FIRE (Financial Independence Retire Early)

We’re all familiar with the ‘rat race’. Getting up each day, spending many of the daylight hours ‘working for the man’, and doing so over and over again until we retire in our sixties — and let’s face it, many people are even working into their seventies. But what if that didn’t have to be your reality? What if you could retire in your forties, or even earlier, and enjoy all that the world has to offer while you’re still young and fit? Well, some people are doing exactly this. And no, they’re not the billionaires or the ones born into generational wealth. They’re normal working people pursuing the FIRE movement. Curious? Let’s dive in.

What is FIRE (Financial Independence, Retire Early)?

FIRE stands for Financial Independence, Retire Early. The aim of FIRE is to effectively condense down your working life into a short period of ten or twenty years, with the intention of saving and investing a large proportion of your income.

The idea of FIRE is that you amass enough assets to be able to produce a passive income that covers your living expenses without you having to work. Some people choose to retire completely and never work again. Others choose to become ‘work optional’. This means that they may work on projects or jobs that particularly interest them, but they’re not required to work to be able to pay their bills.

How do people achieve FIRE?

Hooked already? Understandable. The idea of not having to answer to anyone and choosing whether or not to work based solely on whether you want to sounds like the dream. But FIRE requires a lot of sacrifice before you get to sail off into the sunset (maybe even literally) and enjoy the good bit.

At its core, the FIRE philosophy comes down to three key components:

• Extreme frugality. In order to condense your working life down into just a few years, you need to keep your living expenses very low. For most people, this means getting pretty comfortable with frugality. People pursuing FIRE may go to extreme lengths to minimize money spent, like wearing clothing and shoes until they’re threadbare, taking lengthy public transport journeys to save a few bucks, and eating very basic, bulk cooked meals. But FIRE frugality isn’t just about saving money. Minimal living, and the frugality that often comes with it, has become a prominent part of the FIRE philosophy, too. It’s a mindset of living with less, and approaching life differently to the norm.
• High savings rate. The aim of fire is to accelerate your journey to retirement by saving the money you’ll need to retire much faster than the traditional lifetime working model. This means saving upward of 70% of your income — which explains why frugality is necessary!
• Long-term investing. You can’t reach FIRE by saving money alone. Sure, having some savings you can access in an emergency is always necessary. But FIRE works by growing the value of your money with a ‘buy and hold’ investment strategy over the long term. FIRE followers tend to invest in a combination of stocks and property, most commonly index funds and managed funds.

If you’re considering pursuing FIRE, you might find it helpful to explore your own relationship to freedom. What do you want freedom from? What do you want freedom to do?

Different types of FIRE

FIRE isn’t one size fits all. We all have different goals for our lives and different ideas of what freedom means to us. If you see your retirement filled with champagne and yachts, you’re going to need to approach FIRE differently to someone who wants to live a simple life on a farm growing their own lettuce. Luckily, whatever your goals, there’s a FIRE for that! Here are a few different subtypes of FIRE.

Lean FIRE

Lean FIRE is all retiring to a simple life. Lean FIRE followers want to achieve retirement without the bells and whistles. Not only will they get there by living with less than the average person, but they’ll continue to do so after they clock out of the rat race. Lean FIRE is attractive to people who don’t have particularly high incomes, but still want to pursue a life of freedom from the grind. With Lean FIRE you might withdraw a much smaller annual income, and have much lower living expenses in retirement.

Fat FIRE

Fat FIRE is the opposite of lean FIRE. Fat FIRE followers look forward to a lavish lifestyle in retirement, filled with travel, dining out and other luxuries. Fat FIRE is often used to describe people planning to draw down a six-figure income for their retirement.

Barista FIRE

Barista FIRE involves pursuing somewhat of a semi-FIRE approach, where you plan to support your retirement years with a part time job. Barista FIRE followers strive to have enough passive income to support their key expenses, but may fund other aspects of their lifestyle with income from a casual job — hence the name barista! These jobs aren’t careers or high-stress corporate roles. Instead, they’re more entry-level, procedural jobs with less at stake.

Coast FIRE

Coast FIRE is all about how you live on your way to retirement. Rather than living extremely frugally until you retire, Coast FIRE involves saving aggressively during your early working years to amass a large amount of savings and investments as early as possible. Then, slowing down your frugality and lifestyle sacrifices as you approach retirement. This strategy works by leveraging the power of compound interest. The longer you’re invested, the more time your money has to make money. So, rather than moving at the same pace toward retirement, albeit early retirement, you’re stacking more of your input upfront, and slowing down to allow for a less frugal lifestyle once the foundations are laid.

Pros and cons of FIRE

Personal finance is personal — and FIRE isn’t for everyone. Here are some of the upsides and downsides to consider.

Pros

• Small sacrifices, big rewards. FIRE involves a lot of sacrifice, but those sacrifices aren’t without reward. Retiring early can be life-changing for both your physical and mental health, and can allow you to really make the most of life.
• Retire ten or twenty years earlier. Pursuing FIRE can mean you get an extra ten, twenty or even more years to spend your days however you like. And there are very few people who wouldn’t want that!
• Simplified spending. Cutting back on lifestyle expenses can be hard at first. But many FIRE followers find that ditching material things and modern luxuries and living a simpler life is actually quite freeing.
• Buck the status quo. Most people follow the usual path of working to live and then retiring in the last portion of their life when they’re no longer able to work. Choosing to pave a new way forward for yourself can be incredibly empowering, and allow you to experience life in a way many people won’t ever get to.
• Work can become optional. For most people, work is a necessity. But with FIRE, work can be an optional pursuit. You can choose to work on a passion project without the pressure of having to make money right away, or you can enjoy the benefits of connection with others in the workplace without the pressure of making ends meet.
• Have an impact. When the pressure of having to work is lifted, you’re free to follow your passions and purpose, and get involved in projects that have a positive impact on the world, like volunteering or advocacy.

Cons

• Frugality can be restrictive. While some acts of frugality can simplify your life, there are many acts that can complicate your life. Some find the frugality required can be restrictive and make life harder and more stressful.
• Unexpected events can throw off your progress. Unfortunately, life throws us curveballs. Unexpected expenses or bigger life adversities could risk derailing your progress to FIRE, and you may even feel like you’ve sacrificed for nothing.
• You need to save very aggressively. Realistically, being able to achieve FIRE means having the capacity to save very, very aggressively. Living in higher cost of living areas, raising kids, or not earning a consistent income can make it harder to save the amounts required to achieve FIRE. While sometimes it’s possible to move or get a new job to change these things, it’s not always as simple as that.
• Lifestyle sacrifices may not be suitable. For many, FIRE means making significant lifestyle sacrifices to save as much as possible. While this makes sense in theory, people who have children, or who live far from their family, or who have additional living needs may not be as able to cut back expenses.
• The FOMO is real. Preparing for your future, and even prioritizing it over the present, isn’t necessarily a bad thing. But you may find you miss out on things that matter to you, like traveling to visit family or enjoying your younger years with friends and colleagues.

The brain bit: The FIRE mindset

FIRE is as much about mindset as it is about numbers. While there is a strong focus on minimizing spending and stashing money into investments, the pursuit of FIRE requires a significant mindset shift in order to stay the course and embrace the lifestyle.

Pursuing FIRE is a long-term decision, and not only do you need to calibrate your mindset to the lifestyle you’ll live before you retire, you need to be prepared for how your life will change when you are able to retire. Sure, we’d all love to have more freedom. But when you’re actually in a position that most people will never find themselves in, without the routine of going to work everyday because you have to, it can feel somewhat isolating.

Here are some key aspects of the FIRE mindset to consider.

Living with less

FIRE shares many similarities with the minimalism movement. Pursuing FIRE means making a choice to withdraw from a lot of the consumption that has become normalized in our daily lives. The way we spend has drastically changed in recent years. We have material goods at our fingertips, there’s a solution for every single problem, and just about anything can be delivered to our door whenever we want it. Generally, choosing to pursue FIRE means letting go of these luxuries and living a much simpler life, and you may begin living a life that’s different to those around you. Friends may go on expensive holidays, have nicely decorated homes, drive nice cars or buy material things like clothes, games and toys, while you’re borrowing books from the library and using the same cooking pans you’ve had since you were 21. Getting into the anti-consumption mindset can take time, but you will likely find a new appreciation for the smaller things in life.

Creating a life you desire

It’s no secret that FIRE requires a lot of sacrifice — and that sacrifice has to be worth it. You need a clear idea of why you want to pursue FIRE, what it is that you value about the pursuit of financial freedom, and why that outcome is worth giving up so many things in your life now. You need to be able to forge a very deep connection to the life you want to create for yourself in order to live the life that FIRE requires. It won’t be easy to give up expensive conveniences if you’re not totally sure what you’re doing it all for.

Delaying gratification

Delayed gratification is difficult for the human brain. Some of us are better at it than others, but the bottom line is: We’re just not wired to wait for things we want. FIRE is one of the greatest acts of delaying gratification, and it is possible to train your brain to resist financial impulses and set the majority of your money aside for the future. It just takes practice. Studies have shown that delayed gratification is something that can be learned by repeating behaviors over and over again until they become easier. So, while FIRE behaviors might feel hard at first, eventually it can become second nature. It’s this new normal that will help your mindset calibrate to your goal of FIRE.

The concept of ‘freedom’

Literature and research has long explored the significance of freedom in the context of personal finance, and sought to understand what motivates people to pursue ‘financial freedom’. Despite freedom being a singular pursuit, researchers have actually uncovered a two-sided view of freedom in the minds of those who pursue FIRE. These two sides represent the freedom from certain aspects of life, and the freedom to engage in different aspects of life.

Commonly cited motivations for pursuing FIRE using the from/to framework:

If you’re considering pursuing FIRE, you might find it helpful to explore your own relationship to freedom. What do you want freedom from? What do you want freedom to do? These overarching themes unite many people’s motivations, but breaking down what they mean for you personally can help you flesh out your FIRE vision more clearly.

Who is FIRE best suited to

Anyone can choose to pursue FIRE, but there are a few factors that make for an ideal FIRE candidate.

• Access to low living costs. Whether you’re able to live with family or friends cheaply (or for free!), or you’re able to live in a very low cost of living (LCOL) region while still earning a good income, low living costs form a great foundation for FIRE.
• Ability to delay gratification. While this can be learned, some of the most successful FIRE followers are those who are naturally savers and who are comfortable with delayed gratification.
• High disposable income. Your savings capacity is critical to your pursuit of FIRE, so having a decent regular (disposable) income will help make FIRE more achievable. The magic combination for FIRE success is low costs and high income.
• Clear life goals. A strong vision of what you want out of life also stands you in good stead for pursuing FIRE. If you know exactly what life you’d lead if you didn’t have to work and you’re passionate enough about chasing that, you’ll be able to follow the path of FIRE much more easily.

How to start pursuing FIRE

Tempted to pursue your own journey to financial freedom? Already visualizing your dream #vanlife travelling the world, or your simple mornings drinking coffee on your deck looking over the ocean? Here’s how to get started.

Calculate your FIRE number

If you want to spend $50,000 per year in retirement, you’d need to have $1,250,000 invested. This is based on the idea that you can withdraw 4% of your total portfolio each year without running out of money.

Bear in mind your expenses may or may not include housing costs, depending on whether you plan to rent, travel, or own your home outright.

Earlier on, we told you about some different types of FIRE (lean, fat, coast and barista). Some of these different approaches to FIRE will change your FIRE number.

• Lean FIRE: On Lean FIRE, your retirement expenses are very, well, lean. This might mean you can achieve FIRE sooner, because you’re only going to need $35,000 per year, for example.
• Fat FIRE: On Fat FIRE, you’re planning to have much higher expenses in retirement (hello champagne and 5-star hotels!) As such, you’ll want to factor this into your fire number, either by using a higher annual expenses amount (like $100,000), or by multiplying your usual annual expenses by 30 instead of 25, to give yourself a bigger buffer.
• Barista FIRE: With Barista FIRE, you’re planning to supplement your income with a part time job or other paid activities. This can be difficult to calculate as you don’t know how much you’ll be earning when the time comes, but it may mean you can be a bit more relaxed with your FIRE number, knowing you plan to make extra income to support your lifestyle.

Get the wheels in motion

Got your FIRE number? Now let’s get started on this whole FIRE journey! It’s time to start slashing expenses, maximizing that income, and deciding what you’ll invest in to grow your wealth.

Sit down with your income and expenses, and take a long look at the life you’re currently living, and what you can change to get closer to your FIRE goal. That might mean moving to a lower cost of living area, taking on extra work, starting a side hustle, or changing careers completely. You might move back in with your parents, or even try long term house sitting to keep your costs down.

FIRE 🤝 PocketSmith

An important part of FIRE is keeping a watchful eye over where your money goes, and how your net worth is progressing — and luckily we know a rad little software that’s *chefs kiss* perfect for your FIRE journey.

Oh wait, it’s us! PocketSmith’s features give you the hands on control over your finances that you need to pursue FIRE successfully, allowing you to track every single dollar, set up budgets and measure your real time spending against them, and even use forecasts to project your future financial growth using real data from your money behaviors.

The PocketSmith verdict

In case you couldn’t tell, we’re big fans of FIRE as a financial independence movement. We’ve shaved off half a point for the fact it’s such a big endeavor that simply isn’t for everyone, and generally, succeeding at FIRE does require you to have a pretty good run of luck on your journey to getting there. However, even if you don’t pursue FIRE perfectly, there’s a lot you can implement from the movement as a whole.

Check out some popular online FIRE bloggers who are pursuing FIRE themselves to get inspiration for your own journey.