WHAT IS FIRE ANYWAY?
FIRE isn’t about turning your financial life into a blazing inferno. It’s a lifestyle where you save like a ninja, invest like a pro and embrace living a minimalist life so you can build a massive nest egg.
The ultimate prize? To retire early and chase your dreams without stressing about your bank account.
The FIRE movement started making waves in the '90s, thanks in part to Vicki Robin and Joe Dominguez’s book, "Your Money or Your Life." The book’s big idea is simple: Before you spend your hard-earned money, ask yourself, “How many hours did I work for this?” This mindset can help you cut back on unnecessary spending and save more.
Here’s the scoop on how it all works:
- Extreme savings: Track every penny, cut unnecessary expenses, and funnel your savings into investments. Aim to save 50-70 percent of your income. It's like saving up for a super-secret mission, and that mission is doing whatever the heck you want with a pocket full of money.
- Minimalist lifestyle: Embrace the less is more philosophy. Focus on experiences over material possessions. A memorable trip to the beach is way cooler than a closet full of clothes you never wear (unless you’re a retro fashion icon rocking Hammer pants).
- Smart investing: You’ve spent years earning your money, now it’s time to let it work for you. It’s only fair! Explore a mix of investments like stocks, bonds, index funds, real estate, index funds and ETFs. The magic ingredient here is compound interest.
FIND YOUR FIRE NUMBER
Your FIRE number is the magic sum you need invested to cover your living expenses with passive income.
Here’s how to figure it out:
- Calculate your annual expenses: Figure out how much you need each year to live your best life. Include everything from rent to groceries and even those occasional splurges.
- Use the Four Percent Rule: This is your financial magic formula. It suggests that you can safely withdraw four percent of your invested funds annually without running out of money in retirement. Just multiply your annual expenses by 25. If you need $40,000 a year to live comfortably, your FIRE number is $1,000,000.
- Factor in inflation and unexpected costs: Inflation is like that unwanted guest that you know is coming and you don’t know how long they’re going to stay. Also, add a cushion for unexpected expenses because, well, life happens.
- Set goals and break them down: Divide your FIRE number into smaller, achievable goals. Determine how much you need to save each month to reach your target.
- Review and adjust: Life changes, so your FIRE number might need to change too. Review your progress regularly and adjust your plan as needed.
Your FIRE number is your guide, not a strict rule. The most important thing is to stay flexible and adapt your plan as needed.
FIRE VARIATIONS: CHOOSE YOUR OWN ADVENTURE
FIRE isn’t one-size-fits-all. Whether you dream of retiring by 40 or just want more life freedom, there’s a FIRE variation for you.
Fat FIRE: This is for the folks who want to retire in style, or at least keep their current lifestyle intact when they do. It involves substantial savings and a high standard of living, usually requiring a high salary and aggressive investment strategies.
Lean FIRE: Ideal for minimalist masters who can live comfortably on a tight budget. If you’re all about living simply and frugally, this option is your jam. Many people who follow Lean FIRE can live on $25,000 or less a year.
Barista FIRE: The happy medium for those simply looking for a balanced lifestyle. Your dream is most likely to retire early, but to also pick up a side hustle to keep yourself busy and continue bringing home some bacon.