What is FIRE Lifestyle Movement?
FIRE, which stands for Financial Independence, Retire Early, is a set of guidelines that allows you to gain financial independence way before you reach your senior years. In essence, it promotes a minimalist lifestyle that paves the way for aggressive savings, meaning the proponents try to save at least 50% of their monthly income, which is drastically higher than the 10-15% traditional recommendation.
Over the years, a few variations of FIRE has emerged to make this lifestyle movement more realistic and applicable to people.
How do I start my FIRE Lifestyle?
Plan It Out
Because the FIRE lifestyle movement is a complete aberration from our highly materialistic, consumeristic world, it might take some time to adjust to the new spending habits. Also, don’t get frustrated if you experience a few “relapses” at the beginning, which are common as with any initial stage of habit formation.
Another thing you have to consider is your current income (both active and passive), lifestyle, financial situation, living expenses, and goals. This will allow you to determine the realistic percentage of income you can set aside monthly until you reach the stage in which working 9 to 5 becomes an option rather than a necessity.
By factoring in your “reality,” particularly when it comes to your living expenses, you can make realistic, sustainable lifestyle changes that you can stick to long term.
Try to Lessen Your Spending and Avoid Debts
The core idea of the FIRE lifestyle movement is aggressive savings, which should be at least 50% of the monthly income. Thus, it is a sacrosanct rule that you cut back on your spending, especially on non-essential things.
FIRE challenges its proponents to always ask these questions before making a purchase. Do I need it? Or I just want it? Would it add real value to my life? Or will it just take up space in my house?
Simply put, FIRE encourages people to become more conscious and deliberate with their purchases.
Grow Your Savings
To give you an idea of how your savings rate is directly correlated with the number of years to retirement, look at the following computation:
- 10% savings rate = nine years of work to cover one year of living expenses
- 25% savings rate = three years of work to cover one year of living expenses
- 50% savings rates = one year of work to cover one year of living expenses
- 75% savings rates = four months of work to cover one year of living expenses
(Note: The computations do not factor in the rate of return on investments and oversimplify that expenses are income minus savings.
Since it may not always be possible to stick to fixed savings rates due to living expenses changing depending on the month (this is particularly true for young families), a good rule of thumb is to set a less restrictive guideline. For instance, it might be more practical if your goal is to save between 40% and 60% of your income than following a “rigid” number.
Find Other Sources of Income
One criticism against FIRE is that it only applies to high earners. While this is a valid argument, what you can do is take on a freelancing job or a side gig business or invest in passive income sources such as dividend-paying stocks.
Other sources of passive income include peer-to-peer lending, corporate/government bonds, real estate investment trust (REITs), rental income, flip retail products, and affiliate marketing.
Final Words of Advice
While the principles behind FIRE demand a drastic lifestyle change, they can help you steer clear of lifestyle inflation in which you just increase your spending habits as your income also grows, making it difficult to save for retirement and get out of debt.
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