Is FIRE Always a Good Thing?

Have you ever dreamt of retiring early and enjoying a life free from the constraints of work? The FIRE movement might be for you!

FIRE has gained significant popularity in recent years because it teaches how to achieve financial independence at an earlier age than traditional retirement plans. But is it everything the gurus say it could be? Here’s what you need to know.

The basics of FIRE

The FIRE movement stands for “Financial Independence, Retire Early.” It’s a lifestyle choice that prioritizes saving and investing a large portion of your income to achieve financial independence and remove yourself from the workforce earlier than age 65.

Credello’s recommended books on FIRE are a great place to start if you’re looking for more in-depth guides, but here are some key tenets of FIRE:

• Strategic saving: FIRE proponents believe in living below their means and saving as much as possible, often aiming for 50% or more savings.
• Investing mindset: Besides saving, those pursuing FI also focus on growing their wealth through strategic investments. This often involves taking advantage of tax-efficient accounts like IRAs and 401(k)s.
• Extreme frugality: Living frugally plays a crucial role in attaining financial independence sooner rather than later. By cutting back on unnecessary expenses, you can save more money, allowing it to work harder for you over time.
• Increased flexibility: Achieving FI grants individuals freedom and flexibility. It allows them to pursue passion projects and spend time with loved ones without being tied down by traditional employment obligations.

Pros and cons of FIRE

Pros:

1. Financial independence: The biggest benefit of the FIRE movement is achieving financial freedom at a young age by accumulating enough wealth to retire early and live off their investment returns.
2. Time freedom: Those who achieve financial independence can choose how they spend their days instead of being tied to a 9-to-5 job. This flexibility allows them to prioritize personal passions, spend time with family, travel, etc.
3. Reduced stress: Achieving financial independence minimizes the stress associated with money worries and job insecurity. With sufficient savings, you’ll have a safety net that provides peace of mind during challenging economic times or unexpected life events.

Cons:

1. Extreme discipline is required: One downside is that achieving financial independence requires significant dedication and discipline to saving and budgeting expenses. Some may find it challenging to commit to such strict financial habits for years on end.
2. Sacrificing short-term comfort: To accelerate savings and reach FIRE faster, you may need to make sacrifices or cut back on discretionary spending, meaning less extravagant vacations, living frugally, or downsizing your living arrangements—a trade-off that not all may be willing or able to accept.
3. Uncertainty about future expenses: While meticulous planning plays a central role in the FIRE movement, there is always an element of uncertainty regarding future bills like healthcare costs or unexpected emergencies which may impact your retirement funds.

Is FIRE right for you?

There are a few things to consider before setting out to achieve the goal of retiring early:

1. What is your strategy? You’ll need a thought-out plan that covers things like emergency expenses, downturns in the stock market that could reduce your savings, backup plans if you need to go back into the workforce, etc.
2. How impulsive of a spender are you? Debt from impulse spending is a key factor preventing people from achieving FIRE. Can you maintain discipline for a long-term payoff when short-term temptations surround you?
3. Is everyone on board? If you’re in a relationship or have kids, you must bring them into the plan. Everyone will need to work together to achieve the goal of having you retire early. Otherwise, you might end up missing your target savings goal.
4. Can you earn enough money now? Unfortunately, FIRE requires you to make significant sums of money now that you can use for daily expenses and put away for the future. Many in lower-paying jobs simply won’t have the resources to set aside significant sums of money when the bills are due.

The bottom line

Achieving FIRE is a challenging but worthwhile goal to work toward. However, you need to understand your specific situation and if FIRE is a realistic goal you can go for. Sit down and take a stark look at your financial situation, spending habits, and the feelings of other people who your retirement will impact. That way, you’ll know if this is something realistic you can hit or if it will require significant changes in your finances that just aren’t feasible now.