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Financial Independence, Retire Early (FIRE) Movement & Early Retirement

Manuraj Jain
April 20, 2021
Last Updated: July 19, 2022

Financial Independence, Retire Early (FIRE) is a movement popular among millennials and defined by frugality and extreme savings and investment. After all, retirement isn’t an age, it is a financial number. This savings strategy helps the individual to retire far earlier than traditional financial plans would allow. There is a huge number of people practicing FIRE principles and retiring decades earlier than expected as a result.

But is it worth it? Will it actually be beneficial for an individual?

Let us know about FIRE in this article.

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From where did the FIRE Movement Originate?

FIRE movement started from the 1992 best-selling book Your Money or Your Life written by Vicki Robin and Joe Dominguez, as well as the 2010 book Early Retirement Extreme by Jacob Lund Fisker. These works provide the essential template of mixing a lifestyle of straightforward living with income from investments to achieve financial independence. In particular, these books describe the connection between an individual’s savings strategies and financial balance for retirement, which allows individuals to quickly project their retirement date given an assumed level of income and expenses.

How can People Plan for FIRE?

This new wave of the younger generation is trying to take early retirement to a whole new level. Millennials have encouraged the FIRE movement with the target of retiring well before the traditional retirement age of 65. This practice requires a minimal lifestyle where the proponent saves yearly income up to 70%. Once their savings reaches approximately 30 times their annual expenses, they may quit their regular job or completely retire from any form of employment altogether.

Many folks are on their way to leave the workforce early. Those who want to attain FIRE purposefully maximize their savings rate by finding ways to increase income by alternate investment or decrease expenses. The retirement age decreases significantly as the saving rate increases. For this reason, those pursuing FIRE attempt to save 50% or more of their income. At a 75% savings rate, it would take less than 10 years of work to accumulate 25 times the average annual living expenses. This is a concept suggested by ‘the 4% safe withdrawal rule.

If you want a better picture, there are a number of FIRE practitioners who share their journey. Check out Abhi’s FIRE portfolio to see the goals, how personal finances are tracked and more.

Variation in the FIRE Movement

There are two strategies for practising the FIRE movement. Lean FIRE refers to saving up to 25 times of their annual expenses and spending less each year than the average people. Fat FIRE refers to someone who has reached financial independence and spends more than average.

Barista FIRE and Coast FIRE apply to followers who have quit their traditional jobs but still employ some form of part-time work where the only difference is, in Barista they need to cover current expenses while in coast practice individuals already have enough savings.

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Advantages of FIRE

Though I have mixed feelings regarding the FIRE movement as I am in a very crucial stage where I might need to make some great investments to grow in life and also I feel like saving every penny for the future. This strategy will vary from person to person. But there are a few things that will surely add to every individual for their personal and financial growth:

People have started working for their retirement at a very young stage. If not 70%, then at least 20-30% of each individual’s annual income is going into a Money saving plan. This is an important factor that will help every Millenials to grow in life.
It also encourages individuals to look for ways to increase their income sources from. Most of us are now getting into passive incomes where we can earn millions with consistent hard work and effort. This will play an important role in stepping back from your regular income and enjoy a less hectic life in the coming years.
The individual with spendy habits can also control their expenses. With the growing FIRE movement, people are actually looking into the expenses they are making. Although we are supposed to have our own part of happiness in having things we love but we should be more focused on kinds of stuff outside of our expenses. After all, enjoying things that require less or no money at all is a route to have life.

Drawbacks of FIRE Movement

FIRE is an extreme step and is not for everyone. It might even seem to be a pipe dream for average citizens. To be honest not everyone has a good source of income and all are social animals and would love to spend money on various occasions than just saving them up all and staying isolated.

Also, don’t get into the FIRE movement just to escape your regular job. Eventually, you will be required to work harder than your current position so if you don’t like your work, you most probably won’t be able to do so and will end up in frustration.

There are a lot of different strategies that work together in early retirement and one shouldn’t just only focus on retiring rich. Family situation, emergency funds, debt, etc should also be considered. It is better to consult a financial advisor as well as do lots of research before taking any step. Overall, FIRE is a positive movement that at least makes you aware of your financial expenditure and wealth for your future.

Little Saves is one of the leading personal finance websites in India that talks about financial independence, retiring early and managing personal finances.