What the FIRE Movement Can Teach You About Personal Investing

Proponents of the FIRE movement adopt an extremely conservative lifestyle in their earliest earning decades, often saving 50% to 70% of their income during those years. The goal is to achieve financial independence as early as possible, then live freely for the rest of your life without having to work, relying instead of passive income.

FIRE stands for “financial independence, retire early.”

The core movement itself isn’t for everybody.

First off, in most countries, the retirement infrastructure — such as tax-sheltered retirement accounts and medical care in the U.S. — can be hostile toward early retirement.

Second, adopting the FIRE lifestyle means putting off experiences like travel or starting a family during the decades when it can be the most fun.

Lastly, a minimal lifestyle simply doesn’t appeal to everyone. Many people would prefer to live more extravagantly, even at the cost of adding years to their working life — especially if they have careers they find personally fulfilling.

That said, even if you aren’t a FIRE movement adherent, the movement recommends good practices you can apply to any investment strategy.

Here are five you should seriously consider.

5 FIRE Movement Strategies With Proven Impact

1. The Value of Early Entry

The power of compound interest means the earlier you start saving toward financial independence, the more quickly you’ll reach it.

Let’s look at an example, using a reasonably assumed average of a 7% annual return:

If you saved $1,000 at age 25, it would be worth $16,311 when you reach 65

  • If you saved $1,000 at age 35, it would be worth $8,116 when you reach 65
  • If you saved $1,000 at age 45, it would be worth $4,038 when you reach 65
  • If you saved $1,000 at age 55, it would be worth just $2,009 when you reach 65

Better yet, if you’re lucky enough to get started with savings in your mid-20s — before the demands of starting a family and other responsibilities — you can save a lot of your money and let it sit there, working for you, as the decades pass.

With FIRE investing, that means investing in your early 20s for 10 to 20 years and watching your money multiply significantly. Done right, it can allow you to retire at 50 or even in your early 40s.

For more traditional investors, it simply means finding a little extra money to start putting aside right now.

Even if you have to trim a small luxury you like but don’t need, putting that value toward retiring sooner is worth the sacrifice.

2. Optimizing Life and Finances

Despite being focused on finances, money isn’t really what the FIRE movement is all about. It’s about lifestyle design.

The FIRE movement started by looking at the traditional financial lifepath and making a different decision, one that opted to front-load discipline in order to live a freer second half (or even two-thirds) of a life.

That’s one way to live your life, but it’s not the only one.

Some people will be happiest with a traditional school-work-retirement lifestyle. Others might opt to work part-time their whole lives and retire 10 or 20 years late. Still others might pour their hearts and souls into a career that fulfills them and changes the world for the better.

The specifics are unimportant. What matters is choosing a path of living intentionally and mindfully, then pursuing that path with vigor and discipline.

In the FIRE movement, that means intentionally opting to save early so you can retire early and to use every available tool to make that happen.

For more traditional investors, it means really thinking about your financial goals. When do you want to retire? What opportunities do you want to enjoy while you’re younger? How much of a financial legacy do you want to leave for your children?

Consider these points carefully, then check to see how well your financial plan supports them and make whatever changes are necessary.

3. Be Brutal With Expenses

You can only save money if you’re not spending it, a truth that becomes more difficult with each passing year of our working lives. Following the FIRE movement starts with resisting the temptation of spending money in your 20s. Instead, you save as much as possible while living inexpensively.

For example, college graduates with their first job often feel flush with cash in comparison to their college years, and they buy things like a nice apartment, good furniture, or fine clothes. Or they might choose to travel as much as possible or splurge on a car and electronics.

With FIRE investing, they split the difference between their college lifestyle and what their new salary allows, saving the difference.

More traditional investors can take a powerful step in this direction with a full audit of their expenses, looking for subscriptions, unused memberships, and other automatic deductions they can cancel without changing their lives at all.

After that, it can pay to take a page from Marie Kondo, aggressively jettisoning any expense that doesn’t bring you joy.

The money you save can go straight into investing to accelerate your own retirement.

4. Have a Plan For Getting Out Early

Another core aspect of the FIRE movement is having a plan for early retirement.

This is also rare among most people, especially people in their 20s and 30s. It’s closely linked to lifestyle design in that they’re both about making decisions about what you want, then developing a plan for making it happen.

Even if you’re not interested in retiring at 45 (or the short-term sacrifices needed to do that), it’s within reach for you to retire five, or even 10, years early with the right plan and the right execution. It’s just a matter of looking at your finances, figuring out how, and executing on that knowledge with discipline.

In the FIRE movement, this means a detailed financial life plan starting in your 20s and followed as aggressively as possible.

For more traditional investors, it means reassessing your current retirement plan (or creating one if you don’t have one yet) and looking for opportunities to get a few more free years out of your life.

It could mean anything from making more retirement contributions to fine-tuning your tax protections to adjusting your portfolio to see more growth.

5. Remember You Call the Shots

Once upon a time, the model for most workers in the Western world was the same: Finish school, get a job, stay in that job until retirement age, and enjoy a modest retirement for about a decade. This model has eroded from multiple angles until it’s no longer reliable — or even relatable — for adults in this century.

Besides being out of date, this model was based on somebody other than you making the big decisions about your financial life path.

The FIRE movement turns that on its head by reminding its adherents that they are the most powerful decision-makers in their financial situations. You decide what career to follow, how much to save, and how to invest the excess. Other factors can influence that decision, but you are ultimately in control.

In the FIRE movement, that means setting a detailed path based on personal decisions and definitions about a good life, appropriate retirement age, and similar priorities. You then follow that path, taking control of and responsibility for success early.

For more traditional investors, it largely means opening your mind to all the possibilities life has to offer.

If what you’re doing now with your life and money is what you want, that’s great.

But if you long for change, the FIRE movement reminds you that change is not only possible but something you should pursue.

Final Thought

Legendary martial artist and philosopher Bruce Lee used to say of different martial arts that you should adopt what’s useful and discard the rest.

Whether you’re of the temperament and in a position to get fully on board with FIRE, or you simply want to set up a more comfortable traditional retirement, consider which points we discussed here work best for you, and then work out a plan to adopt them as suits your life and lifestyle.

About the Author
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Robert Olliver is a finance writer in Florida who has worked in the finance industry for over 30 years. Now that he is retired, he really enjoys writing. He covers a number of personal finance topics as well as travel related themes since that is another one of his passions.

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