So there’s an early retirement movement that has been around for a while. It’s called Financial Independence Retire Early (FIRE). The idea behind the movement is to save half or more of your salary, by living a super frugal life and investing until the income generated by your investments equals your annual spending costs. Mathematically, this idea has legs.
The movement is quick to showcase people in their late 20s or early 30s that have retired and are living the good life. Who wouldn’t want that? Well, some people actually like working, I guess we could start with them. Typically, however, most followers of FIRE aim for retirement in their 40s. I am always skeptical of such sensational claims but maybe these people figured out something that I missed. How could retiring before 30 even be possible? Most people don’t even graduate from university until they’re in their mid-20s.
Is FIRE Possible?
Luckily, social media provided some answers as to how these super retirement achievers made it to the top of the FIRE food chain. I did not have to dig far to discover that these showcased individuals almost always had a few uncommon advantages. In most cases, they managed to land lucrative jobs right out of university, paying well over six figures. For those saving $100k each year, it wouldn’t take long to build quite a FIRE nest egg. In other examples, the individuals had normal well-paying jobs but led a life of extreme frugality, living on $10k a year for example. Their extreme frugality meant sharing an apartment, no vehicle, no eating out, and just one or two luxuries like a gym membership (things most people consider essential or normal). So yes, FIRE is possible and successful examples do exist, however, these scenarios are extreme and not realistic for most people.
How Frugal is Too Frugal?
In my experience, it’s very difficult to sustain such a frugal lifestyle, particularly if you’re not a frugal person, to begin with. I’m a pretty frugal guy (maybe too frugal in the opinion of some), and I never came close to saving 50% of my income annually over long periods. Life gets in the way. Mortgages, house repairs, break-ups, pets, investing mistakes, wanting to eat three meals a day… these expenses add up! I would guesstimate that I averaged 25% savings annually, with some early years at 0% and my last year of work at 70%. It’s the never-ending compromise of living now versus living later. Each person has to strike the right balance for them and it’s a very personal thing. For most people, the extreme version of FIRE is not acceptable. It’s like that super strict diet that only a few weirdos can stick with. Ok, that is harsh. Maybe I am jealous of such discipline. People who succeed at this tend to be obsessive about things, overly disciplined, definitely not like me, and likely not like you.
Should You Follow FIRE?
Ok, so maybe landing a six-figure job is unrealistic for most, but everyone could become extremely frugal, right? Well, sort of. Everyone is different, and lifestyle is measured from a relative perspective. Generally, people think that the level of frugality just below their level is ok and acceptable but they look upon two levels below as being extreme and well, weird. We all know those people at work who would never go out for a beer and pizza because it was too expensive or an unnecessary luxury. They were the weird ones (and most likely my friends).
I am not the best person to judge, but I think that everyone has their own path and what is most important is how happy you are. If you are happy doing the FIRE approach, more power to you. If you are happy spending every cent you make and know that you will work till 70 then you are good too! In my experience jumping several levels to extreme frugality is difficult. Now then, jumping one level is likely good for you and could be life-changing if you feel like you are never getting ahead.
FIRE in Moderation
Looking back 30 years or so, you could say I did follow FIRE even before the term was ever coined. These are essentially good financial habits that everyone should use if they plan on an earlier retirement path. it’s basically: save and invest your hard-earned money… that is all it is, simple. It’s the ‘extreme’ part that is the new concept. I retired at 48, which makes me a FIRE underachiever for sure. I retired younger than most, but long after the FIRE overachievers. I decided in my 20s to save more of my money than most, but I didn’t want to forego traveling and other hobbies. I visited Europe, Australia, and Central America. I also owned a house, cars, boats, etc. The biggest difference was I was always finding ways to do it on the cheap. Buying ten-year-old cars, backpacking, building my first kitchen out of scrap wood, etc.
The moral of the story is that although the FIRE movement sounds bat sh$t crazy to some, and is likely not for everyone, conceptually there are aspects of it that are very valuable that can be borrowed and applied to your retirement strategy. I am a big fan of borrowing other people’s ideas, it’s totally legal. In the end, it always comes down to whether you are better off (measured by happiness, not $).
Money with Marc 