The FIRE (Financial Independence Retire Early) movement has grown a lot in the last 5 years. A whole community has cropped up around the idea of becoming financially independent and retiring early. The FIRE movement is made up of believers who plan to spend way less than they earn so that they can quickly grow their investments to the point that investment income covers their minimal expenses.
As with any movement, especially one that prescribes a lifestyle that differs greatly from typical social behavior, the FIRE movement has devout followers and staunch critics.
Those that worship from the alter of index funds and retirement accounts claim that pursuing FIRE gives people the freedom (say financial freedom) to leave jobs they hate and pursue more meaningful activities in life.
Critics claim that FIRE principles might actually be financially irresponsible and high savings rates cause people to miss out on enjoying what life has to offer.
My opinion? I say to each their own.
FIRE definitely isn’t for everyone, and yet I don’t believe being financially independent has ever hurt anyone. Some people get hung up on retiring early, the RE part of FIRE.
I don’t believe that RE should be the main focus for someone chasing FIRE and it isn’t a goal of mine. I don’t plan on quitting my job when I hit my FI number.
I want to be financially independent so that I am not tied to a job to provide for myself. I want to rest easy knowing that I can pay my mortgage payment regardless of what goes on in my career.
Typical FIRE principles are to grow your investible assets to be 25x your expenses. This is your FI number or the point at which you have achieved financial independence. At this point, you can withdrawal and live upon 4% of your FI number, adjusted for inflation, each year.
BUT there are a ton of variations on this protocol.
Lean FIRE has people working to grow investible assets to be 20x your expenses. This gives them the flexibility to work fewer hours or at a lower-paying job.
Fat FIRE has people working to grow investible assets to be 30x your expenses. This allows them a higher safety margin in case something unplanned happens, or they have more freedom in their budgets.
Personally, I am pursuing none of these options.
While I will consider myself to be financially independent at the 25x number, I want to have the dividend income from my accounts pay for my expenses.
As my dividends grow over time I can allow for lifestyle inflation. If my lifestyle inflates at a rate less than my dividend growth rate this is sustainable.
This type of lifestyle inflation is not baked into typical FIRE principles, as FIRE walkers typically sell assets to cover their 4% withdrawals. I don’t want to sell assets. I plan to never touch the principal and instead want to pass the principal on as generational wealth.
Disclaimer: This article should not be taken as financial or investment advice. This article was written for educational purposes only. Please do your own research before making any financial or investment decisions.