It’s a common mistake for people to assume that retirement is a set age when they can finally stop working without realizing that it’s also a financial status. After all, retirement is out of the question if you have no means of supporting yourself once you reach the age when you’re supposed to permanently leave the workforce.
The following is a guest post by Monica Mendoza. Monica is a content writer and marketing professional. She spends a lot of time studying how technology continues to transform lifestyles and communities. Outside the office, she keeps herself busy by staying up-to-date with the latest fashion trends and reading about the newest gadgets out on the market. Enjoy!
What is the FIRE Movement?
Some people have deduced that it’s possible to retire as soon as they have reached a level of financial independence. Using extreme saving measures and maximizing their investment opportunities, these individuals aim to retire early while maintaining their chosen lifestyles.
It’s a bit of an oversimplification, but this is the end goal of the Financial Independence, Retire Early–aka F.I.R.E–movement. Inspired by a 1992 best-selling book entitled Your Money or Your Life by Vicki Robin and Joe Dominguez, the FIRE movement encourages its adherents to invest passively and save to extreme levels so that they can retire comfortably and as early as possible. It’s not unheard of for people in the movement to set aside up to 70% of their annual income.
Why Follow the Principles of the FIRE Movement?
Early retirement is not the only end goal of the FIRE movement. Many people are also maximizing their investments and increasing their effort to save for the following reasons:
The Desire to Quit Working
Some people want to have the freedom to work–and not work–whenever they want. Even if it takes extreme frugality to reach their goals, they’ll do it. A person with passive stock investments or someone with enough Monero stored in a wallet, for example, can use the profit from these channels to support themselves if they don’t feel like working. This helps them maintain their chosen lifestyles without sacrificing their well-being, financial stability, and peace of mind. Once they find a job or project that appeals to them, they can restart building their savings and investments again.
Dissatisfaction with Consumerism
There are people who don’t want to purchase and own stuff that they don’t deem to be essential to their survival. Instead of spending the money they earn, they save it because they don’t want to take part in a consumerist culture. More than owning objects, perhaps they desire to experience more of what life has to offer. In case their pursuit of personal fulfillment takes them away from their typical 9 to 5, they can count on their savings and investments to sustain themselves instead.
The Need to Achieve Financial Independence
Not a lot of people like being told what to do. Having financial independence enables a person to fulfill their needs and take more control of their lives without having to worry about other people’s opinions and how they can impact their financial stability. Also, gaining financial independence gives one the chance to freely explore their skills and abilities to the fullest extent.
How Does One Stick to the Spending and Investing Principles of the FIRE Movement?
Saving as much as 70% of a person’s annual income can seem like an impossible task for a regular person, especially given the current economic climate. To achieve this goal, FIRE movement proponents spend their money with a specific principle in mind, which is basically: to evaluate each item according to the number of hours it took for them to work for it. Before completing a purchase, followers of the FIRE movement first calculate just how many hours it took for them to achieve the monetary equivalent of the item they want to buy. This helps put into perspective just how much of their time is being spent on that particular item and whether or not it’s worth it.
In addition to devoting a significant portion of their income to their savings or “retirement” fund, FIRE movement proponents also make it a point to pay all their debts, including their mortgage, as soon as possible. Investing is also an important part of the FIRE movement. Depending on a person’s financial goals and target standard of living, adherents of the FIRE movement may need to keep a close eye on their investments in the stock market and cryptocurrency scene.
How much should a person have in their pot in order to achieve financial independence or retire early depends on the individual? One goal is to accumulate 25 times the amount of one’s annual expenses. Of this, a person can only withdraw a maximum of 4% of their pot every year.
Is the FIRE Movement for You?
If you want to retire early, attain financial independence, or live a lifestyle that’s not completely tied to consumerism, then following the FIRE movement may provide you with the means and strategies to do just that. If you want to enjoy the fruits of your labor as soon as possible, though, this might not be the best option for you. Regardless, keep in mind that saving and investing are good financial habits, and even if you’re not part of the FIRE movement, these two activities will still benefit you.
