Jun 18, 2018
Meet FIRE: ‘Extreme Couponing’ For Retirement Planning
Retirement planning at breakneck speed
If “this girl is on ‘FIRE’,” then she may be on the way to an extremely early retirement.
FIRE: An introduction
If you’ve seen or heard the term “FIRE” burning up retirement and money discussions, you’re probably wondering what the sizzle is all about.
“FIRE” is an acronym, and it stands for “Financial Independence, Retiring Early,” or a similar variation. Basically, it’s a lifestyle plan for budgeting, saving, and retirement planning that entails extreme–unthinkable, to some–levels of frugality and financial focus.
The ultimate goal is to be able to retire at a young age, and live an independent life; Financially unburdened, and free from clock-punching.
The kindling: FIRE’s foundation
How did the concept catch fire? It’s hard to say for sure, as people have always been living frugally and strategizing ways to save more of their money.
But the recent surge in attention FIRE has been receiving appears to be fueled by a few books and FIRE proponents–whether they were aware of it or not–finding each other through online communities like Reddit.
For example, some members of the FIRE community credit Vicki Robin, the 72-year-old co-author (along with Joe Dominguez) of the 1992 book “Your Money or Your Life” with unofficially starting the movement. Robin’s idea is to think of money in terms of “life energy”, and what you’re trading it for.
For example, if a pair of shoes costs $100 and you earn, after taxes, $10 per hour, is it worth it to trade 10 hours of your life (or “life energy”) for those shoes?
Fun fact: Robin, who currently lives a quiet life on an island in Washington state, had no idea her book had become so influential over the years.
It’s concepts like “life energy” drawn from the book that has made the FIRE method so intriguing, particularly to younger Americans.
The classic or perhaps traditional path has been you leave school, enter the workforce, and slowly build your retirement savings up until you hit 65–or count on Social Security to cover your living expenses in your later years.
Living a FIRE lifestyle may be like walking across hot coals, but it’s an alternative to the classic path.
The spark: FIRE in practice
There are no set rules to the FIRE lifestyle. Because everyone’s financial situation is different, a certain level of fluidity is required. But there are some key guidelines that FIRE disciples tend to follow.
Some successful FIREees have shared their big-picture plans with the rest of the community. One couple, who documented their journey on their blog Our Next Life, laid their FIRE plan out in three phases: Accumulate, early retirement, and traditional retirement.
The first phase is the grind–where they made as much money as possible while spending as little as they could. The second is a transition into living off of income accrued through investments, like dividends and rental income. The final step, which they have yet to reach, is when they plan to dig into their IRAs, 401(k)s, and other, bigger investments.
But that’s just one example, and there are many paths to an early retirement. It’s the core principles that are important.
Here are some of the basic tenets of the FIRE lifestyle:
|Save!||Save between 50% and 70% of your income|
|Minimize purchases!||Slash spending to the bone--that means no cable TV, few (if any) dinners out, and buying mostly used or second-hand goods.|
|Maximize retirement savings!||Maximize your retirement savings - That means putting $18,500 in your 401(k) and $5,500 in your IRA every year|
|Invest!||Invest in low-fee investments, preferably index funds|
If it helps to think of it this way, FIRE is just like basic retirement planning. Just taken to the extreme.
Throw another log on the FIRE
The most difficult aspect of the FIRE method is the massive lifestyle change that it entails. If you’re serious about it, though, it’s possible. Many people are on the path.
How can you get started? Kick things off by immolating your budget, and rebuilding it in a slimmer, FIRE-proof fashion.
Prioritize early retirement, or the idea of being financially free, above all else–including even the smallest luxuries. Cancel your cable subscription. Use your dad’s Netflix password. Learn to get creative with Ramen noodles. Above all else, keep your financial goals in mind, even when it means skipping drinks with friends or forgoing Domino’s for homemade pizza.
Many people, however, don’t find this idea appealing, or even sustainable.
There’s no getting around it: The FIRE lifestyle is tough. And we have to face the fact that FIRE won’t work for everyone–there is an inherent element of privilege at play. You can’t, for example, start stashing away 50% of your paycheck if you’re only making $10 per hour.
If that’s the case, you’ll probably want to focus on improving your career prospects first, in order to earn more money.
Also, some of the success stories you’ll read on the internet involve individuals making well-over six-figures every year. Or perhaps they had a headstart with an inheritance, or live in an area with extremely low cost-of-living.
That doesn’t mean it can’t be done, however. If you plan carefully and stick to a disciplined (even painful) budget, you can set your life on FIRE.
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