7 Mistakes Young People Make When Joining the FIRE Movement
Many generations, including Gen Z and millennials, are working to join the FIRE movement. FIRE — Financial Independence Retire Early — is based on the premise of saving as much money as you can now to retire early and achieve financial independence.
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While Gen Zers in particular have some financial leverage over previous generations, success with FIRE means making careful money moves. If you’re a young person planning to join the FIRE Movement, take caution not to make these mistakes.
Getting Obsessed With Reaching a Number, Not the Endpoint
Maggie Tucker is the co-host of the personal finance podcast called friends on FIRE. Tucker, who recently retired early at age 41, said a common mistake young people make when joining the FIRE movement is obsessing with reaching a number instead of enjoying the journey along the way.
“When young people first learn about FIRE they can get really excited and motivated, and this initial excitement can lead to a complete obsession with the goal and the endpoint,” said Tucker. “We think it’s just as important to enjoy the journey along the way. There is a way to balance staying focused on your goals and enjoying the journey and the money you’re working hard to earn. It’s all about balances and tradeoffs.”
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Underestimating How Much They Truly Need To Retire
If you think you can live on $25,000 a year in retirement, Tucker recommends considering doubling this number with kids and recalculating to determine what you really need.
Young people often underestimate the future cost of medical insurance, having a family, home emergencies and other unexpected expenses.
Samantha Hawrylack, co-founder of How To FIRE, also said not saving enough money is a major problem facing young people who want to reach FIRE. Hawrylack recommends starting small. Cut costs and set aside a certain percentage of your income each month. This will increase your savings rate over time and allow you to invest for the long term.
“If you can’t save a lot at first, it’s OK. Just make sure you’re automatically transferring money into your savings account each month so you can gradually increase your savings rate,” said Hawrylack.
Going In Without a Plan
Young people who want to reach FIRE should not start unless they have a plan. And this plan needs to be specific to their FIRE needs.
“FIRE is not a one-size-fits-all program,” said Hawrylack. “You have Lean FIRE, Fat FIRE, Barista FIRE, in addition to other variations. Without researching which strategy aligns with your goals and establishing a proper plan for achieving those goals, you could end up living more frugally than you need to or not investing as much as you need to meet your early retirement date or be unable to live up to your ideal retirement standard.”
Research which type of FIRE you want to achieve. Then, Hawrylack recommends calculating your FIRE number and establishing what type of investments and savings you need to make to reach your goals. As you start to plan, track your progress to stay on track.
Not Taking Advantage of Tax-Advantaged Accounts
If you haven’t already opened an IRA or started contributing to your company 401(k) account, now is the time to do it. Tax-advantaged accounts can help you save money on taxes and grow your wealth faster.
Max these accounts out each year. If you can’t contribute the maximum amount, make sure you’re at least contributing enough to get the employer match.
Not Being on the Same Page
Those who want to start their FIRE journey with a spouse or partner must be on the same page. This includes everything from creating a plan, setting goals and staying disciplined so you can follow through with these plans.
“If one of you is comfortable living as minimally as possible and the other likes to indulge from time to time, communicating and compromising on the type of FIRE journey you embark on is imperative,” said Hawrylack. “It’s not likely you’ll be able to stay the course if you can’t find common ground to agree upon.”
Thinking Living on Less for a Long Period Equals Happiness
In your 20s or early 30s, you might not mind eating ramen for dinner or sharing an apartment with a roommate. However, Tucker said as you get older you may come to appreciate upgrading to living in your own place, taking fancier vacations and enjoying nicer meals out.
Don’t make the mistake of thinking your future needs to be rooted on the premise of maintaining a financially bare-bones lifestyle. “You can mitigate this by upping your estimate of your annual cost of living that you’re using to calculate your FIRE goal,” said Tucker.
Thinking Retirement Will Fix Every Problem in Your Life
Tucker, who is only five months into retirement, can personally attest it does not bring anyone instant happiness. Sorry to burst any bubbles, but retirement also doesn’t magically fix other issues you have in your life either.
The truth is happiness comes from within and from your mindset, all of which you have the power to change or rearrange starting right now.
“You should learn what makes you happy and what doesn’t and design the life you want before retiring,” Tucker recommends. “You can augment and evolve it more once you’ve retired, but you need a base of happiness pre-retirement to enjoy your retirement.”
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