Who says you have to work until you’re 65? Why did 65 become the default retirement age? Why not 75 or 50?
Simply questioning that assumption opens the door to new possibilities. The question raises others, such as: If you had enough money to retire tomorrow, what would you like to do with the rest of your life? What compensation would you accept to make your day job optional?
The FIRE movement attempts to address these questions by encouraging supporters to create their own retirement timeframes. Here’s what you need to know about the movement, from its pros and cons to creating a formula to get to FIRE yourself.
What is FIRE?
The acronym “FIRE” stands for “financial independence and early retirement”. Financial independence, sometimes referred to as financial freedom, is not the same as being rich. It specifically refers to the ability to cover your monthly living expenses with passive investment income alone, regardless of your job; In other words, you don’t need a job to pay your bills.
You can be financially independent with a middle class income and lifestyle or even a modest and frugal lifestyle. If his investments earn him $20,000 per year and he lives on no more than $20,000 per year, he would be financially independent, even if no one accused him of being rich.
An important distinction comes to light when you realize that you can choose any age at which to retire: you can spend most of your income on the trappings and appearance of wealth, or you can funnel your income into investments that build real wealth. .
Very few people, even among personal finance enthusiasts, understand the inverse relationship between feeling rich and getting rich. But once he understands that FIRE is an option, it forces him to reevaluate his priorities.
FIRE Movement
Like any popular movement, FIRE has many benefits and many critics. The most obvious benefit of pursuing FIRE is not having to work harder. But many of the benefits are more subtle, stemming from pushing followers to think differently about money.
Can I achieve financial independence and retire early?
Many people, some who are in their twenties or even teens, are interested in the idea of early retirement. There are many benefits to retiring early including more free time, reducing stress on your body, and saving money. However, it’s not always easy to live on a fixed income when you’re retired. Decreasing medical costs can also make it difficult to save for retirement without working overtime.
Can I achieve financial independence and retire early? Let’s see how the FIRE movement defines that.
The assumption of a career of more than 40 years
Most people never question the idea that they will work into their 60s. They work full time, hopefully doing something they don’t hate, and spend nights and weekends with family and friends. They buy the best houses they can afford, the best cars they can afford, and the best entertainment they can afford.
There is no introspection or questioning; just “work, weekend, repeat” ad infinitum, at least until he’s old enough for Social Security and Medicare, and then he can start thinking about throwing in the towel.
Questioning this assumption forces you to think differently about your retirement. Working for four or five decades and spending 90% to 95% of your income is just one option. The FIRE movement poses another: work for a decade or two or less, spend 30% to 50% of your income and save the rest, and then do what you want.
FIRE maintains that work is a choice. It may not be an option for you today, but if you need to work 10 years from now it is optional if you take the right steps. And that realization puts the responsibility back on you to consciously choose your career and retirement schedule, rather than mindlessly following the crowd.
Accepting that responsibility forces you to be more intentional about your priorities. Is it more important to you to spend more money today to feel rich? Or is it more important to accumulate assets and freedom to do what you want tomorrow?
Eliminating the limitations of time and money
Most people live their lives tied to two limitations: time and money. They work full time, so their hours and time off are dictated by their job, and their money is dictated by their earnings from that job.
But financial independence and early retirement remove those limitations. When work becomes optional, you regain full control over your schedule and your time. You can work part time, set your own hours, or not work at all. You can earn more money by working more hours or switching to a better paying job if you want. It’s up to you.
It allows you to pursue your dream job
When money no longer dictates your career decisions, more possibilities open up before you. You achieve real freedom: the freedom to stay home with your kids, pursue your dream job, or volunteer full-time, for example.
I wanted to write novels since I was a child. But I didn’t because he didn’t want to be a starving artist. As he has moved toward financial independence, that fear has begun to take a backseat. Even if I publish a novel that bombs and my mother is the only buyer, I wouldn’t starve.
What would you do if you had enough money to pay your bills for the rest of your life? Unless you already have your dream job, you’d probably do something different. And that “something different” is what becomes possible when you are financially independent.
One final thought on the subject of dream jobs: Many twenty-somethings don’t know what their dream job is. Actually, the same is true of many thirty-somethings. So while you discover exactly what your true calling is in this life, following FIRE will help you pay for it when the time comes.
It forces you to define how much is “enough”
In my 20s and 30s, no matter how much money I made, I always wanted more. I would get a raise, go out to celebrate with friends, and be ecstatic for a few days. Then that increased income became my new normal and it was no longer exciting. After the brief euphoria of moving to a bigger house or buying a better car, I was just as happy, or unhappy, as before.
This constantly changing baseline is known in psychology as ” hedonic adaptation ” or “hedonic treadmill.” That’s why retail therapy only brings a few hours of happiness before leaving you as empty as before spending several hundred dollars on clothes, shoes, or gadgets.
Lifestyle inflation does not mean achieving more happiness; it just means spending more money. But chasing FIRE forces you to define exactly how much money is “enough” as your investment income goal.
And because it takes a high savings rate to reach FIRE (more on that shortly), your idea of “enough” remains inherently based on what you need to be happy, not the most you can spend at a time. dice.
Conclusion
The ultimate goal of many people is to live a life free from work. Free from the stresses, worries, and pressures that come with a job. This can be achieved by saving your money and spending wisely to create a well-funded retirement. In order to achieve financial independence you need to know how much income you will need in retirement based on current expenses. Then you need to follow the FIRE movement to reach your goals!
