The FIRE movement in 2022 and beyond

Is the FIRE (Financial Independence, Retire Early) way of life achievable in 2022? Find out how recent events are impacting the whole FIRE approach to saving, investing and living.

What is FIRE all about?

FIRE stands for Financial Independence Retire Early. It’s an acronym that was popularised in the USA by the likes of Financial Samurai and Mr. Money Mustache. Both have been blogging for years about their successes with a FIRE approach to their finances and lifestyle. The original spark for the whole phenomenon, Vicki Robin, started her own FIRE campaign 30 years ago in 1992 with her book Your Money or Your Life. 

So what is all the fuss about FIRE? The name summarises the results you’re aiming for quite neatly. But it doesn’t tell you about the financial habits and lifestyle you can expect to adopt if you want to stop relying on a salary for your income and enjoy early ‘retirement’ instead. And by early, we don’t mean 59 instead of 65. Some FIRE devotees plan to become financially independent, living off their investment income, by the tender age of 40 or less. 

What is the FIRE Method?

How you get to this point isn’t rocket science. You spend less than you earn and invest the extra. How much you’ll actually need in your investment portfolio to be retirement-ready is also a simple equation. According to Mr Money Mustache (and many other FIRE bloggers and podcast hosts), you’ve reached the magic number when your total net worth (assets minus liabilities) is 25 times what you spend in a year. 

If you’re new to the idea, this probably sounds like far more money than you can imagine saving over the next 10-15 years, let alone before the more traditional retirement age of 65. But the important thing here is your savings target is relative to what you spend. To save enough to make FIRE work, you’re going to be living fairly frugally and this is essential to the FIRE way of life in the pre-retirement years. As well as blogging about investment strategies, most FIRE devotees also wax lyrical about how to enjoy life on a tiny budget. Takeaways, expensive holidays and clothes are out, a basic wardrobe and spending time in nature are in. 

And once you’ve quit your job, your FIRE life won’t be all champagne and limousines. To make sure your nest egg lasts, you can only spend it at what’s called a Safe Withdrawal Rate. The figure the FIRE community have agreed on for this is 4%. So if you have $500,000 invested, you can spend $20,000 a year. Sounds tough but many FIRE practitioners in retirement have found they can achieve this easily by travelling to countries where rent, food, and general expenses are far lower. Without the daily demands of paid work to worry about, they can roam the world and enjoy a lower cost of living.  

How a FIRE mindset can help your finances

Now could be a good time to take on these attitudes and habits of FIRE practitioners to stay in control of your money which includes: 

1. Know where you stand financially

Getting on the FIRE bandwagon starts with calculating your net worth. This includes your savings, debts and assets you already own, such as property or shares. Taking stock of your financial position in this way can help you come up with a contingency plan if you lose some or all of your income.

2. Get to know what you spend

At a time when your job may be less secure, it’s a good idea to get clear on where your money is going so you can cut back on non-essential spending, and save for a rainy day instead. 

3. Question every spending decision

In her book, Vicki Robin talks about resisting the ‘thrall of consumer culture’ and being more aware of how you’re managing your ‘life energy.’ As Robin points out, we spend many hours working to earn while making split-second decisions about spending. By considering how much ‘life energy’ you’re putting into each purchase, you might think more carefully about your spending habits. 

4. Invest to boost your potential ‘passive’ income

If you do have some savings, give some thought to investing a portion to earn a passive income. But when investment markets are volatile, you’d be wise to get professional financial advice on how much to invest and a strategy that suits your risk appetite and timeframe. And make sure you keep some savings in an instant-access account just in case. Having an emergency fund on hand is a goal you should aim to meet before looking at potential returns you can earn from your savings.   

A reality check for the FIRE concept 

Up until now, the whole concept of planning for the unexpected hasn’t been part of the FIRE manifesto. However, recent events have shown just how extreme events can mess with your ideal financial plan. It’s a reminder that financial independence is also about protecting wealth as well as having the discipline to save it and spend it wisely.  

The FIRE approach also depends on placing limits on how you live now for the promise of future freedom. Of course, we’re all having our freedom limited in some way due to the major public health crisis of coronavirus. When we do get back to a ‘normal’ way of living and spending, it might seem more important to really enjoy the present moment. Instead of an aggressive FIRE-style savings strategy, perhaps a balance between spending on your current lifestyle and saving for your future might be the way to go. 

Main image source: Angelo Julius (Shutterstock.com)