Unlock Financial Freedom: Your Comprehensive Guide to the FIRE Movement

Introduction

Imagine retiring in 20 years—or even sooner? And maybe forget retiring—picture a life free from your 9-5, from your corporate job, and never stressing about being fired. The FIRE movement offers the allure of both through hard work, dedication, and deferred consumption. It offers financial freedom.

The FIRE acronym accompanies both Financial Independents and Retiring Early, which are important concepts for anyone trying to amass personal wealth for themselves and their family. Financial Independence should allow you to stop caring about how much will your paycheck rise. After almost stagnating wages in the last decades it seems an alluring concept to many millennials and Gen-Zs. Early retirement, as suggested by the second part of the acronym, is much more desirable than waiting until your late 60s to be able to enjoy some quiet time without everyday hustling.

The FIRE movement is trying to achieve both by a simple and effective combination of frugal living, aggressive saving, and (!) smart investing.

Understanding the FIRE Movement

Financial independence is not a recent phenomenon. However, it grew in popularity as a concept after Vicki Robin released her book “Your Money or Your Life”. The book hit a particularly important sweet spot, especially after the financial crises in 2008. It challenged the notion of always buying new things on credit and always working to earn money to pay off this credit. A vicious circle of debt, stress, overwork, and consumption. Vicki Robin came up with an alternative proposition: Achieve a state of financial independence, where you no longer need to work to earn a living. A state of freedom from financial stress.

Another cornerstone book in this particular niche was Early Retirement Extreme by Jacob Fisker. His approach was to revolutionize one’s thinking about money to optimize personal finance for two things: Minimise expenses and maximise savings.

Both books and scores of blogs focus on two strategies that go hand in hand.
1) Live frugally, don’t live beyond your means, and don’t spend money you do not have.
2) Save as much as possible from your income. Average advice from parents and personal finance books was “save 10 % of your income”. Savings rates of those adhering to the FIRE often exceed 50 %.

Frugal living is often connected to spending according to one’s values: If you value your financial freedom over luxuries, you should align your real spending habits with it and save all remaining money and not a penny less.

The saving part is of course equally important, one has to decide where to allocate the cash and how much they need. The first principle to remember is to never let money just wait in a bank account. Instead, make it grow in investments. The second is to avoid unnecessary risk. The third is to optimise for growth in such a manner. In the end, you can live off your investments with a 4% rule.

Now that we understand the basics of the FIRE movement, let’s explore the different approaches to achieving financial independence and early retirement.

Different Approaches to FIRE

The 4% rule is the most important aspect of FIRE. It states that if you spend only 4 % of your well-diversified portfolio, you will never run out of money. This is not set in stone. You will often see statements about 3% or 5% as being closer to the reality. However, the point still stands. If we assume about 7 % yearly return on an average portfolio and 3 % inflation, we can take out 4 %. And we will still have the same nest egg.

The size of a nest egg needed for early retirement is relative. There are more approaches to calculating it, but here goes the basic thinking from the 4% rule: If we figure out our yearly expenses, we can multiply it by 25 and that is our target size for the portfolio.

How large those expenses will be depends entirely on your lifestyle and philosophical approach. There are adherents to the LeanFIRE approach who practice frugal living on a shoestring budget their entire life, when accumulating wealth and when living off it, maybe even planning to move to a cheaper place after not having to travel to work. They therefore calculate with minimal expenses and need a much smaller nest egg.

The FatFIRE approach is about having the life you wanted even after retiring. Bear in mind that early retirement can come in the late 30s, therefore plan for interesting travel plans, luxurious wellness weekends and parties. Think living in London or Zurich, flying first class. If you’ll be spending over 250k euros a year, you will need over 6 million euros of assets in your nest egg.

There are of course all flavours between, sometimes called ChubbyFIRE, where you do not live particularly frugally but neither enjoy a luxurious lifestyle. The sort of middle ground. Other important flavours are CoastFIRE and BarristaFIRE.

CoastFIRE is the approach of frontloading most savings at the beginning of your career/life and then waiting for it to grow enough without any more savings. This approach uses the same logic behind the 4% rule. If every year investments grow for at least 4% after inflation, the nest egg will double in about 17 years. It’s particularly popular among higher-earning couples planning a family. Their income will drop and their expenses will rise with the need to take care of the kids.

The last one is BaristaFIRE: Being a barista is a popular part-time job and that’s exactly what this is. A part-time job to let you have income to cover your daily needs and a nice nest egg from which you can occasionally take out some money for emergencies or opportunities. But mostly you let your money coast by nicely till your desired full retirement age.

Unique Aspects of the FIRE Movement

The financial independence movement carries with itself a great and large community. Often concentrated around big blogs like Mr. Money Mustache or on social media sites like Reddit or Lemmy. There are of course numerous forums on FIRE where people can discuss their progress towards FI.

Retirement is a magical word that makes people think about either non-stop travel around the world or killing time with Netflix for the whole day. And while both might be fun (at least for a time), retiring can look vastly different. From the community you will learn that many people just continue working, but with no stress. If they lose their job next quarter, they can live with it. Or maybe they cut their hours, move to less stressful positions, and maybe even pick up a different career path.

Retiring can also look like working for a non-profit for a fraction of your former salary. Or volunteering, teaching kids and young adults tricks of your trade, starting freelancing. Maybe even a start of a new business (just don’t put too much capital at risk, if you wish to maintain your retiree status). The point is, that early retirement is not some passive time in one’s life. It is supposed to be freedom to pursue life goals and dreams and achieve personal growth.

And while that sounds quite salesy, it shouldn’t. The flexibility that comes with financial freedom is a crucial aspect. The time to start painting or pick up another hobby is when you do not have to work 50+ hours a week and have the time and energy to read a book and meditate on its content.

3 Main Benefits of the FIRE Movement

Financial Freedom is Freedom

Let’s be honest. The main allure of FIRE is independence and flexibility. You get to do things that you couldn’t do with a packed schedule and limited vacation time. Travel more, spend more time with family, and visit kids more often. Take a year off to study the ancient wisdom of druids, if that floats your boat. Unless you break the law and get taken to prison, you will actually be free

Peace of Mind

And with freedom might come the finally deserved peace of mind. Nassim Taleb described in one of his books the relaxed feeling after he wrote his notice to quit a job, which he hid signed in his locked drawer. The freedom to walk away was almost tangible. The same goes when you have the so-called F-U money: a fully financed nest egg that lets you walk away from a stressful job whenever you want to.

Or you can use your freedom to quit outright the moment you achieve FI and choose something less demanding. The BaristaFI approach as it were.

Healthier Body

With less stress comes a healthier body almost immediately. But that’s not all. But that’s not all. Being financially independent means having means to remedy what ailments can be improved. You have more time to exercise, money to have the dental work done, and maybe take a vacation to avoid spring allergies.

And do not forget about our diets. We usually need to incorporate more home cooking: to actually know what exactly goes into our food, and spend time eating vegetables (not to mention the health benefits of actually growing it). Be more mindful of all the foods you eat, enjoy it more and do not forget to rest, exercise and sleep – all that is easier with less stress and more financial security. And all that decreases health risks and prolongs life in health.

Challenges and Considerations

Living the FIRE lifestyle in the accumulation phase is hard. There is usually a strict budget one has to adhere to to be able to save enough money. The frugal lifestyle that comes with a high savings rate potentially limits social life and some more expensive experiences, if they are not given priority over the financial goals.

Over the years while you are accumulating wealth to accomplish financial independence, you will have to overcome economic adversity. Local economies go through cycles and periodic downturns and sometimes even crashes. Your job, in those circumstances, might be in jeopardy and constantly saving will not be possible. Inflation can increase your budget needs drastically and again, diminish your monthly savings.

Or you will find yourself in an unexpected situation, where you will have to change your plan. Maybe a need to move closer to ageing parents, family increase, school tuition or other unexpected large life obligations can derail your plans of achieving your goals. And being able to adjust to those circumstances is of course another form of independence and resilience.

Is FIRE Right for You?

Do you value freedom over comfort? How is your sense of delayed gratification? How long can you see yourself doing what you do? And what about your family, will they follow you?

Those are important questions to asses if FIRE is the right fit for you. First of all, unless you are starting a new job with a significantly larger salary, you will have to cut your expenses. That will create some disruption and discomfort in your life. Secondly, you will have to postpone some expenses to the future. And you will have to wait to see gains from your current savings, therefore exercising greatly delayed gratification. You will see others having a new car or expensive vacation and you will be saving your pennies to show them in the next decade or so.

Your family has to be on board. You can’t just throw it on them, you have to convince them to follow you on your path to early retirement. Not because they can’t work after you stop, they can. But drastically changing your spending habits without them on board will just create tension. It’s easier if you do not yet have a family, but plan for your future. There will be expenses when you start one that you are not familiar with.

Simple plan of action

Asses your net worth. Calculate your cash, investments and other hard assets subtract all your debts and see your number. How high is it?

Calculate your monthly/yearly expenses. It might take some time to get a real feeling of your costs, so try to track all of them for at least a month. There are some tools to help you. Maybe your banking app can break down your spending into categories and you will see if there are any expenses you expect in the future. Or perhaps those you plan on cutting.

Calculate your FIRE number. How much money would you need to retire right now? The simplest approach is to take your yearly expenses and multiply them by 25. If you want to be really sure, increase the multiplier to 33. Don’t worry, this number doesn’t represent how many years you plan on living in retirement, it just represents a safe withdrawal rate of either 4 % or – if you are risk averse and conservative – 3 %.

Unless your net worth already exceeds your FIRE number, you will have to figure out your plan for savings. Either way, you will have to figure out your budget (I recommend using Google Sheets and Revolut for it) and adhere to it. Allocate for your day-to-day expenses. Save something for special occasions (vacations, gifts). And invest all of the money you can spare. Do not become fixed on any golden ratios of Needs-wants-savings. Save what you can and what you feel is appropriate in your situation.

Invest your savings. When we say savings, it doesn’t necessarily mean savings account (Nothing wrong with that, however…). Most of your money should be invested either in the stock market, bond market or maybe in real estate. Depending on your views and risk aversion, you can also add crypto or other assets. There are numerous portfolios to copy. Choose the one that suits your needs both in risk and in complexity.

Conclusion

Financial Independence is a lofty goal suitable for a large number of people, however it comes with difficulties and costs.

On a positive note, it brings peace of mind, a great community to support your efforts, freedom to choose how you want to spend your time and both physical and mental health benefits. It’s also completely up to you to choose from the diversity of approaches from FatFIRE, ChubbyFIRE LeanFIRE or BaristaFIRE.

On the negative side, you will need to stick to a budget, probably increase your savings, and maybe forego some activities and experiences that do not fit your budget. You must take good care of your investments during the accumulation phase. After reaching your desired FIRE number, continue to monitor them. If you deplete them during economic downturns, you might not be able to live off the interest anymore.

Despite any difficulties, the positives are overwhelming. Even if you do not want to actually retire early, sticking to budget, gaining financial security and connected freedom is worth the effort of pursuing and learning about FIRE.

So do not wait. Take a first step towards at least partial financial independence. Check your expenses, create a budget and calculate how much you should save to become independent.