The FIRE (Financial Independence, Retire Early) Community is a largely millennial driven movement that focuses on careful planning, maximizing saving, and sharing best practices to put themselves in a position to retire decades before turning sixty-five.
Retired and traveling the world by 30? There are more and more stories of individuals and partners who have been planning and saving in such a way that they are able to retire well before they hit middle age.
This movement lives on Subreddits, influencer blogs, and splashy articles but what it comes down to is a hypervigilance of living well below your means, avoiding “lifestyle creep”, and investing strategically.
OK, How Do They Retire By 30? What Are the Rules?
From talking to some people from the FIRE community, most cite these two as most important rules:
- Spend less than you earn and put the difference in low-fee investments like index funds.
- The 4% rule. This is the ultimate equation behind achieving financial independence. Basically it says you should save enough so that you can live off of 4% per year (for example, if you live off of $40,000/year, you need to save $1,000,000). More on this here.
A Few Best Practices:
- Increase your income and consider adding multiple income streams
- $2 per person per meal as a guideline for home cooked dinners
- Lower your housing costs
- Use cheap cell phone service
- Drive old, used cars
- Lower your tax liability by maxing out your tax-deferred vehicles such as your 401k, 457, 403b, IRA, HSA, etc.
- Use credit card rewards and smart financial habits to help fund your travel
- Lower your grocery bills
Why Do People Join the FIRE Community?
The FIRE Community is known for being super open to sharing best practices to create a learning environment that is an overall benefit to those who come across them. They have an intense attention to detail and potentially may change the paradigm in how retirement is viewed.
- Freedom. This is the number one reason many people join the community. The idea behind this is being able to spend your time however you want to. Many go on to travel, explore, live an expat life, write a book, start a company, take care of family etc.
- You want to rethink retirement planning. You don’t like the idea of retiring at 65 and you want to take advantage of compound interest.
Why Wouldn’t You Join the FIRE Community?
Long-term planning and thinking ahead is great – but it’s worth noting that this is an extreme lifestyle. With any extreme lifestyle there are some drawbacks.
- You don’t have a plan for after you retire. Most people in the FIRE community have a project that they want the freedom to do without limitations. Many travel or write a book or start a company. The possibility that retiring early leads to an earlier death has been written about extensively, with some research-backed conclusions: “The researchers found that healthy adults who retired one year past age 65 had an 11 percent lower risk of death from all causes, even when taking into account demographic, lifestyle and health issues.” While the jury is still out on this conclusion, it is an indicator worth considering.
- Your social group isn’t into it. If you don’t have a project that you want to work on, then, staying engaged takes much more effort for an early retiree. Friends and peers may likely still be occupied during the day, and you may need to work much harder at creating community and investing in activities that fall in the sweet spot of being challenging but not overly stressful.
- You don’t like to live in extreme circumstances. There’s been some research that’s found that, “Doing either too little or too much can lead to the same symptoms, such as anxiety, depression, appetite loss, memory impairment, and insomnia.” Recalibrating your day to day schedule without work plus quadrupling the amount of time you spend with your spouse are major shifts, and can quickly turn sour if not properly planned for.
If you think you could be in a position to retire significantly earlier than most, check out Mr. Money Mustache, a popular blog on the FIRE Community.
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