I'm Burning Up: Financial Life Planning on FIRE
- Financial PlanningJust in time for New Year’s resolutions, I want to introduce you to a fairly extreme financial philosophy called FIRE. FIRE stands for “Financial Independence, Retire Early” and that is pretty much the strategy.
Generally speaking, FIRE adherents radically reduce expenses, save up to 70% of what they earn, and retire as early as possible (at 30, for example!).
The FIRE movement officially started in 1992 when Vicki Robin and Joe Dominguez wrote “Your Money or Your Life.” They questioned our economy of consumption and the endless hamster wheel of work, debt, and spending we ride until we reach the sacred island of retirement.
More recently, Peter Adeney, or Mr. Money Mustache to his readers, has written in detail about the FIRE movement and how to execute on it. Here is what he says about that economic treadmill: “Once you are off the mill, you’ll feel like Neo did when he unplugged the suction cups from his pale naked body in The Matrix and looked around at the other imprisoned humans. ’Holy Shit!’ you will say. ‘I’ve been living in this ridiculous slave world and never noticed…and everyone else still is! WAKE UP DRONE PEOPLE!!!’”
So how do we wake up?
1. First, get clear on what you really want out of life. What’s meaningful to you?
2. Figure out how much money you need every year to live that meaningful life.
3. Start cutting out the meaningless stuff and save, save, save the rest.
4. Get rid of bad debt like credit cards and use your good debt like mortgages for leverage, for example investing in real estate if you are into that.
5. Do all you can to get even small raises at your job each year. Good debt can pay for training.
6. Get a side gig to earn more money.
7. Invest what you are saving in low-cost stock funds, and make sure you have 6 – 12 months of your expenses in emergency reserve (cash).
8. Track your net worth (assets minus debt). The rule of thumb is that you need 25 times your annual expenses to be financially independent.
9. Keep working, hacking, and tweaking to build better spending and saving habits as you go.
I’ve just given you the basics here, but if you want more detail these nine steps are fleshed out by Millennial Money. And as I mentioned before, Mr. Money Mustache has a ton of information and advice on his blog, and he even provides a list of FIRE-tested products and services like credit cards and budget-tracking services. He also recommends some books you can read to get familiar with the philosophy and how to execute it.
“But Penny,” you may be thinking, “how am I going to save 50% - 70% of what I make every year? I’m barely getting by right now!” Well, there are some different flavors of FIRE you can try:
1. Fat FIRE: for those who spend more.
2. Barista FIRE: for people who want to retire early but also keep a side gig they enjoy. This means you don’t have to save the 25x annual expenses since you’ll keep working a bit.
3. Side FIRE: for those who build up enough of a side gig to retire early from their day job.
There is also a flavor of FIRE called Lean FIRE for the most frugal of people who live on less than $25k a year. If you get a taste for the thrifty life, this one may be for you.
But even if you don’t get on board completely, reading up on FIRE is a really good way to become more intentional about your spending and saving. You might want to read my previous post, “Money Scripts and You,” to learn more about your relationship with money. Then maybe you’d like to get clear on what you’re spending by reading “You Say Potato, I Say Spending Plan.” Once you’re off and running, you can adopt more and more FIRE principles and change some of your habits for the better. Make it your own!
I wish you all the best on your journey.
