The FIRE Movement—Is It for You?

If we’re saving for retirement—and I recommend it—and we’re making great money, is it possible to speed up our retirement age? If instead of putting, say, 30% of our income into savings to retire at 65, we put in more like 70%, could we retire sooner? Would we be able to stop working at 60, or maybe even 55? Are we describing a pipe dream or a genuine financial possibility?

The FIRE movement not only says it’s possible—it says go for it!

FIRE stands for Financial Independence, Retire Early. It’s very popular with the millennial generation. Its prime tenets are to live a lean or highly financially responsible lifestyle, save money (far more than the average), pay off all debts early and retire at a younger age. The goal of FIRE is to get away from debt and to stay out of financial cycles that keep us from ever being independent. If you’ve ever thought financial structures and employment are built to keep you in debt and working, you’re not alone.

The FIRE movement started from a book first published in 1992 called Your Money or Your Life by Vicki Robin and Joe Dominguez. It was a bestseller and has been republished several times. FIRE looks to change our relationship to working hours and our daily expenditures. By evaluating our time commitments and finances, the movement targets retirement as the payoff period for our working lives. We put in extra effort, we deserve extra reward. It certainly makes sense on paper.

Where a conventional savings and budgeting plan might use the 50/30/20 rule, allocating 50% of your after-tax income to needs, 30% to wants, and 20% to savings or other financial goals (such as retirement), FIRE plans involve aggressive budgeting to put more like 70% into savings and retirement goals. FIRE plans involve saving more than half of your income, which for many people is a very steep incline above what we’re used to.

The most optimistic of FIRE practitioners say you could, with enough savings and a very lean lifestyle, retire in your 30s or your 40s. I admire the tenacity, but there are many difficulties to realizing these dreams in a conventional working and saving paradigm. Let’s go into the pros and cons of FIRE and determine how realistic it might be for you.

First and foremost, FIRE involves saving income far beyond ordinary. Saving becomes the number one priority, without fail. If you have a family, kids, a home, college debt, and other financial obligations, then the FIRE movement might simply not be realistic or even possible for you. Most Americans saving for retirement have trouble even meeting the minimum 20% monthly saving rate in the 50/30/20 rule. Reallocating enough money (borrowing from wants and needs, assuredly) to meet a saving requirement of 50%-70% per month might prove excessive or possibly dangerous. More likely, it won’t work for you and your family unless your spouse is in a position to pursue it, too.

FIRE practitioners need a certain amount of income to achieve their goals. In this case, they need to make plenty of money. Paying off debts or loans and other assets is a key component of FIRE: it falls under the Financial Independence portion. Having a terrific level of income can boost the payoff horizons for the assets you’ll need to be independent and retire. As you can imagine, for an average American family the payoff horizon is simply too strict to accommodate this sort of independence. Kids, health, homes, cards—there can be a lot. Stress can prove incalculably high with this type of lifestyle.

That being said, the intense focus and drive to realize a savings plan for retirement is a benefit no matter what. So many Americans blow off saving for their retirement, only beginning to focus on it when it’s too late. There’s no harm in starting to think about retirement options early, and it’s always a terrific idea to think about achieving financial independence and new levels of personal responsibility. The FIRE focus on strict budgeting and charting each dollar is possibly excessive for a normal person, but it has many benefits and could teach us quite a lot about thinking of our financial futures.

Separating our income into wants and needs and finding all possible places where we can cut back and save money for the future is a smart budgeting move that requires sacrifice and discipline but which comes with numerous rewards. FIRE stresses that short-term wants are eclipsed by long-term gains, such as being financially independent and able to live your life and dreams at a younger age without fear of working or a rigid schedule. So, it’s necessary to find those areas where you can save money.

Many FIRE practitioners avoid what they consider excessive personal indulgences, such as going out to eat regularly, buying fancy cars or homes they can’t afford, taking trips, or accruing unneeded credit card debt that might slow down their independence later. For many, many people, these sorts of cutbacks could prove to be a dealbreaker. Trips and dining out are often seen as base luxuries that we all enjoy. If you’re able to cut them, more power to you. For the rest of us, simply cutting back on such luxuries or examining if they are really something we need at all means we can trim money and put it towards our retirement anyway. There are many benefits, and the levels can be adjusted for your planned retirement age.

The FIRE movement isn’t all uniform, however. There are three main subsets:

  • Fat FIRE—a more easy-going attempt to save more while giving up less
  • Lean FIRE—a highly aggressive saving plan, genuinely minimalist lifestyle
  • Barista FIRE—a more average plan to cut spending while planning for a successful retirement at a younger age.

If you’re in the FIRE movement and trying to chart your personal course, you tend to fall into one of the three main camps. Your level of devotion to your retirement and desired age determines which plan you fall into. Those in the Lean FIRE side are the true believers who want to exit the rat race in their 40s, possibly their 30s. Their budgets are strict; their goals are set entirely around saving. Needs and wants comprise a very small percentage of their after-tax spend.

Fat FIRE is for those who, like the average American with a financial goal, would like to retire at a reasonable age while still living their lives realistically. If you have a family, Fat FIRE is likely your best bet, although you might also choose Barista FIRE, in which case you spend less on things you don’t need instead of focusing solely on saving more. Many people combine different subsets of FIRE plans, and the levels of each can vary in different periods of your life. Making more money this year? Save more. Earn a financial windfall from investments or other employment? Cut your spending while saving more of it.

Some FIRE devotees save just enough to live comfortably without much work while possibly employed somewhere, usually for health insurance or other medical benefits. They withdraw very little controlled amounts from their savings—around 3%-4% annually—and live a lifestyle not centered on consumption or consumerism to accommodate their thriftiness. The FIRE lifestyle, as mentioned, is genuinely minimalist and simple. There are almost no frills.

Smart investing and purchases are a main component of FIRE. After all, part of achieving financial independence is to have investments that yield continuous benefits to pay for the no-work lifestyle. If you have a smart, diversified portfolio that includes an acceptable level of risk-reward potential (and many FIRE members have a lower risk tolerance), then those investments might ensure your retirement is possible and your independence assured. Avoiding risky financial entanglements and investments is essential; losing thousands of dollars in the market can prove a costly setback that derails your plans.

Some smart tips for a FIRE lifestyle include:

  • Avoiding excessive spending
  • Get out of debt
  • Pay off your mortgage as soon as possible
  • Have a larger (usually six-figure range), stable income
  • Working a second job or having supplementary sources of income
  • Avoiding over-consumption or too much spent on wants
  • Planning for retirement early and mapping it out in detail
  • Keeping your expenses low in every situation
  • Investing smartly
  • Budgeting, planning, and watching all your transactions microscopically
  • Work with a financial planner or an advisor to help you build wealth and independence while also thinking ahead to the retired life

A lot of time in FIRE is spent on things many people find boring or inconsequential. To make FIRE work for you, you must work through those holdups and learn to enjoy thinking about the future concretely instead of abstractly. Retirement is a firm age and a solid goal that your whole life is spent planning for. Everything you do, from trips to shopping to eating, hinges on the promise of early retirement and being free of the nine-to-five life.

If, for example, you enjoy your work and want to keep doing it, FIRE will obviously not be for you. If you plan to start a business or businesses and enjoy business or your career, you won’t be able to make FIRE work for you. While it isn’t always so that you need a large income or millions to achieve your financial goals, it certainly helps immensely, and in today’s world you might well need more than you’re making to achieve FIRE. If your spouse has no interest in FIRE, it might not work for you to practice it either. If you have large or ongoing medical problems, FIRE will be more difficult to achieve at a younger age. Some people try to go FIRE just to get out of a job they hate. You don’t need FIRE to do that. Search for a new career, possibly one that’ll make you happy enough that you won’t want to retire early, or maybe even at all (if you’re very happy).

No matter which FIRE camp you fall into, or if you even fall into one at all, there are many basic ideas contained in the philosophy that can help us all with our financial goals. The emphasis on smart saving, retirement planning, dedication to financial literacy, and drive to achieve specific life goals are things we all can and should practice in our own lives.