Learn about the FIRE Movement and how to achieve financial independence and retire early through smart saving, strategic investing, and mindful living.
“How am I supposed to save money when the cost of living is so high?”
“Will I ever reach financial independence?”
“Is quitting my day job early just a fever dream?”
If you’ve ever found yourself asking these questions, especially during a stressful financial season or while doom-scrolling economic headlines, you’re not alone. The good news?
- Yes, you can save money, even in tough economic times.
- Yes, you can reach financial independence.
- Yes, you can finally quit your 9-5 and retire on a private island sipping on a pina colada (if that’s your thing).
How do we know? There’s a movement happening right now that can be traced back to the 1990s. But as you know, all good things eventually come back in style. It’s called the Financial Independence, Retire Early (FIRE) movement.
What is the FIRE Movement?
The Financial Independence, Retire Early movement is where people commit to a new lifestyle of extreme budgeting, saving, and investing as much as they can with one goal: to become financially independent before age 65.
What Does FIRE Stand For?
Any guesses? You’ve already read the full name at least three times now. But just in case you need a refresher, FIRE stands for financial independence, retire early. The purpose of the FIRE movement is to leave the workforce early and live your life however you’d like. Sounds pretty nice, right?
A Brief History
The FIRE movement became well-known after the popular book “Your Money or Your Life” by Joe Dominguez and Vicki Robin was published in 1992. Decades later, people are still talking about the ideology of the FIRE retirement movement — especially Gen Z, who are reportedly determined to retire as early as 40.
Core Principles
So, what makes the FIRE retirement movement stand out from all the other financial advice? FIRE is a financial strategy focused on these core principles:
- Be Intentional: Make every financial decision centered around your long-term goals.
- Embrace Simplicity: Live a minimalistic lifestyle and only spend money on your needs.
- Save Aggressively: Save 75% of your income and find creative ways to minimize expenses.
- Invest Strategically: Make low-cost, long-term investments to grow your wealth.
- Be Flexible: Customize your FIRE plan and adjust as life throws you unexpected curveballs.
How Does FIRE Work?
If you want to be a part of the FIRE movement, you must be willing to commit your time and energy to cut your expenses dramatically, look for a higher-income job, and invest the money you save. The goal is to cover your living expenses as you grow older.
Here are a few common FIRE strategies people use to become financially independent.
Save 75% of Your Income
Yes, you read this correctly. You must aim to save 50% to 75% of your income as part of the FIRE strategy. While this may seem like a lot, the sacrifices you make now result in long-term freedom later.
Compound Interest Growth
A traditional savings account won’t get you to FIRE alone — you need your money to work for you. This is where compound interest comes in. To enjoy the benefits of compound interest, you need to save money in a tax-advantaged retirement account like a 401K or an IRA to earn interest on your interest.
The 4% Rule
The 4% rule states that you can safely withdraw 4% of your retirement savings and adjust for inflation each year for at least 30 years. This rule is based on a 30-year retirement goal, so if you want to retire earlier, this rule won’t apply to you.
Rule of 25
The 25% rule is a simplified version of the 4% rule. In this rule, you multiply your annual expenses by 25 to determine the total amount you need to save for retirement, which is your FIRE number.
Annual Expenses x 25 = Retirement Savings
For example, if your annual expenses are $78,000 per year, and you multiply this by 25, your FIRE number will be $1.95 M.
Smart Tax-Efficient Strategies
Now, you know how much money you’ll need to enjoy a comfortable retirement, but don’t forget taxes still exist. Here are a few smart tax-efficient strategies to keep more of your money and reach your FIRE number:
- Use tax-advantaged retirement accounts: A 401(k), IRA, or HSA offers tax breaks to grow your savings faster.
- Move your money into a ROTH IRA: When your income is low, move your money into a ROTH IRA to pay little to no taxes now and withdraw your money tax-free later.
Types of Financial Independence, Retire Early (FIRE)
Everyone’s work and financial situation is different. Luckily, you can apply several variations of the FIRE retirement movement to your lifestyle.
Lean FIRE
If you love a minimalist lifestyle and can live off very little money, lean FIRE is the best fit for you. This approach requires you to be extremely frugal and aggressive with saving to retire with modest expenses.
Fat FIRE
If you want to live life to the fullest in your retirement years, then the fat FIRE approach might appeal more to you. This approach requires you to save and invest aggressively to spend more on travel, hobbies, and expenses.
Barista FIRE
If you want to be free of a traditional 9-5, the barista FIRE approach is an excellent mix of retiring early and working in a low-stress part-time job. This approach requires you to save enough money so you don’t have to earn much money to support your lifestyle during retirement.
Coast FIRE
If you’ve already saved up enough to reach your FIRE number eventually and are at the point of watching your investments grow, you can “coast” by working a lower-stress job without saving more.
How to Retire Early With FIRE Planning
If you hope to retire early or enjoy more financial freedom while still working, you must plan carefully. Here’s what you need to succeed with the FIRE retirement movement.
Start With a Solid Emergency Fund
Before moving forward with the FIRE movement, you must build a solid emergency fund to cover unexpected expenses or unforeseen challenges. Save three to six months of your expenses in a high-yield savings account to avoid dipping into your retirement fund or falling into debt.
Make Smart, Strategic Investments
The key to achieving financial freedom faster is a smart FIRE investing strategy. Start by maxing out your employer’s 401(k) retirement plan, especially if there’s a match, and then look into opening an IRA. Contributing to an IRA offers you tax-free withdrawals in retirement.
You can also look into low-index funds, real estate, or a taxable brokerage account to grow your money.
Reevaluate Your FIRE Goal Regularly
Your needs and desires change as you grow older, and you never know what inflation will bring. Review your progress once a year to see if you’re on track to meet your FIRE number. If not, use the rule of 25 to recalculate your annual expenses and learn how much you need to save for retirement.
Investing for FIRE
Saving money is insufficient to reach financial independence and enjoy an early retirement; you must invest. Here are a few FIRE investing strategies to grow your money and retire early.
Index Funds and ETFs
Index funds and ETFs (exchange-traded funds) are popular choices for devout followers of the FIRE movement. They’re a low-cost way to diversify your savings and invest in several of the largest publicly traded companies at once to grow your money over time.
Tax-Advantaged Accounts (401(k), IRA, HSA)
Grow your FIRE savings with a tax-advantaged account like a 401(k), an IRA, or a health savings account (HSA). These accounts allow you to invest pre-tax income to lower your tax bill and increase your net worth.
Real Estate Investing
Real estate investing is another smart FIRE investment strategy. Whether you want to own a rental property or invest in real estate investment trusts, these can provide you with more income and diversify your portfolio.
The Pros of the FIRE Movement
There are several different reasons why people are drawn to the FIRE retirement movement. Here are some pros you can enjoy if you adopt the FIRE movement into your lifestyle.
Early Retirement
One of the most apparent benefits of the FIRE movement is early retirement. Instead of working in your late 60s and early 70s, you can open up years of traveling, relaxing, and spending time with your friends and family.
Reduced Stress
76% of employees experience burnout from their jobs on occasion. The more your savings grow, the more freedom you enjoy, allowing you to quit a toxic job, take time off without worry, or work a part-time job like many followers of the barista FIRE approach do.
More Flexibility and Control
Once you achieve financial independence, you’ll have more flexibility and control over your time and money, allowing you to make decisions based on your values instead of money.
The Cons of the FIRE Movement
Like with any financial advice, you should always consider the potential challenges you might face. Here’s what to remember if you follow the FIRE retirement method.
Potentially Underestimating Expenses
Life is unpredictable, and your priorities can make you underestimate your expenses. That’s why you should constantly re-evaluate your spending to stay on track with your FIRE goal.
Frugal Lifestyle Burnout
While the right FIRE investment strategy eventually allows you to achieve a work-life balance, living within or below your means may be emotionally draining.
Missed Career Opportunities
While retiring early is the ultimate goal, you may miss tremendous career opportunities and salary increases.
Is the FIRE Movement Right for You?
The FIRE retirement movement may seem appealing, but it’s not for everyone. Here’s how to determine if this approach is right for you or if there are other alternatives you’re better suited for.
Who Benefits Most From the Fire Movement
You might benefit from the FIRE retirement movement if:
- You’re firmly committed to saving and investing most of your income.
- You’re tired of the traditional 9-5 and want to enjoy the freedom of early retirement.
- You’re comfortable with taking investment risks.
- You’re in a good financial position to make FIRE work for you.
Alternative Paths to the FIRE Movement
If the FIRE retirement movement doesn’t seem feasible, there are other flexible paths you can consider and still enjoy more freedom and financial security:
- Slow FIRE: Save and invest at your own pace without sacrificing your current lifestyle.
- Part-Time Work: Save until you reach partial financial independence and then take a break from the 9-5 with a part-time job.
- Passion Projects: Do you have a hobby you love and can make money from? Take a leap of faith and sell your creations.
How to Adapt FIRE Principles to Your Lifestyle
Even if you don’t choose to follow the Financial Independence, Retire Early movement, you can still apply the core principles to your everyday life. Here’s how:
- Spend only on what you need, not what you want.
- Save consistently, even if it’s a small percentage.
- Find ways to increase your income and invest wisely.
The more you live by these financial principles, the closer you’ll be to achieving financial freedom — and still enjoy a well-deserved retirement.
