Over the past decade, there has been a growing trend of individuals aspiring to achieve financial independence and retire early. This has caused a rise to the popularity of the FIRE (Financial Independence, Retire Early) movement. Let’s take a closer look and see if the FIRE benefit is right for you.

What is FIRE?
FIRE, short for Financial Independence, Retire Early, is a financial strategy that allows you to retire early. This movement prioritizes extreme saving and investing in order to retire earlier than traditional methods might allow.

The ultimate objective is to amass enough wealth to retire early and on one’s own terms. Many FIRE enthusiasts aim to achieve early retirement between the ages of 30 and 50.

Types of Fire
While early retirement is the movement’s primary focus, it is not the only one. This is why there are various FIRE methods that followers may pursue. Common FIRE strategies include:

Lean FIRE: This is a strategy for minimalists who plan to achieve financial independence by living a frugal life, both before and during retirement.

Fat FIRE: This means earning as much money as possible and saving as much of it as possible so that you don’t have to live a meager lifestyle in retirement. The “Fat” part represents a more luxurious version of the fire movement.

Barista FIRE: The goal is to save enough money to where you only need to work part-time (or earn some passive income). As a result, Barista FIRE may not need to make the same sacrifices as those following the lean or fat strategies.

How to Retire Early with FIRE

High Savings Rate
FIRE movement followers aim to save 30% to 70% of their income. Many do this by living below their means. This doesn’t mean extreme frugality, but being more strict with how you spend your money. The higher your savings rate, the faster you achieve financial independence.

Invest Aggressively
With a significant amount of income, you’ll have the opportunity to save and invest aggressively in a diversified portfolio of assets. This may include stocks, bonds, real estate, and various other investment vehicles that generate steady streams of income. The more you can allocate towards investments, and the earlier you initiate this approach, the faster you can start compounding your wealth.

Maximize Income
Making more money can help you reach financial independence sooner. This could involve job hopping to obtain a higher salary, negotiating a raise, or creating a passive income stream. While these steps don’t guarantee more income, they should help you create the right mindset to increase your income.

Bottom Line
The goal of the FIRE movement is to change people’s perspective on retirement and financial independence. FIRE enthusiasts may employ aggressive savings and investment approaches to achieve early retirement, often years before turning 65.

Even if FIRE isn’t suitable for your circumstances, it is still beneficial to establish a financial plan for your future. There’s no one size fits all approach to retirement. What’s important is figuring out what works best for your goals.

George Maroudas, CFP®

George Maroudas, CFP®

Twitter @ChicagoAdvisor


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