The principle behind the FIRE movement is saving as much as you can on your income, and letting your assets accumulate over 10 to 15 years until your passive income is enough to cover your living expenses for the rest of your life.
How much savings you might ask? It really depends on your income, and what you can afford.
You may want to start at 30% and work your way up to the “golden number” of 50%. Some actually live on only 30% of their income and save 70% towards early retirement.
So, the number one principle of the FIRE movement is practicing frugality.
The goal of the FIRE movement is to put aside 25 times your annual living expenses.
So, compute what you need monthly x 12 x 25, and that’s the amount you are aiming for. When you reach that goal, you can retire.
Jonathan Mendonsa and Brad Barrett of ChooseFI (FI meaning Financial Independence) explains it on their podcast of the same name, beautifully.
The FIRE movement is empowering because it gives you control over an important area of your life — spending.
Where to begin?
As with many things finance-related, joining the FIRE movement starts with tracking your spending.
List down what you spend. And then, see where you can cut costs.
For example, if the area where you live is expensive, consider moving. Remember: FIRE means practicing frugality. We’re not saying move to a dangerous but cheaper area. Be smart. But if you are living somewhere where real estate is much pricier than other areas, then, why not plan a move?
Or, look at your travel costs. How many of us are guilty of using Grab because it’s more convenient than the MRT or bus? (Or walking, for that matter.)
Mendonsa and Barrett talk about food, in particular. Surprisingly enough, food is one of the biggest expenses people have. As Jonathan says, “Food is where people hemorrhage money.”
Do you eat out? How often? How much do you spend on eating meals in restaurants versus if you would cook at home?
You may think these are little things. But everything adds up. And having the goal of early retirement in front of you makes all the home-cooked meals worth it.
Lean Fire versus Fat Fire versus Barista FIRE
“Lean FIRE” is extreme frugality— saving as much as you can and going without.
“Fat FIRE” refers to a more or less normal standard of living, but being mindful of your savings and investments.
“Barista FIRE” is continuing to work part-time at say, Starbucks, even after you retire, in order to avail of health insurance.
In the FIRE movement, work is optional
One common misconception about the FIRE movement is that it means people retire in their 40s and just loll around the beach all day, doing nothing.
This is not the point, according to one of the proponents of the movement, Tanja Hester, whose book Work Optional: Retire Early the Non-Penny-Pinching Way was released by Amazon in February.
Hester says that by achieving financial independence early, she gets to do the kind of work she has always loved to do — giving, creating, writing, for example — without being a slave to her job.
Advocates of the FIRE movement believe that as long as work adds value to your life, by all means, do it.
But if all it adds is stress, or conflict, toil, and sorrow, then the joining FIRE movement could be your way of escape from things that suck the joy out of life.
Will the FIRE movement work for you now?
You are the only one who can answer this because frugality and radical savings will now become your new lifestyle.
And even if you could afford it, do you have the discipline and vision to stick to it?
You will see your peers enjoying themselves because they have more disposable income than you. Can you handle that?
What you can do
1. Read up on it. Hester’s blog ournextlife.com has won the FI blog of the year for a few years and can really inspire you to adopt this lifestyle.
2. Listen to podcasts. Listen to Mendonsa and Barrett’s ChooseFi podcast when you’re out running or driving because it will help you understand why financial independence is so valuable.
3. Join a FIRE community. The ChooseFI community on Facebook has over 36,000 members. If your IRL friends aren’t into the FIRE lifestyle (yet!), going online is a great way to have a support group of people headed in the same direction as you.
This article first appeared in thenewsavvy.com
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