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What’s The Hype About FIRE?

by TheBusinessPeriod 2 months ago in personal finance

If you haven’t heard of the FIRE movement, you might want to tune in!

Well First, What is Financial Independence?

Let’s keep this in mind first: There is no FIRE movement without discussing financial independence! Having the ability of work flexibility or being work-optional are cornerstone benefits worth aiming for. These days, many people are coming to the conclusion that working 40–60 hours a week for 40+ years is no way to live a full, enjoyable life. To combat this, people will need to build their wealth. Acquiring assets build your wealth over time, which in turn, creates financial freedom. Assets are investments that provide the required passive income needed to be free from waiting on a traditional paycheck.

This is where the FIRE movement comes into play. What is FIRE? An acronym for Financial Independence, Retire Early, this movement is the process of living off an investment portfolio worth 25 times a person’s yearly expenses in the form of passive income. Your target number, or FIRE number, determines when you can retire. Even if the traditional retirement 4% has been in the recent controversy, finding your FIRE number and living on passive income are the most ideal things you can do!

How Is This Achievable?

Let’s take a look at an example of finding your FIRE number. If someone spends $50,000 per year, they would need $1.25 million in accessible investments to generate a 4% return to cover their $50 grand in expenses each year.

How to calculate FIRE

$1.25 million is a lot of money to invest with! However, if a person works a traditional job, they can still achieve this number and have financial independence in two ways:

  • Decreasing expenses
  • Increasing income

One pillar in the FIRE movement is the ideology that living a full life and obtaining happiness is not necessarily achieved through buying materialistic things. Let’s say, for instance, a 5,000 sq. ft. house is nice but, if one were to dig deep into what actually makes them happy, then a 2,000 sq. ft. becomes just as great. And of course, it’s cheaper!

Cutting your expenses helps you reveal what serves you happiness and what gives you gratification. It finds the balance between your needs and wants. As far as increasing income goes, this can be limitless and accomplished in numerous ways. Whether you take on a side hustle, invest, or make career advancements, they all can bring in money. Start saving and investing your money now to help you fast-track to early retirement.

Early Retirement In Different Ways

There are many different forms of FIRE that achieve financial freedom. The major reason for having unique FIRE methods is because of personal preference and style of living as key factors. The main types that will be discussed are Coast and Barista.

Coast FIRE

This method is essentially a milestone reached where one practices the power of compounding to carry one’s retirement savings to increase over time if invested early on. Learn more about Coast FIRE and how to build the calculator below here.

Barista FIRE

Another form of FIRE is where one leaves their full-time work behind and only takes up part-time roles. In this scenario, a person typically has enough saved/invested to cover most expenses. Part-time work will cover bills such as medical and dental insurance, as well as a few expenses. This FIRE method is the perfect balance between not working long hours and working just enough to have more free time.

Why is FIRE Important?

Ultimately, the goal of FIRE is to step away from required work altogether. With that process comes having control over your decisions. Retiring as early as possible and spending your time in any way you see fit. Whether that involves a passion project, volunteering, or even traveling, FIRE gives you ownership over your time. It is the most valuable currency often taken for granted. If you want your time and freedom back, this movement is for you! Find your FIRE!

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I hope you enjoyed my breakdown of FIRE! I want to extend a big thank you to The Business Period for allowing me to write this guest post! If you enjoyed this and want to check out more content on a variety of financial topics, please check out www.retirementcalcguy.com!

RCG, Guest Blogger

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personal finance

TheBusinessPeriod

Writing about personal finance and career insights that impact the millennials and Generation-Z.

Twitter:@business_period

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