This article covers the basic concepts behind the Financial Independence, Retire Early (FIRE) movement, including what it is, why people pursue financial independence and common myths perpetuated by the media.
Financial Independence, Retire Early (FIRE) movement
FIRE stands for Financial Independence, Retire Early (or as some people like to call it, FIOR — Financial Independence, Optional Retirement). It’s as much of a mindset as it is a way of life or an aspirational goal.
FIRE is all about increasing your savings rate, consuming less, pursuing happiness and having the financial freedom and flexibility to choose if, how and when you work.
FIRE is not necessarily about frugality (although some pursue it that way). Nor is it about retiring to do nothing all day for the rest of your life.
The retirement part is optional. The key thing to remember is that by being financially independent you have more opportunities to live life on your own terms and make decisions from a position of strength.
When you achieve financial independence (FI) you gain the ability to live off of your assets, without the requirement of a salary to maintain your lifestyle.
A common aim within the FIRE movement is to have 25x your annual cost of living invested in a diversified portfolio, with a safe annual withdrawal rate of 4%.
What are some of the core principles of FIRE?
- Increase your income and spend much less than you earn.
- Live within your means and don’t get caught up chasing materialistic things.
- Invest your money with the aim of building a portfolio which will cover your living expenses indefinitely.
- Gain a thorough understanding of your financial situation and set and pursue solid financial goals.
- Learn about personal finances and investing.
- Give back to the local community and share your skills and experiences with others.
- Pursue your passions and stop trading your time for money.
What does FIRE look like in Australia and globally?
There is so much information out there for people living in the US, with plenty of websites, books, podcasts and online personalities sharing their knowledge and experiences but in Australia you have to look a little harder to figure everything out. Most people in Australia reach FI through investing in a mixture of shares, ETFs and property, although starting a business is another viable option.
Compared to other places like the USA, we are so lucky in Australia to have a fantastic and free health care and education system, and along with our superannuation system, there are some unique differences to consider on the Australian path to FI. That’s why I’ve made sure to include as many Aussie resources as I can throughout the course, and have added in other resources where appropriate.
To get you started, I’ve included some books, websites and podcasts to explore, which will add to your exploration of the FI/RE movement.
- Money School – Lacey Filipich
- Financial Autonomy – Paul Benson
- The Barefoot Investor – Scott Pape
- Mindful Money – Canna Campbell
- Unf*ck Your Finances – Melissa Browne
- ChooseFI (US) – Chris Mamula, Brad Barrett & Jonathan Mendonsa
- The Simple Path to Wealth (US) – J L Collins
Here are just a few Australian FI/RE bloggers, who are sharing their journey online, which are worth having a look at:
- Money Flamingo
- Aussie HIFIRE
- Strong Money Australia
- Frugality and Freedom
- Aussie Firebug
- Life Long Shuffle
- The Frugal Samurai
I’d also recommend subscribing to some FI/RE and finance podcasts as you make your way through the course, so you can listen to a wide variety of voices and ideas. Here are a few to get you started:
- The Australian Finance Podcast (Kate & Owen’s podcast)
- Aussie Firebug (Aus)
- Financial Autonomy (Aus)
- FI/RE and Chill (run by Aussie Firebug & Life Long Shuffle)
- ChooseFI (US-based)
- Fire Drill Podcast (US-based)
- Find Your Freedom (Global guests)
What are the reasons people pursue FIRE?
People pursue financial independence for different reasons, many completely unaware of the FIRE movement and community that has popped up around them. For some, the goal is about increasing the freedom and choices in their life. For others, it’s about being able to care for family members.
The great thing about reading and listening to a wide range of voices in the FIRE community, is that you are able to learn what motivates other people to make massive changes in the direction of their life. Deviating off the set path society presents us often requires passion and perseverance, so it’s important to understand why you’re doing it.
I’ve compiled a non-exhaustive list of some of the motivations people have for pursuing FI/RE:
- Take back control over their time
- The confidence to leave a toxic/draining job or career
- Spend more time raising a family
- Provide full-time care for family
- Pursue passion projects permanently
- Volunteer or work in nonprofits
- Ensure your family is provided for
- Travel the world
- Start a business or work independently
- Focus on health and wellbeing
Do any of these stand out to you?
I personally pursue FI because I want to be in control of my time. Who I spend my time with, where I spend it and how I spend it.
Consider your own motivations in your life, is financial freedom (and all that it brings) an important goal to you?
What would motivate you to work towards such a big life goal? How would you keep going even when the path starts getting challenging?
As Mel Browne said in her book, Unf$ck Your Finances, “What are you prepared to sacrifice?“
Common myths about the FIRE movement
The FIRE movement is often criticised in the media by sceptics and financial professionals alike. Often the reasons they put forward aren’t coming from a place of reason or experience, and aim to tear the movement down with shock statements. For this exact reason, I want to dive into some key myths around reaching financial independence and retiring early.
FIRE is just about quitting your job and watching Netflix all day.
When I talk to people about wanting to achieve FIRE, a lot of people say “retire and do what?”
In my mind it’s retire and do anything!
Everyone’s working towards FIRE for different reasons, whether that be freeing up time to spend with family, starting a business, volunteering or traveling. Generally those who are motivated and dedicated enough to achieve FIRE are not going to be lazing around all day once they quit the rat race!
Frugality and deprivation is the only way to achieve FIRE.
Absolutely not! There are so many paths to FIRE and if you start looking online there are many people sharing their journeys with the world. Achieving FIRE is not something restricted to the wealthy or the frugal, and it’s a goal that people from all walks of life have achieved.
It does require a plan and hard work, it does require sacrifice and it may take you much longer to achieve than the person next door. The good thing is that whatever the outcome, the earlier you start saving and investing your income the better you’ll be down the track, regardless of whether you reach your FI number in 5, 10 or 30 years!
You’ll have no identity without work.
Think about all the components of your job that you enjoy outside of the steady paycheck – is it people you work with, the chance to get out of the house, the challenges you face and the problems you get to solve, the networking opportunities or the feeling of control?
These are all areas of your life you can fulfill without a job (unless you stay on the couch watching Netflix all day!).
Having the freedom to pursue your interests and develop new skills should be something that empowers you, and enables you to find happiness and fulfilment outside the workplace.
You need to know a lot about finance to achieve financial independence.
Funnily enough we aren’t born with an innate knowledge of the global financial system, and unfortunately personal finance isn’t a topic commonly covered in school.
Luckily for us, personal finance can be very simple. And you already know that these days the internet (and Rask Education) provides you with everything from budgeting to buying shares online.
It will take some trial and error to work out the financial strategies and products that suit you, but don’t let your lack of a PhD in Economics stop you from starting your financial education journey today (as it’s definitely not necessary)!
How I became a millionaire on $40,000 a year
Many people discover the FIRE movement through click-bait headlines like “26 Year Old Retires in 5 Years” or “How I Became a Millionaire on $40,000 a Year”. They then take one glance at the strategy and decide that way of doing things would never be applicable to their own lives.
Granted, the media only picks the sensational stories, because “40-Year Old Retires After 20 Years of Regular Investing in ETFs”, just isn’t as catchy as “26 Year Old Retires in 5 Years – Here’s how you can do it too!”
For most people, achieving FI is a marathon, not a sprint, and it’s certainly not something that happens overnight. Getting caught up in chasing an impossible goal can lead you towards taking too many risks along the way.
So take the media’s stories and what you already know about FIRE with a grain of salt. You’ll need an open mind as you explore the FIRE movement and decide whether it’s something you’d like to pursue.