What is the FIRE movement all about?

Kat Tretina

September 18, 2018  •  3 Minute Read

Financial Tips

If you spend any time reading personal finance blogs, you’ve likely heard of the FIRE movement. FIRE stands for, Financially Independent, Retire Early. It’s a movement that’s gaining momentum and devout followers.

But what is FIRE, exactly? Here’s what you need to know.

What is the FIRE movement?

Typically when you think about retirement, you think of ending your career in your 60’s. There’s a reason for that; it’s what most people do. Most people work until they’re at least 62, when they can start collecting Social Security.

Although that’s the norm, FIRE devotees think much more aggressively. Instead of retiring at 60, they plan on retiring at 40 or even 30. Early retirement is the goal, but FIRE is also about financial independence and choice. It’s all about empowering you to live the lifestyle.

To become financially independent, your net worth needs to be about 25 times your annual expenses. If your annual expenses — including your mortgage payment, utility bills, car loan payments, and day-to-day expenditures — total $30,000, that means you need a net worth of at least $750,000 to be considered financially independent.

If this all sounds impossible, keep in mind that early retirement doesn’t mean giving up all sources of income. In fact, FIRE enthusiasts stress having multiple or alternative sources of income to achieve your financial goals. You trade the traditional 9-to-5 for a more flexible way of life.

The 5 rules behind FIRE

If you’re feeling inspired, you can join the FIRE movement and start making changes to your life to help you become financially independent and retire early.

1. Cut your expenses

The lower your expenses, the easier it is to achieve financial independence. FIRE devotees are ruthless about cutting their spending and eliminating extras to reach their goals. If you’re dedicated, review your budget and identify areas where you can cut back.

2. Aggressively pay down debt

Debt is the enemy of financial independence. Making debt payments holds you back from putting your money to work for you, such as through investing or buying real estate. To free up more cash flow, focus on accelerating your debt repayment. After you’ve trimmed your budget, put the money you saved toward your credit card balance or other debt until you’re debt-free.

3. Save as much as possible

Once your debt is gone, you can focus on saving and building your net worth. Set aside a percentage of your pay every month. Get creative and think of ways to boost your savings, such as selling clutter that you have around the house for extra cash or downsizing your home to free up more money.

4. Invest

FIRE members think of the long-term when it comes to setting goals. Because they’re focused on retiring early, they need to invest aggressively to ensure they have enough money in retirement. That means you need to take advantage of retirement vehicles like 401(K)s and your employer match, if offered. But it also means you need to save in addition to the 401(K), such as through a Roth IRA.

If you have money left over after contributing the maximum to those retirement vehicles, FIRE devotees recommend investing money in the stock market or real estate, too. That way, your money earns more than it would sitting in a savings account.

5. Build multiple income streams

To become financially independent at a young age, you likely need to develop multiple income streams. Having different sources of money protects you in case one avenue dries up, and helps support you when you retire.

Many FIRE enthusiasts pick up side hustles to earn extra money, but they also build passive sources of income, too. That way, they earn money while they sleep. That’s why you so see many FIRE members who are bloggers or who sell web courses. They can create the blog or course and reap the rewards for months or even years later.

Joining the movement

No matter what age you are, there are benefits to joining the FIRE movement and focusing on becoming financially independent. By taking steps now to boost your income, cut your expenses, and pay down debt, you can enjoy greater flexibility and freedom in your life.

If you’re ready to take the next step and start tackling your debt, learn how credit card consolidation can help you save money and pay off your debt faster.