As someone who is right in the thick of things when it comes to the FIRE movement, I cannot believe I haven’t written about it until now. But hey, better late than never, right? FIRE is an acronym, short for “Financial Independence, Retire Early.” It refers to a movement, especially popular among Millennials, where you save significantly more than the average savings rate (often upward of 50% of your income) in order to retire much earlier than the standard age of 65 (think 30s or 40s). You can think of it as “Freedom 55” on steroids.
How to Join the FIRE Movement
It all starts with having a clear understanding of your income and expenses on a monthly basis. You need to create a huge gap between the former and the latter if you want to retire in your 30s or 40s. In order to do that, you need to understand where your money is going each month. Then, prioritize the mandatory expenses and entertainment items you value most, and cut whatever else you can.
Anybody Can Do It, But Income Matters
Anybody can save toward an early retirement; however, in order to really accelerate your timelines, you need to be aiming for a high income. It’s very hard to save 50% or more of your income when you’re earning $50,000 a year. Doing so would see you living like a university student… and I don’t know about you, but my days of using milk crates as furniture are wayyyy behind me.
Ideally, you want to be earning at least $100,000 or more before taxes in order to be able to comfortably sock away half your income or more each year. Again, you can do it on less, but it’s going to be a bit tougher.
To get to that income level, you can either make some career moves to increase your earning power at your primary job, or start a side hustle to bring in some extra cash outside your day job. I know plenty of folks who have done that during the pandemic.
Cut Your Expenses
Almost all of us can cut our expenses down without sacrificing our quality of life too much. For instance, according to data from Stats Canada, the average Canadian spent $755 a year on alcohol back in 2017. With the pandemic, that number has definitely gone up. Given that figure includes all of the folks that don’t drink at all, if you’re a drinker, there’s definitely some wiggle room in there.
In general though, look at where your money is going. Ask yourself: do I really need to drink that much? Do I really need to eat out that much? If I refuse to give up drinking, can I do it less in restaurants so that it’s cheaper?
Remember, FIRE is predicated on intense savings and a big gap between what you earn and what you save. If you’re not willing to widen that gap, then FIRE may not be for you – and that’s ok. There’s absolutely no shame in retiring later on – it’s just a choice you make for yourself!
Have kids? Save for university now.
FIRE is admittedly much tougher to do with kids. It’s not impossible though; it just requires discipline and careful planning. If you’ve got kids, or are planning on starting a family, plan to save using RESPs as soon as they’re born, or as soon as you can afford to. The longer your time horizon, the less you have to save in order to meet your investing goals for your kids’ schooling.
Don’t Just Save, Invest.
You’re not going to build the savings you need to retire super-early by socking money away in a savings account that earns you 0.05% interest a year. You’re just not, sorry.
If you want to build the massive savings needed to retire early, you need to invest your money into an appreciating asset. Invest in stocks or index funds. Purchase real estate as investment, and rent it out. If you can, do both. But whatever you do, do more than put your money in account where inflation will consistently eat away at its value. You have got to earn much more than inflation eats up in order to do the whole FIRE thing.
Go Way Past the $1 Million Mark
Many of the FIRE blogs I’ve read talk about saving 50-75% of your income until you hit $1 million, and then living off that 25-50% for the rest of your life.
Unpopular opinion: that doesn’t sound like a great retirement to me.
I don’t want to live my retirement the same way I lived my working years to get there. I want to live BETTER than that, especially if I’m hoping to get 40+ years out of my retirement. In order to achieve that, you need to go past the amount of savings you’d need to maintain your standard of living here and now.
Instead of aiming for $1 million, for example, my wife and I are aiming for $3 million in the bank before we step away from work forever. Not only is $3 million enough to live on very comfortably, it’s also enough that the money will continue to grow throughout our retirement.
This will help us weather market downturns, account for inflation, and also be able to cover unexpected health-related expenses that may crop up as we age. It also means that, unlike many other FIRE followers, we won’t need any sort of supplementary job to add income in retirement. If we do choose to work, it will be purely for the enjoyment of it, and nothing else.
I realize that $3 million isn’t realistic for everyone; your mileage may vary. But it’s what works for us, and it’s the figure that will give us the comfort and confidence to sleep at night knowing we have no other income to rely on but our investments.
A Note on How NOT to do FIRE
In my personal opinion, there is a right way and a wrong way to do FIRE. The right way is to earn more than you need to get by on, including more than your basic entertainment needs each month, then sock that away.
The wrong way is to sacrifice those basic entertainment needs to try and put extra money away for the future. I am not a believer in sacrificing your happiness in the here and now in order to retire earlier.
You’ve got one shot on this planet, and it could come to close at any time. If it’s going to be curtains for you, you really don’t want your final thought to be “Damn, I saved so much, but I didn’t enjoy my life at all…”
That approach feels to me a lot like a yoyo diet. It’s not sustainable, because it causes feelings of intense dissatisfaction, which leads to overspending again, and so on.
That said, our expectations of what we need in order to be happy in the here and now are adjustable. If you don’t believe me, go back and read about my life-changing trip to Indonesia, the reason I started this blog in the first place.
I used to think that you needed allllll the material things to be happy… until that trip showed me how wrong I was. Turns out, when your happiness isn’t tied as closely to material things, it’s a lot easier to get by on less income without sacrificing your happiness. Adjusting your expectations of what you need in order to be happy is one of the most important ways to sustainably widen the gap between earning and spending.
Wrapping it Up
FIRE isn’t easy. For many, it will be out of reach. But it’s a worthy goal with freedom and independence at its core. All it takes is one bad boss in your career to make you realize how liberating financial independence can be.
The idea of quitting your job in your 40s and travelling the world and throwing yourself into your hobbies is one that appeals to many. I mean, isn’t that why we work in the first place? So that we one day don’t have to anymore? FIRE is just a means of trying to expedite that process. For me, I see it not as a sacrifice, but a challenge to be met. Game on, baby. Let’s do this!!
