The Ultimate Guide to FIRE (Financial Independence, Retire Early)

FIRE is an acronym that stands for “financial independence, retire early.” People often think FIRE is for people with high incomes who live a life of extreme frugality, saving and investing in passive income sources to help fund an extra-long retirement period. For lots of people, that is how FIRE works. But not everyone wants to retire early or to live as frugally as possible while they work. What FIRE really is, is the choice to prioritize giving yourself the financial stability to choose the life you want. For some, that is early retirement. For others, it’s changing careers, taking care of family, or attempting to start their own business.

What Is FIRE?

The purpose of the FIRE movement is to help people move away from their dependence on a 9-to-5 job to fund their lives. Instead, they gain control over their work and personal lives by achieving financial freedom. The traditional goal of FIRE was to help people retire early and live solely on their savings and investments. The goal of many FIRE disciples was to save around half of their pay. By investing these savings, they hoped to retire in their thirties.

But now, FIRE has a broader meaning. Many adherents think financial independence is a more important goal than early retirement. However you define it, FIRE still requires changing your ideas about money and work. It requires understanding what your goals and dreams are and what financial independence looks like in your life. It also depends on what changes and level of frugality you are willing and able to achieve.

The Path to FIRE

• Set Goals: The first step to financial independence is making a plan. What are you saving for? Maybe you want to move into full-time freelance work, or maybe you want to retire early. Knowing what you want (and how much money you’ll need) makes it possible to start crafting a plan to reach your goals. When making your plan, you’ll need to consider your income, your current expenses, and how much you’ll need to retire (or how much you’ll need for whatever goal you set). Will you work at all once you leave your career? Will you have income from investments? These are important questions to consider.
• Cut Spending: The next step is to reduce your current spending. Begin by reviewing every dime you spend. How much are your housing and utilities? How much does transportation cost? How much do you spend on food, entertainment, shopping, and travel? Once you know where your money is going, you can start deciding how to cut expenses. Start with easy things, like rarely used subscription services, and then consider harder changes like finding less expensive housing or getting rid of a car payment.
• Control Debt: Avoiding debt (and paying off any existing debt) is an important part of the FIRE philosophy. Paying off existing debt will help you lower your current expenses and save more for the future. Once your debt is paid off, focus on building an emergency fund, which will help you prevent having to take on future debt. Of course, sometimes, debt is necessary when emergencies strike, and personal loans are an option to help you through a tough time.
• Invest: It’s not enough to just save. Investing is necessary for most people to grow their savings enough to be able to retire early. Investing in things like rental properties also allows people to make passive income. Not only do you make money off of the property with rental income, but hopefully, the property appreciates faster than the rate of inflation so that when the property is sold, you make more money. An investment professional can help you make the best choices as to what investments are right for you.

Ways to Make Extra Income

The easiest way to increase your income is the most straightforward: Try to make more money at your job. Go after a promotion, or start researching new job opportunities. ADP, a leader in the payroll industry, published a study that found that workers in the information industry increased their income by almost 10% when they changed jobs!

Another way to make more money is with a side hustle. Side hustles are a long-established part of FIRE. Increasing your income increases your ability to save toward independence. Many people do freelance work related to their full-time job to make extra money. Blogging is another popular side hustle. Part-time jobs like delivering pizza, being a ride-share driver, or babysitting are also potentially profitable ways to beef up your savings.

Just remember that whether you get a raise at work or take on a new side gig, the goal is to save all of your new income, rather than adding it to your regular budget and spending it.

How Much Money Do You Need?

Financial independence requires having enough money to survive without needing full-time employment. The traditional guidance is that you should figure out how much you’ll need per year once you’re not working, then multiply that by 30 to calculate the total amount you’ll need. All of these saved funds should be invested. Then, you can plan on withdrawing about 4% of your investments yearly to live on. Keep in mind that this is just a guideline. Some people will need more, but people who live in places with a lower cost of living and/or don’t plan on travel or costly hobbies may be able to get by with less. How long you plan on being retired is another consideration. Online retirement calculators allow you to work through different scenarios to land on a number that feels right for you.

Common Misconceptions

There are several common myths about FIRE that might keep people from attempting it. However, most of these myths are wrong!

FIRE Can’t Be Done with Kids

No one is saying that parenthood isn’t expensive. Some estimates state that each child costs around $250,000 to raise, and that doesn’t even include college or trade school! However, this doesn’t mean you can’t have children and still achieve financial independence. In fact, families with kids can and do adopt FIRE. Having children will require a commitment to both frugality and making more money, but it’s still doable!

FIRE Requires Excessive Frugality

No one actually wants to live like a miser while saving for some far-off day. The good news is that you don’t have to! FIRE requires saving and smart financial decisions, but no one is suggesting that you live on rice and refuse to turn on electric lights. Successful FIRE savers save money in places where it makes sense to them.

Only High Earners Can Achieve FIRE

Only those who start earning a six-figure income right out of school can retire early, right? Well, it’s definitely easier if you make more money, which is why it’s suggested that you develop a side hustle and plan out your career to make as much money as possible. However, it’s still possible to achieve financial freedom on a more modest income. It just requires strategic planning, aggressive saving, and being committed to your long-term goals.

Those Who Achieve FIRE Never Work Again

This myth really lingers. The goal of financial independence, and even early retirement, isn’t that you never work again. It’s that you aren’t dependent on a 40-hour workweek to survive. In fact, most people who retire early choose to keep working part-time. Any amount of work allows them to lessen the amount they pull from investments and savings yearly. In fact, it might allow them to add to their savings! Beyond the financial reasons to keep working, many people continue to focus on working in fields they enjoy, without the pressure that really needing a paycheck brings.