After everything we all went through with the COVID-19 pandemic, people are rethinking their lives and what they want from them. We all saw parents or grandparents who were still working hard and dreaming about their bucket list for retirement at age sixty-five cut short and unable to experience those dreams. Even before COVID, many of us saw older generations work until they died, or retiring just as their health worsened and their ability to enjoy life diminished. It’s a sad thing to witness.
The Financial Independence/Retire Early movement existed before COVID, but what we experienced has certainly added fuel to the fire. Workers young and old want financial freedom, less financial stress, and a better life earlier, and they’re making it happen in droves.
Let’s explore FIRE in a bit more detail.
First, most FIRE advocates are far more focused on the Financial Independence part than the Retire Early part. You have to do something with your time, right? The key is being able to spend your time doing things you enjoy. That has many variations – maybe taking every summer off to travel. Maybe only working three or four days a week year-round. Maybe both. Travel the country in an RV while homeschooling your kids. Take them to live for a while in inexpensive countries like Costa Rica or Thailand for the cultural experience. You don’t get that sitting in Ms. Crabapple’s stuffy classroom.
Another take on FIRE is to plan for a gap year (or four!). Remember when your kids said they wanted to do that after high school, before starting college (if they’re younger than that, prepare for this…). Now is the time for revenge – “Kids, your mom and I are taking some gap years as you head to college. We want to hang out at the sorority/frat house and football games with you…” See how that goes over. Actually, this is a thing – a FIRE strategy is to quit work for the years the kids are in college. Why? Think about it. If you have no income, what does that mean for those applications for student aid? Exactly. You get lots of it. There’s a strategy to this, and it has to be done right. You need a plan and a roadmap.
You may enjoy working now, but will you in a decade or two when there’s new management, a corporate takeover by an evil conglomerate, you start having health problems or slowing down? When you get unexpectedly laid off at an age when it’s tough to get back in?
Below are the basic tenets of the FIRE movement, and our take on them.
- No debt. Yeah, that’s right. Interest costs are a huge part of most people’s monthly expenses. They rarely know the total spent on monthly interest until we show them. It’s staggering, especially when calculated over a lifetime. Imagine how much you could save and invest without all those credit card, student loan, car payments, personal loans, phone loans, orthodontic loans! Remember, there’s no such thing as 0% interest. It’s a scam. (Ok, unless you borrowed the money from Grammy.) Even kill the mortgage. Can you see how much less you need to work when those bills are all gone? Don’t get sucked into the credit card points and miles BS. Many FIRE bloggers make a big side-hustle income by pushing those on you. Finance your FIRE, not theirs. It’s a lot of work to manage all that. It complicates your finances. You want less work, not more, right? But if you enjoy the challenge and love that kind of thing, go for it.
- Budget/Simplicity. A big part of FIRE is dismissing the financial stress from your life. Making everything simple and easier to manage. Back in the olden times, before credit cards, grandma and grandpa had a very simple financial life. The pay went into the checking account, bills were paid throughout the month, and anything extra at the end went into savings. No obfuscation of delayed paying for things with credit cards or credit. The only thing they borrowed for was their home. Do that. It makes your cash flow so much simpler. Keep a simple budget – plan your expenses and savings/investing contributions for the month, keep track just for that month, put as much on auto-pilot as you can, and you’re done.
- Be frugal. You can enjoy life, but there is so much waste in our spending, and so many ways to find deals, hacks, and huge savings on the things we spend on every month. Be a smart consumer. Consider every discretional purchase against the cost of your freedom. Sure, that Tesla is sweet. Is it worth working another six years in a job you dread going to (or might someday)?
- Make More. Get more income streams going. This is crucial during the FIRE lifestyle to have tax deductions for common expenses like internet, mileage, cell phones, vehicle mileage, and more.Find side hustles that are oriented to your interests and hobbies, so it’s not even like working. You control the schedule and can do many from home. Turn the best one or two into a legit small business and ultimately walk away from your cubicle job when ready. Teach your kids to be entrepreneurs.
- Invest/save. Now that all those debt payments are gone, you have a much better cash flow situation. You should live on 30-50% of your income each month. What to do with all those beautiful extra dollars? There’s a FIRE metric that says you’re ready when you have twenty-five times your expected annual expenses saved up. That quick calculation is called your “FIRE Number.” We urge you not to make such a huge decision on a very simplified calculation. You need to weigh not only asset allocation (how much in stocks vs bonds) but asset location (how much in traditional IRAs vs Roth vs brokerage) and asset type. For that last point, the approach dictates low-fee, diverse ETFs in a portfolio you can easily understand, not speculative approaches such as crypto, alternatives, or options trading. You need to have health care figured out. The idea is to keep your taxes very low, to qualify for subsidies on your health care.
- Have a detailed plan. All the above should be orchestrated mathematically and emotionally into a detailed plan. It’s difficult to do with so many moving parts! If you have a solid foundation of knowledge in personal finances, investing, and taxes you could use a tool like Pralana. Otherwise, get help from the community or a good, honest, fee-only fiduciary retirement planner and investment advisor who understands FIRE. Be careful of scammers and those who will try to push ‘products’ on you like permanent life insurance, annuities, reverse mortgages, and other bad ideas. Update this plan annually with the most current information.
So, when are you ready? What’s your FIRE date (not number!)? When that plan in point #6 above says you are. We believe in this. People shouldn’t have to work until they die, unless they’re really dying to (sorry!). You should be able to experience freedom and work on that bucket list while you’re still healthy and energetic, and give those experiences to your children and grandchildren.
Did you notice the title of this blog has a double meaning?
- Here at Emancipare, we have young (and older!) clients that come to us wanting financial independence – the freedom in their lives to know they’ll never have to spend one day at a job they don’t love going to. They want to be part of the FIRE (financial independence/retire early) movement. They want us to build that roadmap for them. So, they say “Fire me!” to us.
- We’re different – we set this unique retirement planning and investment advisory company up to teach and mentor, so our clients can fire us, and thus have fewer expenses and a better retirement. So, we say “Fire me!” to them.
It’s a win-win.
Our favorite resources are below, of course, aside from the classes and services we provide at extremely low prices – because we believe in this.
Free yourself from the hamster wheel.
Don’t feel left out of the FIRE movement | Vanguard
FIRE | Financial independence Retire early | Fidelity
Financial Independence, Retire Early (FIRE) Explained: How It Works
Choose FI: Your Blueprint to Financial Independence