What is F.I.R.E anyway?
Financial Independence Retire Early or better known as F.I.R.E is a movement focused on saving more than you spend in order to invest and live off of the passive income, allowing you to retire early. The quick math for calculating FIRE is 25x your annual expenses. For example, if you spend $50,000 per year, you’d need $1,250,000 invested to hit FIRE. This is assuming a 4% withdrawal rate to cover your expenses of $50k. This amount of money will generate enough passive income in interest to allow you to live out your days without the need to work and generate income.
Types of F.I.R.E
FIRE is split up into 3 categories – Fat, Lean & Coast
These different types of FIRE really just refer to the kind of lifestyle you want to live. Fat fire is having a higher annual expense than usual (you want $100k to live off of per year instead of the $50k minimum you need) where as lean fire is a lower annual expense (some folks live on $20k or less per year). Coast fire is somewhere in between when you have enough income to only require working part time (in our $50k annual expense example – $25k would be passive and $25k would be from your part time work).
These levels of FIRE aren’t super relevant in the beginning. The initial goal and starting point is to save more than you spend. No matter which level of FIRE you choose, you will need to save more than you spend to achieve it and retire early.
Why worry about F.I.R.E?
The simple answer, you don’t have to! By no means is this a requirement for being successful or having a happy life. However, finances play a huge factor in our lives whether we like to admit it or not.. At its core, following FIRE and saving more than you spend provides you a higher level of financial independence. We talk about financial independence and what it means to us in our post How COVID-19 saved our lives: Our financial journey from almost $1 million in debt to $0. Essentially financial independence gives you the ability to live the life you want without worrying about working for someone else (or yourself) for your entire life and relying on that source to sustain your livelihood. It’s easy to feel tied down to your career due to an unhealthy financial position. This causes you to worry about your future and limit you from taking risks or chances on something new. The more stressed out and worried you are about finances, the less likely you are to ever leave your job for a different one or start a new business venture or take that 6 month sabbatical in Hawaii.
How to get there
Budgeting-
The first step is giving yourself a big ole’ reality check! Unfortunately, this is the hardest part and usually where people can get discouraged and give up. Fortunately, if you can get through this part of the process it becomes significantly easier to save and you quickly realize the snowball effect of compounding interest. Whenever we’re talking finances with friends and family, the first thing we ask is if they have a budget. Having a budget is critical to having a successful FIRE plan. You will struggle to save any money if you don’t have an understanding of where your money is at. We recommend using Mint Intuit and you can read more about it on our post Top 5: Apps & Websites for Saving Money. Mint is very easy to use and is intelligent with categorization. Plus it’s free! No need to pay for another unnecessary service.
Once you have Mint setup and can recognize where your money is going (which categories are eating up the bulk of your expenses) you can also see how much money you have left over (if any). My advice here is to be patient with yourself. If you’ve never looked at your finances before, seeing them in Mint will be a huge step and it may cause some uncomfortable emotions. Pause for a moment, take a few deep breaths and remember what your goals are. No situation is permanent and we all have the ability to change our lives at any moment we choose.
Trimming-
This is typically a “one and done” item but it usually occurs after you have a budget and see where all of your money is going. Trimming is going into your expenses and finding areas that you can eliminate. Are you still paying for that gym membership that you haven’t used in 6 months? Time to cancel the account! Are you paying more in monthly fees on your storage unit than the stuff in it is worth? Donate the stuff and cancel it! Get rid of any low hanging fruit that you can easily eliminate. This money can either go directly to savings or to any debt you have outstanding.
Debt-
This step can be time consuming if you have a lot of debt to crush. There are a lot of ways to pay off debt and I’d recommend doing separate research on which method is the best for you. Dave Ramsey is a popular guru who has a debt “snowball” method that tends to be widely used in the FIRE world. If you read our blog you know that the only debt we’ve ever had has been mortgage related. We paid off our home in 2021 because we didn’t want any debt over our heads. We buy old used cars, we both went to community colleges on scholarships and grants and we didn’t take out any consumer loans. Having no debt allows you to start saving for FIRE immediately, but it’s not a requirement. I would recommend tackling your debt first before focusing purely on FIRE, but it’s a personal decision. Once you have your debts paid, apply that same amount and tenacity to saving for FIRE (you are already used to that amount of cash outflow anyway).
Saving-
This is the fun part! I always love a challenge so we set fairly aggressive savings goals. Our expenses are 15% of our gross income, leaving us around 85% of our income to save. This is mostly due to us having low expenses and living well below “our means”. I realize that this percentage may sound crazy but recall that we don’t have a mortgage. On average they say your mortgage payment should be 30% of your monthly income (which is high IMO).. so for our TOTAL expenses to be less than 15% is pretty aggressive, even without a mortgage. However, aggressive goals ensure that even if you fall short, you still meet your minimum savings goal for FIRE. The trick is to try and hit those aggressive marks and you’ll hit FIRE that much faster. For us, some months are better than others and we save more than we planned, while other months we may decide to make a big purchase (like this month – we bought another RV!). It’s all a balance but I recommend having a minimum % or $ amount that you allocate consistently to hit FIRE.
You can save in a few different ways based on your preference. We do a 2 tier savings plan. We have a set amount that we save weekly that gets paid up front every time we get paid from our W2 jobs. We came up with this amount by adding our net annual incomes, subtracting our annual expenses, and dividing the remaining amount by 52 weeks to get a weekly savings amount. I prefer to track and save weekly because it keeps me more engaged.
For example, even though it’s the same amount that you’d save monthly, saving $100 per week sounds a lot easier than saving $500 per month. It’s just a little brain trick that I’ve learned helps me. This is also extremely helpful in avoiding income creep when you are able to save a higher percentage of income. For example, I’d rather save $2k a week than $10k a month because I have way more things that I’d love to do with $10k but not as many with only $2k.. breaking it into bite sized pieces is helpful to cut that out.
Back to the tiered savings plan- the first tier savings plan ensures that we are meeting our minimum savings goal. If we underspend in other variable categories in our budget that aren’t FIRE related (entertainment, dining, etc.) then we do a final sweep/2nd tier for any leftover cash and that gets allocated to savings as well. This all goes into a separate account that is intended to be a “FIRE only” account.
Investing-
This is where the path goes in a million different directions! Some folks like real estate, others like stocks and bonds, some like to stuff money in their mattress (not recommended ’cause you know.. 0% interest). How you invest your money is a very personal decision. We did single family real estate for 3 years and realized that the way we were doing it it wasn’t for us. We self managed 4 properties and over invested in them because we wanted to have A+ properties (we lived in most of our rentals at one point). However, we invested in B- neighborhoods so our tenants did not maintain the properties to our standards. We had a lot of repairs and ended up making less than 2% ROI on our properties. It was not worth the 3 years of stress.
More recently we’ve focused our efforts on hard money lending and are getting about 10% ROI with no stress. This is another google and find your favorite method situation. Depending on how you want to live out your days will depend on how you invest your money. If you want to use your money in the earlier part of retirement (like us), you’ll want something that’s more liquid and tangible. We stopped maxing out our 401k’s at work because we don’t want to wait until our 60’s to utilize that money. Instead we invest it now and let it grow at 10% per year and reinvest it over time as we like. We’ve run amortization schedules and our method has a higher return than traditional Roth IRAs or 401ks and allows us to access the funds annually without penalty. Find the method that works best for you.
The journey
Along the way things will happen that may side track you. This is a part of life. Depending on how much you have already saved will also determine your decisions when those things pop up. If you only have $10,000 saved, you can’t go and buy a $50,000 vehicle so it’s a moot point. However, if you have $500,000 saved then you have the ability to go purchase a $50,000 vehicle.. meaning you are more at risk to make decisions that cut into your goals.
It’s important to keep this in mind as you’re moving through your journey. Continue to remember your goals and spend ample time with big decisions that may set back your FIRE plan. Also remember that life is short.. we’ve found ourselves being a little more flexible than we used to. There were times in our past that we wouldn’t eat out with friends and family because we wanted to save $50 but it actually cost us time that we can’t get back (which is more valuable than $50). I wish we had done more dinners with my best friend before she moved away or travelled with my grandparents more before they became immobile. Focus on saving and the ability to retire early, but don’t let it completely control your life and cause you miss out on living either.
As you go through your FIRE journey you’ll get promoted, get a tax refund, get a bonus or have other times that you get a chance to either 1) save more or 2) spend the surplus. Keep income creep in check and remember what your goals are. We had an opportunity over the weekend to buy an RV at a discount and because of our financial decisions, we had enough cash to purchase it (a very similar situation to last summer). This is one of those moments that we had to decide “what’s best for us right now?”
When we spent last summer on the road, we made some of the best memories of our life. We were also able to get all of the money we spent on our trip and on the RV returned to us when we resold it later. For us, we have missed being on the road every single day and it had such a positive impact on our lives that it’s worth the few month set back in FIRE to have the RV lifestyle again. So we decided to dip into some of the “FIRE allocated” funds and buy the RV. For you, it could be your first house, a new baby, a vehicle, etc. etc.. my point is that each journey is unique and you have to do what works for you.
Our FIRE journey
Our goal is lean FIRE by 2025. We’ll hit fat FIRE in 2027 and we’ve been at coast FIRE for a few years now. I’m 99% confident that we will both continue to work full time even when we hit fat FIRE because we’re both loving our jobs these days. However, if we didn’t want to work anymore, we could fully retire at 32 & 39. That gives us another 70 years or so to live out an awesome life and around a 30 year head start on our peers to enjoy retirement. Everyone acts like it’s crazy and we must be miserable.. but in all honesty, we travel just as much or more than the average American.. so it’s not like we’re missing out on life right now. The biggest difference between us and the rest of our our peers is that we’re dual income, we have no kids, we have no mortgage, we have no car payments and we don’t buy “stuff”. We don’t have the newest cars, we don’t eat out every day, we shop discount and Goodwill is my favorite clothing store (if you know, you know). It’s minor sacrifices every day over the course of 5-10 years that will change your life!
