Is the FIRE lifestyle for you? Get the facts on the dream and the discipline

As digital natives and recession survivors, Gen Z is contemplating its long-term work/life balance and is reshaping the conversation entirely by setting its sights on a new goal: retirement at 40.

Feeding those flames is the FIRE – or “financial independence, retire early” – movement. Popularized by the 1992 best-seller by Vicki Robin and Joe Dominguez, “Your Money or Your Life,” the FIRE philosophy essentially entails living an extremely frugal life, saving and investing aggressively, and reaping the benefits with an extra-early retirement or simply by not being bound to a full-time job.

FIRE followers fixate on keeping expenses as low as possible and by finding ways to boost their income, driving to rapid financial independence. That independence is based on how much you spend, not how much you earn, theoretically making it possible for anyone at any income level. Simple concepts, but not necessarily as easy as it sounds.

A FIRE number

To begin, followers determine their FIRE number. This is the amount they need to retire early and live off investments and varies from person to person. To calculate your FIRE number, multiply your yearly expenses by 25. This helps you set clear goals and track progress toward financial independence.

While working, participants save up to 75% of their annual income. When they hit their FIRE number, they may quit their full-time jobs to pursue other passions or retire from work completely.

They live off their savings, spending around 3-% of the balance yearly, which still requires diligence to monitor expenses and maintain investments. 

FIRE VARIATIONS

There are several FIRE retirement variations:

• Fat FIRE: A program for traditional jobholders who want to save much more than average while not lowering their living standards. This generally requires a high salary and aggressive saving and investment strategies.
• Lean FIRE: A strategy for individuals dedicated to a very restricted lifestyle with minimalist living and extreme savings, with many living on $25,000 or less per year.
• Barista FIRE: This middle-of-the-road approach allows followers to avoid a daily work grind; they combine part-time work and savings for a better-than-minimalist lifestyle. 

Ways to live below your means 

FIRE rule No. 1 maintains that your income doesn’t define your future; it’s more important how you manage your money. The program preaches spending substantially less than you earn and investing the savings to fund your early retirement. Some money-saving strategies are time-tested, but FIRE followers think outside the box.

• If you don’t want to give up travel, cut back extensively everywhere else – cook at home instead of eating out, walk, bike or take public transportation instead of driving, or shop at used or free stores.
• Relocate to a low-cost-of-living area to stretch your dollars even further. Low earners in a high-cost-of-living area may have difficulty with the FIRE program.
• If relocation isn’t feasible, perhaps rent out a spare room for extra income or join with roommates to boost your savings rate.

Save aggressively

The speed with which you reach your FIRE number depends on how much you save. No matter where  you fall on the earnings scale, you can employ strategies to increase your savings rate. Some of these saving methods include:

• Track every penny you spend for several months. Identify where you can cut back and do so.
• Automate your savings so you don’t have to manually set aside funds every month.
• Invest consistently. You don’t need to be a day trader –retirement accounts like Roth IRAs are easy vehicles to grow tax-free savings.
• Take advantage of workplace benefits like a 401(k) and at least always contribute enough to get the full company match if your employer offers one.
• Pick up a side hustle – add a part-time job or dip into the gig economy. 

Playing with FIRE - will it work for you?

Pros of the FIRE lifestyle:

• Freedom and flexibility
• Reduced job and financial stress
• Potential for a more fulfilling life

Cons of the FIRE lifestyle:

• Sacrifices and discipline
• Investment risk
• Health insurance coverage gaps

Plan with or without FIRE

With discipline and a long-term plan, any earner can walk a path to greater financial independence. Incorporating some elements of the FIRE mindset, like smart spending, saving and investing can significantly improve your financial well-being. Consider working with a Fulton Financial Advisor to create a personalized plan where you can map a future that takes your enjoyment and well-being into account.