Ryan O’Leary is a writer and former financial services professional. He writes about personal finance for Wealthsimple and his work has been featured by the New York Stock Exchange. Ryan holds a Bachelor's degree in International Business from University College Cork in Ireland.
When you think retirement age, you probably think of someone in their 60s, or even 70s. While this is the standard age at which most people start to think about retirement, people who strive for FIRE look to retire much earlier, usually in their 40s.
Early retirement is the literal definition of the FIRE movement, but there’s a much more robust meaning when you start digging deeper into the principles behind the idea. The real goal isn't retirement per se, but a meaningful life marked by the flexibility that comes from financial independence. FIRE folks carefully consider their finances in nearly every decision they make, or sometimes even make decisions solely based on money. But once they reach financial independence, they attain the freedom not to be limited by what they earn or what they have saved.
One of the most notable FIRE evangelists is Mr. Money Mustache, who blogs about early retirement. Mr. Money Mustache, or Peter Adeney, and his wife aimed to live an incredibly frugal lifestyle in their hometown of Longmont, Colorado. According to his website, they saved about 50 percent of their income in low-cost passive funds. Between the low cost of living, two rental properties, and Vanguard investments, he was able to retire at 30 years old.
The movement has spread far beyond Adeney, however, with other FIRE retirees-turned-bloggers including Early Retirement Dude; the husband and wife behind Our Next Life; and the Frugalwoods, a young married couple with children, who wrote a book about their transformation from suburban Boston high earners to retired Vermont homesteaders. Reddit’s dedicated financial independence thread boasts more than 500,000 subscribers eager to learn how they too can quit their job or career from those who have already achieved their goals.
Light your FIRE with Wealthsimple. We make it easy to invest in your future, whatever your financial goals. Take our risk-free survey and we'll provide you with a personalized investment portfolio to suit your needs plus lots of financial advice along the way.
The basic math behind FIRE is simple: spend less than you earn and put the difference in low-fee investments like index funds. You could also invest in a low (or no) fee robo-advisor. Other investments, like rental properties and passive income streams, are also a big part of achieving financial independence. And so is frugality. The less money you need to live, the less money you need to save in order to fund the rest of your life.
To highlight the value of cutting expenses, for every £100 per month you can trim, it means you need £30,000 less to achieve financial independence £1,200 yearly expense x 25 = £30,000).
There are three basic elements to FIRE: time, expenses, and income. The goal is to put space between expenses and income. How much space you create is how much time it takes you to retire. Although the rules may seem simple, reaching FIRE involves the same concepts involved in reaching any other financial goal, and it ultimately comes down to dedication. It’s more about being intentional with your money and less about being frugal — there there will inevitably be some frugality involved.
The first step is figuring out your “why.” Do you want to retire from your current work so that you can have the freedom to start your own business? Or is it that you want to have more than two weeks per year of vacation time? Or maybe you just want to spend more quality time with friends and family. By identifying the “why” and planning a road map for the next 5, 10, even 20 years, you can set the FIRE wheels in motion. Once that’s settled, the next step is to track your expenses. This is an arduous task for many, but when in pursuit of FIRE, it requires a whole lot more discipline. FIRE enthusiasts are religious in checking bank statements, credit card statements, online budgets, and making note of what exactly they are spending money on and whether or not those purchases are meaningful or necessary.
After tracking has begun, FIRE devotees figure out how much their lifestyle costs per year, looking for what they might be able to cut out to shrink that number, and then they start working on increasing their rate of savings. Those are the hardest parts of the journey, and the rest is just a matter of waiting for the money to add up and hopefully compound.
Once you’ve conquered your spending, it’s time to look at net income and then compare. FIRE devotees subtract their fixed mandatory expenses from their income and then adjust their discretionary expenses as necessary.
From there, FIRE comes down to math and mechanics. Many FIRE retirees engage in the same set of tactics when it comes to cutting costs. These include lowering housing costs; driving used cars; cutting the cable cord (as is increasingly common now anyway); using credit card rewards to help fund travel; and cutting grocery bills.
Like any other financial goal, the math is easy and everything else requires resourcefulness, diligence, and patience. How quickly a FIRE retire-in-waiting reaches their goal will depend on the three basic elements of income, spending, and time. And a little luck!
Advantages and disadvantages of FIRE
The advantages of FIRE retirement speak for themselves. Financial security is unfortunately an all too rare state of being, but by following the FIRE principles and displaying resourcefulness, diligence and patience in abundance, one can, in theory, gain financial security and independence.
Other than that, though, there isn’t a huge amount of difference between FIRE enthusiasts and the average full-time employee. The main difference lies in what FIRE-ees plan to do for work and who they're planning to work for. Most FIRE-ees tend to embark on a self-made career path after reaching financial independence, either by consulting, managing properties, or monetizing some other hobby they find meaningful. The majority of the aforementioned FIRE retirees have done at least one of these. In fact, the trend is so strong that one member of the movement attempted to rebrand the "RE" in FIRE as "Recreational Employment."
FIRE-ees may be leaving the security of full-time employment, but they tend to move on to something else. Money is just the tool that they use to move onto that next phase in your life.
The accessibility, or lack thereof, of the FIRE lifestyle lends itself to a certain demographic. Followers of FIRE tend to be male and work in the tech industry, left-brained engineer-types who geek out on calculating compound interest over 40 years, using a retirement calculator or the ROI on low-fee index funds versus real estate rentals. It’s difficult to retire at 40 if you work a minimum wage job, say, or have crushing student loan debt. Therefore, FIRE isn’t as much for the “everyman” as it is for those who already enjoy a high standard of living.
One part millennial rebellion, one part privilege: the FIRE movement is attractive to many, but ultimately it’s a movement with a generally inaccessible ceiling. We think the best home for anyone that’s looking to light (or relight) their FIRE is Wealthsimple.
We offer state-of-the-art technology, low fees and the kind of personalized, friendly service you might have not thought imaginable from an automated investing service. Get started investing with Wealthsimple today.
Grow your retirement savingsStart saving