Debt-Free Future: Tips for Adapting To a FIRE Lifestyle

The acronym “FIRE” stands for “Financial Independence, Retire Early.” It’s a movement that’s been gaining a lot of momentum in the financial press lately, as images of young adults sitting on beaches enjoying work-free lives is an attractive sell. But the truth is that while it takes a lot of work to save enough money for early retirement, it’s doable if you’re committed and willing to make some large sacrifices at a young age. Here are some of the financial and lifestyle changes you might have to make if you want to join the FIRE movement.

Last updated: June 18, 2021

The idea of retiring early sounds like a dream lifestyle for most people. However, you might find that these same people try to dissuade you if you actually change your lifestyle to achieve your financial goals. The hard reality of the FIRE movement is that to achieve your goals, you’ll have to change your lifestyle. This could mean less time going out to bars and restaurants with your friends, or skipping some extravagant trips with your family. These same people may encourage you to lighten up on your FIRE dedication, and the temptation of those joys of life in and of themselves may also dissuade you from continuing on your path. Without the right FIRE mindset, it can be easy to falter.

Once you’ve mentally dedicated yourself to the FIRE movement, the hard work begins. First, you’ll have to start tracking your income and expenses. These numbers are the road map that will dictate how you construct the rest of your FIRE lifestyle. While budgeting is important for all savers, it’s simply critical for those on the path to FIRE. Writing down your income and expenses will show you in black and white whether you have the income to hit early retirement and what expenses you’ll need to trim.

Documenting your income and expenses serves another vital function on your path to FIRE: it will help you calculate your retirement savings goal. For example, if you earn $5,000 per month and that covers all of your expenses, you can use that as an estimate that you’ll need $5,000 per month to comfortably retire. If you anticipate a retirement of 30 years — which may have to be 40 or 50 if you are truly retiring early — simply multiply $5,000 by the number of years you plan to retire. This is your baseline number for your retirement savings goal.

Once you outline your income and expenses, you might find that you’re coming up short in your quest for FIRE. Don’t be dissuaded, this is common in the early stages of FIRE planning and the reason why one of your first steps should be to make your budget. However, even if you’re currently out-earning your expenses by a healthy margin, the economic realities of FIRE can be brutal. Saving enough to enjoy a 40- or more year retirement is a difficult challenge even with early planning, so increasing your savings rate as much as possible is always a good early step on your FIRE path.

Passive income is income that comes in automatically without you having to work at a job to earn it. Passive income is also one of the best ways to save for retirement, particularly if you’re looking to retire early. Some common sources of passive income are rental income or income from investments, such as dividends or interest. And while building and maintaining a portfolio of rental income certainly involves work, it doesn’t require you putting in 9-to-5 hours behind a desk. Many real estate investors start early and end up earning enough in rental income to cover all of their expenses by the time they are ready to retire.

Anyone who has long-term investment goals — which should be everyone — should work to cut out nonessential spending from their budget. For FIRE savers, nonessential expenses are the death knell. But to truly retire early, you’ll have to broaden your definition of “nonessential.” For FIRE savers, “nonessential” expenses include paying for a larger house than you need or owning a more expensive car than absolutely necessary. For some FIRE savers, this means not owning a car at all, but walking, biking or using public transportation instead.

To help yourself retire as early as possible, it’s essential to eliminate most if not all of your debt. Debt comes with interest charges, meaning you’ll always have to pay back more than you borrow. In other words, every time you borrow, you’re digging yourself into a hole, and it will take that much longer to hit your retirement savings goal. Some financial advisors do suggest that some debt can be used properly to enhance your savings, rather than detract from them — but that only applies to debt that provides you with an investment return. For example, if you take out a mortgage to buy a house, you’ll pay about 3% at current rates to borrow that money, but if your house appreciates by more than that, you’ll end up ahead of the game — especially since housing purchases are leveraged. But taking on credit card debt, for example, with its double-digit interest rates, is a surefire way to fall short of your FIRE goals.

It’s hard, if not impossible, to get rich on a salary alone. To generate true long-term wealth, you’ll need to invest, and the earlier you can start the better. This is because it takes time for compound interest to kick in on your investments. Earning 10% annually on $10,000 for 10 years, for example, yields a final sum of about $27,000, but earning that rate for 30 years nets closer to $200,000, and that’s without any additional contributions. The longer you can invest — particularly if you’re regularly adding to your portfolio, as you should — the sooner you can reach your financial goals.

There’s no way around it — if you’re looking to retire early, the quickest and easiest way to get there is to earn more money. Cutting expenses is fine, and a necessary step in the FIRE process, but if you’re already living off a lean income, that won’t be enough to get you to where you want to be. In some cases, earning enough money may be as simple as taking on an additional side gig, or asking for a few more hours. In other cases, you might have to rethink your profession entirely and find a higher-paying career. Either way, FIRE proponents are always looking for ways to enhance their income. If you have enough people interested in your FIRE journey, you may even be able to earn additional income writing blog posts or filming vlogs about your path to financial independence.

One way to save more money for your retirement is to stop paying for things you can do yourself. Take a look at your monthly budget and see where all of your outflows are, and try to stem the ones that are service-oriented luxuries. For example, if your floor needs refinishing, your toilet has a leak or your gutters are in need of repair, if you study up on how to do these things yourself, you can save a boatload of money over the long run. If you check internet sites like YouTube you can find DIY videos for nearly any home repair you can imagine; a few minutes of your time may be all that is needed to learn basic fixes. Just be sure to know your limits. Potentially dangerous repairs, such as the electric wiring in your home, are usually still best left to the experts.

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