Financial Independence Retire Early (FIRE) is a lifestyle movement that continually levels up your financial know-how and mindset–allowing you more of what you truly value and less excess in your life. No matter where you are on your FIRE journey (skeptical about it, beginner, or retired) FIRE has something to offer you.
Let’s start with the basics: what is FIRE? Traditionally, pursuers of FIRE set the goal of retiring long before traditional retirement age. They do this by saving and investing well beyond traditional rates and reducing spending well below traditional needs and wants.. There are dozens of definitions out there detailing more about FIRE – what it is, the many paths to achieve it, and when to start. In reality it’s really about gaining control over your life and not taking the default path. It’s about creating a life by your own design. And, it’s about making conscious choices over how you use your resources (human capital, social capital, assets, and time). With this broader definition in mind, each person will approach FIRE differently – so ask yourself: “Just how financially independent do you want to be?”, and “Do you even want to retire early?”. In the end, you get to choose.
To give a flavor for the benefits of FIRE I’ve created the Three Stages of FIRE which I detail later. At first glance, it might appear that the benefit of FIRE lies in the destination: retirement, but benefits actually start accruing from the beginning and continue throughout the journey.
In order to paint a picture of these benefits, I’ll tell the story of my progression through the stages:
My Beginning Stage focused on keeping expenses low through finding deals, scholarships, or hacks on significant expenses; avoiding expenses on things that didn’t matter; and avoiding debt. My partner and I managed to buy a home during the recession in 2009 in downtown Washington, DC spending only $325k including initial repairs by finding a fixer upper and renovating it. I also left business school with an MBA with only $27k in debt by finding scholarships and working part-time during school. These decisions left me with money available to prioritize saving, and I still had money to spend on going out with friends and multiple vacations each year as well. I also always had a good reliable car even though I often chose to bike around the city. The key in this stage, was building the habit of being intentional with my finances overall and especially with spending.
In my Middle Stage, my early decisions set me up to start building freedom for myself and to experiment in my career. I left positions that I didn’t enjoy or were negatively stressful, and did not have to prioritize money because my expenses didn’t rise when I received promotions and bonuses. Of course I allowed myself to enjoy some treats, but largely I invested my additional earnings which I saw as an investment in my freedom. In fact, when I started my own business, my salary decreased in the first couple of years. This was only possible because I was debt-free except for a reasonable mortgage, and because I had savings to cover me.
My Final Stage is all about continuing to create the life that I want. My ideal life still includes work, but its importance is now fulfillment rather than making a living. I’m creating a balance between travel, fun, free-time, new experiences and work as a coach and financial planner. In terms of managing finances at this stage, I don’t spend any more time than I did at earlier stages, in fact I should spend less because I’m mostly building off of old habits. I have to remind myself not to get distracted with over-managing or earning money just to earn it. Money alone won’t improve my life or bring happiness. After building the habit of saving and working hard for so long, I’ve developed awareness of the flip side of my money script: money vigilance. I’m retraining myself to recognize when scarcity and fear cause me to worry about money or security to the detriment of new experiences and opportunities. It can be tempting to hoard and protect yourself and resources, but for me, that’s not what a fulfilling life is about.
The 3 Stages of Financial Independence
Beginning Stage: Learning About FIRE
The FIRE learning stage is focused on gaining and implementing financial knowledge.
Financial
- Eliminating and avoiding consumer debt (i.e., credit card debt that carries over more than one month).
- Tracking spending through software like Mint, YNAB or spreadsheet.
- Making a goal to avoid spending more than they earn.
- Building savings through retirement accounts (workplace 401k, 403b, 457b TSP or personal Traditional and Roth IRAs).
- Identifying ways to earn additional income: passive income, side-hustles, etc.
- Identifying ideal ways to reduce expenses: meal prepping, credit card and travel hacking, coupons, biking, roommates, etc.
Mindset
- Understanding how investment interest and compound growth gives a person the power to grow money over time and recognizing that this unfortunately works for growing debt as well.
- A belief that you can take control of your spending. Many beginners are inspired by FIRE to get their finances in order. They pay themselves first in the form of savings and debt paydown (they make payment directly from paychecks to debt paydown and savings BEFORE discretionary spending).
- A belief that you’re capable of living your life by your design. You’re not stuck in “the rat race” or a job or life you don’t like until your 60s.
- Understanding the importance of defining your values and making shifts to align how you spend your time and money according to those values. Intentionality around money and aligning spending with what’s important.
Middle Stage: Experimenting With FIRE
Congratulations! You’ve gained a good bit of knowledge and are a regular saver. You’re in control of your finances and making solid progress with saving, investing, paying down debt. The middle stage looks like:
Financial
- You consistently max out retirement savings.
- You are saving in non-retirement accounts.
- You are possibly investing in a passive income source like real estate (through renting rooms or a portion of your home or separate unit(s)).
- You have basic understanding and comfort with investing in mutual funds, index funds, stocks.
- You understand the basics of calculating your personal FIRE numbers and the 4% rule.
Mindset
- Confidence over finances: belief that you are in control of income, savings, and expenses.
- Confidence in earning potential: Increasing your earning potential through education, side hustles, seeking out better positions etc.
- Freedom to experiment with non-traditional lifestyle: entrepreneurship, sabbatical, extended or slow travel, leaves of absence from work, nomadic lifestyle, etc.
- More flexibility to try career areas of interest, curiosity, or dreams.
- Increased time to focus on passions outside of work.
Final Stage: Freedom (FIRE)
You’ve arrived at your definition of financial freedom. For some this means never working again, but for others it doesn’t. Whatever this stage looks like for you, it’s financial independence. You’re mentally, emotionally, and financially free to design your life as you wish.
Financial
- You have reached the point where you have assets that can support your estimated expenses each year for the rest of your life, or you have a combination of assets and ideal work with income, flexibility, and enough security that allow you to live your desired lifestyle.
- You can fund your dreams. Whatever your dreams and purpose are, you have the financial and non-financial assets to make them a reality.
Mindset
- Belief that you are in control over your time and results in life.
- Understanding of money scripts and the role they play in your life.
- Understanding and awareness of common money biases.
- Abundance mindset.
- You can be generous with your time and resources.
I hope you’ve found some areas where FIRE can help you on your own path to Financial Independence and are energized to start or take the next step on your journey. No matter which stage of FIRE you may be in, there are financial and mindset steps you can take to help you towards the life of your dreams. If you’d like to learn how coaching can help make your dreams a reality, please schedule a free consultation today.
Recent Comments