If you’re longing for early retirement, you may have more company than ever — particularly with so many of us battered by COVID and inflation and with work sentiment low enough for “quiet quitting” to emerge as one of the year’s buzziest phrases.
But how far would you be willing to go to ditch your job 10 years earlier than planned? Or 20? Or more? What sacrifices would you make now to secure rest-of-your-life financial independence in the relatively near future?
Explorers of the Financial Independence, Retire Early movement — known as FIRE — have been asking questions like this for 30 years now. Inspired by a 1992 bestseller called “Your Money or Your Life,” FIRE refers to combinations of frugality and savings (extreme in some cases) and investing — with a goal of, well, doing whatever the heck you want, sooner than you would have otherwise.
“In very broad strokes, you save a lot now, invest and let the magic of compounding build a nest egg for you, so you don’t have to work until the traditional 65,” explained CJ Rose, an associate wealth manager with San Francisco-based Waypoint Wealth Partners.
Many associate FIRE with extreme deprivation. That’s true for hard-core practitioners of “lean FIRE” but not representative of the whole movement, experts say. Some FIRE fans consider the “retire early” part optional and instead focus on financial independence and the ability to do whatever you love.
“It has branched out a lot over the years,” said Liz Gendreau, whose Chief Mom Officer blog offers FIRE and other financial advice for working moms. “It was originally about someone who would retire from paid work in their 30s — usually in tech, usually a guy living off brown bananas and nothing else. But people have started to take the basic concept and morph it.
“It’s like a dial. You can turn it up very high, if you want to achieve that financial freedom as soon as humanly possible.”
Rose added, “They get portrayed as a bunch of people eating rice and beans for the rest of their life. What it’s really more about is aligning your values with your spending.”
People approach FIRE in a wide range of ways. But here are a few basic steps in a FIRE journey, according to experts.
Step 1: Know Thy Financial Self
Most of us have a pretty good idea of how much money we’re bringing in. Fewer of us are truly on top of where it’s all going. Successful FIRE journeys often begin with an honest accounting, followed by a hard look at what is truly important.
“You need to ask yourself, ‘Where am I leaking money?'” said Julie, an otherwise-anonymous wife and mother who has been writing about FIRE since the aughts on her One Frugal Girl blog. “Look at what you spend and ask yourself, ‘Does this really bring me happiness?’
“Then slash anything that is discretionary that isn’t bringing you happiness, line by line.”
Gendreau suggests framing it this way: “What’s the value that you’re getting from this thing? Is it worth more than your financial freedom?”
Step 2: Figure Out What You’ll Need
If you want to get FIREd, you’ll need to crunch numbers early on. Sam Dogen, the author and blogger behind Financial Samurai, advises starting with the end in mind.
“Ask yourself, ‘When do you want to be financially independent?” said Dogen, who helped kickstart the FIRE movement in 2009 and has since authored a bestselling book and more than 2,500 personal finance articles. “When do want to be leaving your job? What age are you? What life do you want? How much will it cost?
“Then you can start to reverse-engineer how much money you need.”
“Traditional” FIRE calls for compiling 25 times your annual expenses, then withdrawing no more than 4 percent of your nest egg annually after that. So, if your annual expenses are $50,000, you need to compile $1.25 million to achieve financial independence. These numbers vary widely depending on where you live, your family situation and other factors.
Step 3: Figure Out How You’ll Get There
Savings alone won’t do it. Dogen advises maxing out your tax-advantaged retirement plans, then building the largest taxable portfolio and real estate portfolio you can. He also preaches negotiating some sort of severance, possibly finding and training your replacement, before you leave your job.
You also can build savings with side hustles, freelance work and gig economy jobs. Investing in low-cost index funds is also popular in the FIRE community.
“You can’t reach that next step unless you start to let that money grow,” One Frugal Girl notes. “Some people get nervous about the investing step. To get over that hurdle, you may have to start with a small amount and realize that you have a long-term horizon.”
Step 4: Live
Give some thought to what you’ll do with your financial freedom, for practical reasons as well as motivational ones.
“It’s not just about the push — running away from your job,” Rose said. “You have to find the pull, too. What are you going to do?”
Some keep right on working, but they do so on their terms.
“What would you want to do, even if you didn’t get paid for it?” Gendreau added. “That’s what you should be doing.”
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