or both.
Invest smart
Put your savings into investment vehicles like low-cost index funds, or other assets that typically offer good returns over time.
Check your progress
Regularly eyeball your savings and investments to ensure you are on track to meet your financial goals.
Pivot as needed
Be ready to adjust your budget, savings rate, and investment strategy as your financial situation and goals evolve.
How to become financially independent and retire early?
Achieving financial independence and retiring early involves saving a high percentage of your income, living frugally, and investing wisely. By setting clear financial goals, creating a budget, increasing your savings rate, and monitoring your progress, you can work towards financial independence and the freedom to retire early.
How much should I save to achieve FIRE?
The amount you need to save depends on your desired retirement lifestyle. A common rule is to save 25 times your annual expenses. This is based on the 4% rule, which suggests you can withdraw 4% of your savings each year in retirement without running out of money.
What are some good ways to increase my savings rate?
- Cut non-essential expenses
- Review your budget and eliminate non-essential spending.
- Raise your income
- Consider side hustles, freelance work, or asking for a raise.
- Put your savings on autopilot
- Set up automatic transfers from your checking account to a savings account.
So, where should I invest my money for FIRE?
The answer varies based on your individual situation, risk tolerance, and lots of other factors. Consult a professional to determine which type of savings or investments work best for your lifestyle.
Is FIRE possible for everyone?
While the principles of FIRE can be applied by anyone, individual circumstances like income, expenses, and personal goals will affect how quickly you can achieve financial independence. Don’t worry if you have to make adjustments to fit your personal situation.
We’re Here to Help
At MoneyLion, we’re dedicated to helping you find financial solutions that make sense for you and your family. Whether you’re looking to save on insurance, manage investments, or achieve financial independence, MoneyLion provides tools and resources to guide you every step of the way.
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