Are you on FIRE? I am certainly trying to be. By FIRE I mean the movement Financial Independence, Retire Early. In my opinion the retirement should not be associated with a certain age. I believe that a person should work, as long as he/she feels comfortable doing it. In this post we`ll take a closer look on the FIRE movement. We`ll discuss if it`s achievable or not. So let`s get started.
First, let`s start with a brief description of the concept:
The F.I.R.E. (Financial Independence, Retire Early) movement is a lifestyle and financial strategy aimed at achieving financial independence and the ability to retire much earlier than the traditional retirement age. The core idea revolves around aggressively saving and investing a significant portion of one’s income—often 50% or more—while minimizing expenses. Proponents believe that by building substantial savings and creating passive income sources, individuals can retire in their 30s or 40s, allowing them to pursue their passions and interests without the constraints of a traditional job. The movement emphasizes living frugally, setting clear financial goals, and making intentional choices to reach a state of financial freedom.
Now that we know what the movement is about, let`s discuss all the moving parts in it. Then I will share my opinion if it`s achievable and if I am following it. So, the core components of F.I.R.E. are the movement variations; living expenses; savings and investments. Let`s start.
Movement variations
According to my research there are three main types of F.I.R.E. followers or styles if you want. I am leaving a link to Investopedia, where you can read the full article. Here we will discuss only the different types:
- Fat FIRE: This is for the individual with a 9-to-5 job who aims to save substantially more than the average worker but doesn’t want to reduce their current standard of living. It generally takes a high salary and aggressive savings and investment strategies for it to work.
- Lean FIRE: This individual is devoted to minimalist living and extreme savings, necessitating a far more restricted lifestyle. Many Lean FIRE adherents live on $25,000 or less per year.
- Barista FIRE: This individual wants to exist between the two choices above. They quit their traditional 9-to-5 job and use a combination of part-time work and savings to live a more-than-minimalist lifestyle. They might purchase health coverage while keeping their retirement funds intact.
To be completely honest, before starting to write this post I didn`t know that there were different variations. I created my strategy few years ago and I am following it ever since. I didn`t categorize myself as a certain type. Having the knowledge that there are differences I can define myself as a Fat F.I.R.E. Recently I wrote a post about my Personal Finance Strategies. There, I have explained that 35% of my salary is dedicated to savings and long term investing. In the post I forgot to mention that these 35% are the minimum amount. Depending on the month I am trying to add more to these funds. Sometimes I am able to achieve 50% savings and investing rate. As you can see I am very dedicated to this plan.
Now let`s focus on the next topic:
Living expenses
The living expenses are one of the crucial topics when it comes to financial independence. This part of the equation is in our control. In order to achieve F.I.R.E., the current living expenses should be as limited as possible. Of course, I am not saying that we need to stop enjoying our lives. We don’t have to put all the money that we get into the savings. My main idea and my main strategy is to limit the expenses and to buy only the necessary stuff. For sure, sometimes I am allowing myself to buy something that I really want, but it`s not a necessity. I find it important to allow myself some weakness, since it motivates me even more to follow my plan. At least this is the effect on me.
Let`s try to summarize the living expenses topic. The expenses that we make are one of the few things that are in our control. We should limit them and we should focus on the things that we really need and that are beneficial for us. The things that we want, but are not a necessity are allowed from time to time. My current strategy is to spend no more than 10-20% of my salary on things that I want. These are not necessities. It`s important to have a “wants” budget allocation, since it`s beneficial for the mental health. I am controlling my living expenses by creating a monthly budget. More on that topic you can read in my blog post on the Importance of Budgeting.
Savings and Investments
Now we get to the fun part. Along with the spending, the savings and investments are a crucial part of our F.I.R.E. journey. The money that we save and invest are the money that we will be able to use once we retire. That`s why it is really important to make our plans as precise as possible. The money in our savings and investing fund will be the only source of liquidity if we stop working.
According to the recommendations, the savings accumulation goal should be 25 times the current annual expenses. This is called the rule of 25. Let`s put that into numbers. If we assume that our yearly expenses are $50 000, we need to multiply that by 25. The result is $1 250 000. This amount will allow us to retire early.
The amount calculated by the rule of 25 is based on the assumptions of the “4% rule”. The 4% rule suggests that a retiree should be able to withdraw 4% of the investment/savings fund in the first year of retirement. After that the retiree can withdraw the same dollar amount every year, adjusted for the inflation. Investopedia has a very nice article on the 4% rule, which you can find here.
In my opinion these are some good guidelines, when joining the F.I.R.E. movement. I do have some concerns with them, but they are one of the most widely discussed. Now, let me share the approach that I have in my F.I.R.E. journey.
My Strategy
As I already mentioned above I am strictly controlling my expenses. I prepare a budget for every month and I usually avoid buying things that are not a necessity. This is the one side of the equation. To be honest, I am not that focused on it. Having a budget makes it very easy for me to deal with the spending.
The thing that I am mostly focused on is the saving and the investing. In terms of savings – in my savings account I am maintaining at least 6 times my usual monthly expenses. I am not adding more than that, since these funds are exposed to inflation. If an emergency expense occurs I am using the funds from this account. Then in the next month I am restoring the account to its original value.
The main tool in my F.I.R.E. journey is the investing. I am currently investing in different financial instruments – stocks, bonds, crypto, etc. I do that with each paycheck I get. I am also trying to find new income sources, so I can add even more to my long term portfolio. I hope to add a rental property to my retiring portfolio in the future. Basically, I am investing heavily, so I can achieve an early retirement. If it`s interesting for you, feel free to check my posts on investing.
I wish to achieve a proper mix of different income-bearing assets. This way, I can live comfortably on the income that is generated. I don`t like the idea of having a portfolio from which I have to withdraw funds. Instead, the income that is generated from the mix of dividends, interest, rents, etc., should be sufficient to support my lifestyle. Let`s put that into numbers. If we assume that I will need $50 000 per year, a portfolio mix should be able to generate this income. Let`s assume a 3.5% yield on my portfolio. This means that I will need $1 428 572 invested in different assets. This way I will be able to live comfortably using just the passive income. The assets will remain intact. This will allow me to enjoy the capital appreciation over time.
Is all of this achievable? In my opinion – yes. Is it easy? Certainly not. Actually, the statistics show that very few people are able to retire early. To be honest, by looking at the numbers again, it seems pretty difficult to achieve. Despite that, I am continuing with my plan. Even if I am not able to achieve an early retirement, I will achieve a comfortable retirement. If there is one thing that I want you to take from this post, it is to secure yourself with a financial cushion.
“Do not save what is left after spending; instead spend what is left after saving.”
Warren Buffett
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Disclaimer:
I am not a financial or investment advisor. The content of this post represents my personal views and is purely informational. It should not be taken as financial or investing advice. Please do your own research and consult with a qualified financial advisor before making any investment decisions.
Disclaimer on the use of AI: Some of the information may be generated by using AI. Always double check the information and do your own research.
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