What I Think About The FIRE Movement

In the world of personal finance, a divisive movement has gained popularity in recent years.

A movement of extreme sacrifice, and extreme reward.

It’s called the FIRE movement.

Financial Independence Retire Early.

Today, I’m going to explain to you what it is, and whether you should join the movement.

What is The FIRE Movement?

FIRE stands for Financial Independence Retire Early.

It’s a movement of extreme financial sacrifice, with one aim:

Retiring early. Very early.

It’s a movement that has gained popularity in recent years, but, has divided the personal finance community.

Once you join FIRE, almost every financial transaction goes towards early retirement.

Some think it’s a great idea, and others think it’s terrible.

Me? I’m more on the fence. I like looking at both sides.

To build wealth and achieve financial freedom, you have to make sacrifices.

Only you know how much of your lifestyle you’re willing to sacrifice.

This is usually in the form of cutting costs, and can involve:

• Buying a cheaper car.

• Downsizing your home.

• Spending less on luxuries & wants (fine dining etc.)

Maximising your discipline to where you’re extracting the most from your income, to go to your future.

I always preach the importance of financial discipline, but in many cases, FIRE can take this too far.

You need to enjoy life.

Although sacrifices are necessary for success, you can’t make sacrifices without negatives.

I’m going to take you through some key benefits & drawbacks to the FIRE movement, so you can decide if it’s best for you.

Working Out Your FIRE Target

To succeed in the FIRE movement, you need to know your target.

Your target is the sum of money, or income, you need to be able to retire.

Everyone will have an aim exclusive to them, so take some time to figure out how much you’ll need to retire.

There are three factors to consider here.

Money

The obvious factor. Only you know how much you’ll need each month/year to live a happy life.

It could be:

• $3k a month.

• $5k a month.

• $10k a month.

Or even more.

This is the first thing to decide.

How much money do you need each month to be able to retire and live happily?

Time

At what age do you plan on retiring?

It’s no good planning to retire at 40, only to realise the money you have will only last you for 10 years.

What are you going to do when you’re 50? Go back to work?

You been retired for 10 years. Of course not.

Make sure you’re factoring this into your calculations.

You’ll need plenty of money, but you’ll also need to make sure it lasts you for the rest of your life.

Inflation

Money loses value every year. Well, every day, for that matter.

This means that any amount of money today, will be worth less as time goes on.

$100,000 of today’s money will be worth less in the future, and will continue to drop in purchasing power.

This is why it’s preferred to focus on passive income, rather than a lump sum to live off.

These income streams include:

• Dividend income — earning an income by being a shareholder of companies.

• Interest income — earning interest in savings accounts on your money.

• Rental income — earning money via rent from owning real estate.

• Profit income — having a business, and earning money through revenue.

Benefits of FIRE

Earlier Retirement

The main benefit of FIRE is what you’re working towards…

Early retirement.

By making extreme sacrifices, you can retire decades before your peers, and enjoy retirement.

• No more working a job you hate.

• No more unwanted obligations.

• No more stress and sleepless nights.

Of course, only you know how much capital/income you’ll need to retire early.

But, once you hit this target, you can look back and say that all the sacrifice was worth it.

Just don’t make the mistake of being bored once you reach your goal!

Improved Discipline

There’s a level of financial discipline you need to reach to succeed with FIRE.

This discipline can be hard to obtain, but once you’re there, you can see benefits in other areas too.

You might find yourself being more disciplined with:

• Going to the gym

• Increasing your income

• Building new (good) habits

As well as improving your financial health.

Discipline, once obtained in one area, spreads like wildfire across your life.

FIRE isn’t just about your finances. You could argue that it’s about becoming a better, more disciplined personal in general.

Sense of Purpose

FIRE gives you a goal to achieve, and a big one at that.

A lot of people fail to build wealth because they don’t have a goal.

To achieve anything, you need a goal. Pursuing a goal, whatever it may be, brings a great sense of purpose to your life.

This can help:

• Improve motivation

• Improve mental well being

• Improve your life in general

Despite the sacrifices you’re making, this sense of purpose can balance things out.

This makes all the sacrifices worth it, should you succeed in achieving your goal.

Potential Drawbacks of FIRE

Worsened Lifestyle

When you take on the FIRE lifestyle, you’re making a lot of sacrifices.

It’s inevitable that this’ll have negative effects on your lifestyle.

Remember. Almost everything goes towards retiring early.

This means…

• No more fine dining.

• No more luxury vacations.

• No more expensive clothes.

No more of the finer things in life, which is something we all enjoy.

This negative is counteracted with your sense of purpose, so ask yourself.

What force will be stronger?

The positive sense of purpose? Or, the negative reduction in lifestyle?

Obsession With Frugality

I’ve heard from several people in the FIRE movement that they’ve been changed as a result.

They can’t imagine ever finding joy in spending lavishly again.

Is this a bad thing? Potentially. It could have a long lasting negative effect on your life.

You could become institutionalised to the point where you can’t enjoy yourself.

You’re so driven to achieving this goal, that it’s completely consumed you.

This might not always be a bad thing. But, it’s worth remembering that FIRE is a temporary change.

Once you’ve succeeded, you can go back to a more enjoyable level of expenditure.

Remember this. Don’t let FIRE consume you.

Poor Mental Health

This ties in with the first point, and this is the most important thing to consider.

There could be times on your journey where you could feel:

• Lost

• Alone

• Scared of failure

It’s the same with anything that requires sacrifice. You’ll always be asking yourself…

Is all this going to be worth it?

This can have a negative effect on your own mental well being. This is something to carefully consider.

This reason, for me, is why I’m not a big advocate of FIRE.

Should You Join The FIRE Movement?

FIRE, in short, means maximum sacrifice.

Here’s how you can decide if FIRE is right for you…

There’s a correlation between how much you’re willing to sacrifice, and how much you resent your current situation.

Someone who hates their current life, is willing to sacrifice a lot.

Say…

• You hate your job

• You’re always stressed

• You want a new life

You might almost be at a point of desperation. As a result, your tolerance for sacrifice, is higher.

But, someone who is more content, will not have the willingness to sacrifice the same amount.

Someone might want to work towards an early retirement, but might be…

• Content with their job

• Not stressed, and happy

• Content with their current lifestyle

Won’t have the tolerance to make the same drastic changes as someone in a worst situation.

So, ask yourself…

Are you in a position to take the most direct route to financial freedom?

I suspect that the majority of you will say no. This, if anything, is a good thing.

For a lot of people, the sacrifices you need to make won’t be worth it.

If you’re happy, or even content with life as it is, you don’t need to take drastic action.

I’ve always been a bigger advocate if taking smaller steps to a bigger goal.

We all want better, but sometimes, doing too much too quickly can be detrimental.

Tread carefully, especially if you’re new to the world of financial self improvement.

The last thing you want to do is to make changes you’re going to regret.

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