The almighty F.I.R.E.! Maybe you heard about it from your friend, Timmy, who managed to find a way to retire at 35 or just get too many TikTok Financial Influnecers talking about their passive income streams in your feed or maybe you’re just trying to figure out your own personal finances and stumbled across this blog. Whatever brought you here, you may have heard about this mysterious term, F.I.R.E. that seems to magically make people rich and let them travel the world. But what really is F.I.R.E. and how can we get it?

What is F.I.R.E.?

F.I.R.E., also often called the F.I.R.E. Movement or FIRE, is an acronym standing for Financially Independent Retire Early. Essentially, it’s about creating a lifestyle focused on earning and saving as much as possible in your younger adulthood years so that you can have enough investments and passive income to live solely off the returns without needing a full time job. I’ve been on my own FIRE Journey since the tail end of 2019, learning as much as I can to understand how best to prepare for the future while still enjoying the now. Something I like to call, Quality of Life Insurance. Investing in experiences now while also saving for the future.

How do I get to F.I.R.E.?

Now, there are different versions of FIRE just like there are different strategies for playing chess, but the ultimate focus is the same; having enough invested to live solely off the returns. One way many people in the FIRE community measure that goal is with the 4% Rule. This rule states that an individual should be able to live off their investments, assuming they withdraw no more than 4% of the total value of their investments each year for their annual expenses. This rule was discovered by a financial advisor named Bill Bengen in the mid 1990s. He generated this rule by taking the historical data of stocks and bonds over a 50 year period and realized, even accounting for the worst case scenario, he couldn’t find one case where a portfolio was completely exhausted over a 33 year period. So to break down how it works, let’s assume you expect to have $1,000,000 invested at retirement.

Total Invested x 4%/year = Safe Annual Expense Rate

$1,000,000 x 4% = $40,000/year

So in our example, if we have $1,000,000 invested, we can live off $40,000 a year for at least 33 years per Mr. Bengen’s rule.

Of course, depending on your personal expenses, $40,000/year may not be enough to cover your annual expenses or maybe you need even less. So how much do you need invested? Well, we can figure out what amount we personally need to have invested for retirement by finding our FIRE Number. The FIRE Number is essentially the amount you should expect to have invested at retirement and, using the 4% Rule in reverse, we can calculate it by multiplying how much we expect our annual expenses in retirement to be by 25. So, let’s say our annual expenses would be the same as the average annual US wage, about $50,000 per year.

$50,000/year = Annual Retirement Expense

Annual Retirement Expense x 25 = FIRE Number

$50,000/year x 25 = $1,250,000

So, in our example, if we plan to spend $50,000 a year for our expenses, we need to have at least $1,250,000 invested in stocks and bonds. Of course, this doesn’t account for passive income from businesses or side hustles which you may keep going in your version of retirement, but it’s a good starting point.

Common Critiques of F.I.R.E.

If you decide to make FIRE your goal, there are plenty of “FIRE Deniers” (if you will) out there trying to harsh your aspirations. To maybe make it a little easier to face them, let’s break down some of the common critiques I’ve heard.

1) Who wants to live a boring, minimalist lifestyle?

That’s a great point! Who actually wants to live a boring, minimalist lifestyle? I know I don’t. That is the whole point of FIRE. It’s about making some sacrifices earlier in life so you can have more freedom later on. You want to be able to set yourself up so you CAN be free to live how you want. No matter what people say, the other option to FIRE is working relentlessly until you're maybe 65 and hoping you squirreled enough away to be comfortable. Why not push for that now?

Also, notice how I said “some sacrifices”. You don’t have to completely give up on living your life. FIRE is all about how to save and invest money smartly so you can get more value out of your time (your most precious commodity) and get the most value out of your life. For my journey, one way I cut back is on purchasing expensive items, like nice clothes or watches, so I have more money to invest or spend on travel. Experiences bring more joy to me than “things”. Buying a “thing” generally only brings joy up until you buy it and maybe the week after your purchase, if you’re lucky. Experiences, however, will live in your memory forever and those memories can bring joy back for the rest of your life. With Experiences, you get your best return on investment. It pays out forever.

2) Not everyone can achieve FIRE! That’s just for the rich!

FIRE is hard so it’s not for everyone. It definitely takes a lot of discipline. Plus, it’s hard not to argue that the more you make, the easier it can be to save. However, there are tons of high-earning, six figure income adults living paycheck to paycheck. According to CNBC.com, “among those earning six figures, 48% percent said they are now living paycheck to paycheck”. So, just because you earn more doesn’t mean you’re saving more. Lifestyle creep can really eat away those paychecks and FIRE is much more about discipline than just income.

Also, there are low-earners who are able to live FIRE. It is certainly harder and often takes those low-earners longer, but it is possible. It is all about what percent of your income you save versus how much you save. Also, it is possible to find ways to make more income, sometimes passively, even for low-earners. I won’t disagree though, it is certainly much harder and takes a lot more work than high-earners generally. However, it’s NOT impossible.

3) You won’t make FIRE if you have kids.

Let’s not lie to ourselves, children are expensive. The average cost of raising a child to age 17 is $233,610 as of 2021, or $13,741 per year for 17 years. So of course FIRE is easier without these expenses but FIRE isn’t impossible with kids. First, you have to consider the fact that this is the average. There are plenty of people who take care of their children on less than $13,741 per year. Many by necessity but also many by choice. Also, if you choose not to live in a high cost of living area, like New York City or L.A., you can go a lot further on a lot less. Second, I will concede that it's certainly harder to save a lot with kids, but it can be done and has been proven by plenty of successful FIRE individuals. One of my favorite families who prove this is the “Our Rich Journey” Family. These two former federal government workers were able to retire at age 39 with two kids and still travel and live all over the world! Their story is incredible and you can check them out on YouTube or their website, ourrichjourney.com.

4) You just want to be lazy and not work! 

For me, this is one of my least favorite critiques and one I’ve heard too often. To truly be successful at FIRE is hard work and successful FIRE people prove it by being very hard working. It takes significant learning, understanding, and discipline to both live frugally in the right ways while knowing where you can safely splurge. Also, most of the people I know who strive for FIRE aren’t doing it just so they won’t have to work. What they really want is the freedom to choose how they spend their time without having to rely on a 9-to-5, bi-weekly paycheck eating up their precious hours. They want the freedom to focus on the projects they really enjoy.

My reason for FIRE is just that. I’m working harder now, while I have the opportunity and a full time job so that I can focus my time on projects and aspirations I really care about once I quit my full time job. It isn’t about not working. It’s about working on the projects I care about and when I want to work. I want to choose how I and my family spend our most precious commodity; Time.

5) What are you going to do without work?

This one is so sad. We were not just put on this Earth to work. I think I touched on this a bit in the last answer, but we are put on this planet to live! We’re here to use our time to grow ourselves, love others, and find what brings us joy. Work can bring you fulfillment but that doesn’t mean that it will. FIRE isn’t about just working and saving to have a bunch of money in the bank. FIRE is about banking your essential commodity, money, so that you can take back your most valuable commodity, time.

What would I do without work? I would travel, spend more time with my family, learn more languages and, (surprise, surprise) I want to work! I DON’T want to stop working. I just want to work on the projects I care about and work when I want too. I want my time to be My Time!

The Wrap-Up

F.I.R.E., the FIRE Movement, or just FIRE. No matter what you call it, it’s all the same. So, let’s break down what we’ve learned;

• F.I.R.E. (FIRE) is an acronym which stands for Financially Independent Retire Early

• FIRE is a lifestyle generally represented by living cheaply while you’re very young so you can invest more for the later in life

• As a rule of thumb, we can use the 4% Rule to find how much we need invested to live off that investment potentially forever

• We can calculate what we should expect to need as our FIRE Number or Retirement Expenses x 25 = FIRE Number

• There are plenty of critiques for FIRE, and most come from people who think it’s too hard and decide to bring others down who try for it. Focus on your journey and just work for your own goals, FIRE or not!

Most of all, this lifestyle is all about leveraging your money so you can take back your time, which is what matters most. Of course, this isn’t for everyone. Some people want to keep working and stay in their jobs forever, and good for them. At least for me and other FIRE Individuals, our job isn’t our end all and be all, so we use it to leverage our off time to build the lives we want instead of just “working for the weekend”. The best way to get there is by continuing learning. As I always say, Financial Literacy is the number 1 key to Financial Success.

*Disclosure* This is NOT financial advice and I am NOT a Certified Financial Planner. All information is provided for educational purposes only and is not to be construed as advice. Everyone’s financial situation is different and requires individualized planning. Seek out a Certified Financial Planner for assistance with your own financial situation.