The past several years have witnessed a growing movement of young people who set high savings goals to reach financial freedom. The movement is known as FIRE—financial independence, retire early. Members of the FIRE community aim to retire in their 30s or 40s by saving at least half of their gross income each year and investing in low-cost avenues.

The FIRE movement emphasizes financial freedom and creating the life you want to live. But financial independence and early retirement don’t mean the same thing to everyone.

For example, in its most general sense, financial independence simply means that you’re free of worries around money. For some people, this may mean never having to make another cent, but for others, it could mean finally paying off a large student loan.

In a similar vein, retirement for many means never working again. But many followers of the movement continue to work after they’ve reached retirement! They may switch from a full-time office job to something more fulfilling with more personal freedoms since they no longer rely on the large paycheck.

The key is to get to the point where you can do what you want to do rather than what you have to do.

How to Be Successful with FIRE

So, maybe you think this sounds like the path for you. What are the necessary ingredients for success with FIRE?

A large, likely six-figure income. This, unfortunately, makes FIRE unattainable for a lot of people. If you’re falling short, do what you can to increase your income, whether it is asking for a well-deserved raise or building new job skills. Many people also take on side hustles such as driving part time for Uber or Lyft.
A plan! Think about your goals in life, and do the math on how much you need to save. Start putting aside as much of your annual income as possible. The basic calculation used in the FIRE community is to save 25x your annual spending—not income, as many of the traditional retirement calculators use. This amount should let you comfortably withdraw 4% a year for expenses in retirement. Savings is a vital element that you have control over, unlike the stock market.
A budget you can realistically follow while spending only on what you need and value. Succeeding with FIRE means living well below your means and looking at savings as a positive goal rather than as a sacrifice. Invest these savings in low-cost funds in tax-advantaged retirement accounts and brokerage accounts. Getting the tax breaks on your retirement account savings is important. However, don’t neglect the brokerage savings because those accounts will fund your early retirement years when you’d otherwise pay penalties for withdrawing from retirement accounts.
Discipline to stick to your plan. Keep track of your progress and build good habits. It’s easy to let lifestyle creep impact your goals. Check in regularly to see where adjustments need to be made. Make small, frequent goals so you don’t get bogged down with distant future goals.
Consider meeting with a financial advisor. A fee-only planner can work with you to craft the life and retirement plan that’ll help you achieve financial independence and live your best life.

Additional Tips for Financial Independence

Some followers of FIRE do not promote the use of credit cards because it can lead to increased spending. Yet many credit cards have rewards programs that can help you make the most of your money. They can be a great tool if used properly, but sticking to your budget and paying off your balances every month are paramount.

There are a lot of ways to stretch your money in everyday life, but not everyone will find the potential of early retirement enough incentive to give up on luxuries such as new cars or meals out at nice restaurants. Yet driving used cars and cooking at home are some of the easiest ways to cut bloat out of your spending.

When grocery shopping, be sure to check out coupons and weekly specials. You may also consider moving to a low-cost-of-living area so smaller portions of your budget are going toward living expenses like housing and groceries.

Potential FIRE Lifestyle Drawbacks

Many people are drawn to the FIRE movement because it promotes the idea of creating a life you love and doing what makes you happy. It places a huge emphasis on saving and is influencing many in the younger generations to get serious about personal finances. Some really flex their creative muscles to find alternative ways to bring in money, and they may find new passions in life.

FIRE does, however, have its drawbacks and isn’t the best path for everyone. The biggest issue is that it is not accessible to many in the population. It requires a very healthy income and room to save large percentages of it. Many younger people find their monthly budgets bogged down by student loans and simply cannot save the 50%-plus of income that is required.

For some, having to watch spending so closely is the opposite of the financial freedom they’re trying to achieve, and it actually causes more stress. In the same vein, people may stay at a job they hate because it pays well rather than taking the leap to find something they enjoy.

Retiring early means missing out on prime earning years, and it can be difficult to re-enter the workforce if things don’t go according to plan.

Working with a Financial Planner

Ultimately, the FIRE movement is a lifestyle of making your money work for you in the smartest ways possible so that you can live your life how you wish.

It isn’t going to be the right path for everyone, but there are people who swear by it and have found a lot of life enjoyment. Mr. Money Mustache has a very popular blog that can be a great resource for anyone considering this path to early retirement.

As a fiduciary financial planning firm, our Bethesda, MD firm also believes that meeting with a financial planner to work through goals can be a step in the right direction—not only for those who want to be part of FIRE, but for anyone else who needs help planning their financial futures.

Discuss your situation with a fee-only financial advisor.

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