The FIRE Movement | Financial Independence Retire Early

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We live in such a remarkable time. Its never been easier in history to make enough money to live a life you love.

People even 20 years ago would be so jealous of the opportunities we have today to live the life we want. We can work anywhere. Travel the world for less. This is at the core of the FIRE (financial independence retire early) movement.

And there are so many incredible blueprints for living a non-traditional life where youre stuck in a cubicle all day doing work you hate.

Theres a growing movement of people choosing to live life on their own terms. And Im part of it. Were the FIRE movement.

It truly can change your life. FIRE definitely changed mine. But when I started my own financial independence journey in 2010, there wasnt a movement yet.

We were a relatively small group of people all over the world using money as a tool to create more freedom in our lives. We figured out that the higher your savings rate the faster you can retire early.

Between 2010 and 2015 I launched a bunch of side hustles, saved upwards of 82% of my income and invested my money so it could grow.

This helped me reach financial independence and retire at the age of 30. I wrote an entire book about my journey and a step-by-step blueprint that anyone can follow titled Financial Freedom: A Proven Path to All The Money You Will Ever Need(Penguin Random House).

FI stands for financial independence.

While there are many definitions of financial independence, a simple way to sum it up, is you have reached financial independence when you are free from the worry of money.

For some people, this happens when theyd gotten out of debt and for others its the moment when you no longer have to work for money.

RE stands for retire early.

As surprising as it may seem, there are also many definitions of early retirement.

For some, it means the moment when you check out and never work again for the rest of your life (aka old school retirement).

But for others retiring early simply means theyve gotten to the point where they no longer have to work, but they might keep working, or switch to a job that they are more passionate about.

When you put FI and RE together you get FIRE.

But FIRE is more than just about money or personal finance optimization, its more about life optimization. The central question is What makes you happy? and aligning your spending and saving, and financial life around maximizing your happiness.

With that goal in mind, the FIRE movement also integrates psychology and philosophical concepts from other movements like Stoicism and even Buddhism.

Financial Independence Retire Early (FIRE) is ultimately a personal journey.

There are also many facets of FIRE that have spring up over the years:

New pockets of the FIRE movement seem to be popping up every day.

As you can see what FIRE means is ultimately up to you. Thats the beauty of it you truly can create your own path.

While the origins of the movement are hotly debated and evidently the term FIRE was first coined in an old Motley Fool forum sometime in the early 90s, the FIRE movement largely began in 1992 with the publication of one of my all-time favorite books, Your Money or Your Lifeby Joe Dominguez and Vicki Robin.

In the book, they outline a simple yet transcendent idea: that whenever youre working your actually trading your life energy for money. So whenever you buy something you should think about it in terms of hours of your life since you can always go out and make more money, but you can never get back your time.

To explore the 9 Steps in Your Money or Your Life check out the Free 5 Day Your Money or Your Life Email Course.

When I read Your Money or Your Life in August 2010 it completely changed my life. Over the past few years, Ive had the opportunity to become close friends with the co-author Vicki Robin and she graciously wrote the foreword to my book.

I feel so grateful to be able to work closely with Vicki to help make financial independence available to everyone.

But back 8 years ago when I started my own financial independence and early retirement journey, there were very few people on the FIRE path. In fact, I only knew of a handful of what are now known as FIRE bloggers.

Today there are thousands of bloggers documenting their financial independence journeys, an incredibly active financial independence subreddit, hundreds of podcasts, and even a documentary about the FIRE movement that Im in called Playing with FIRE that will be released soon and includes others members of the financial independence retire early community.

Im so stoked about it. Check out a preview of the documentary below.

Also, any good movement needs a folk song and there wasnt one about the FIRE movement so I wrote one. Heres me playing my FIRE movement folk song.

For anyone interested in the FIRE Movement, heres how it works.

Its simple in theory (which is why I could sum it up in a 90-second song) but is a little more challenging in execution.

To make it as simple as possible, here are the 9 steps to reach FIRE (financial independence retire early).

The biggest problem with mainstream personal finance and money advice is its all about the money!

But whats more important than money is life. You can always go out and make more money, but you can never get back your time. So before you even start thinking about the money, first think about what kind of life you want to live. Seriously, write it down.

What does the perfect day look like? Why is it perfect? What are the 10 things that make you happiest?

When I did this exercise I quickly realized that most of the things I enjoy most in life are actually pretty inexpensive or even free. It doesnt cost any money to walk my dog in a park on a Saturday, play guitar with my friends, or board games with my wife.

Once I started thinking in terms of the life I wanted to live and what I enjoyed most, it became easier to prioritize where to spend my money and where to save.

At the end of the day money only matters if you live a life you love. Ive always believed that money is not the goal, time is. But you need to think about what kind of life you want to live what is important to you?

Its always easier in life to chase that next thing whether its the next job promotion, raise, or save 1 million dollars.

Whats harder to do is take the time to figure out what actually makes you happy and what kind of life you want to live. But once you look within instead of just outside, the easier it will be to plan for financial freedom.

The next step is to figure out how much money you need to live that life awesome life! I remember being in college and dreaming about driving a Maserati and living in a big lake house, but now when I see a Maserati driving down the road I dont see $200,000, I see $1,200,000 in 30 years!

In 2010 when I started my financial independence journey, I didnt set a goal for how long it would take. All I knew was that when I did the math I was never going to be able to retire if I was only able to save 5-10% of a $40,000 $50,000 income.

The math I did was pretty simple. If I was able to save $5,000 per year maximum, even with an expected compounding rate of 6%, I would have about $433,000 in 30 years. While that might seem like a lot of money today,its not going to be that much in 30 years, because of two expected variablestaxes and inflation.

You will need to pay tax on that money when you take it out, assuming a 30% tax rate that cuts the after-tax value to $308,000, which when adjusted for 2% annual conservative inflation amount (it could be higher than this even!), then the future value of that money after taxes and inflation is approximately $170,000.

While $170,000 is still a lot of money, its not going to be in 30 years. It definitely wont be enough to live on for 20+ years.

Typical wisdom is that you need 25x your annual expenses to retire early. When I did this calculation, I anticipated my annual expenses would be at least $50,000 in the future (who knows if I will actually be able to live off $50,000 in the futureI sure hope so!).

But it was the best starting point I had, so by simply multiplying 25x by $50,000, I determined that I would need to save $1,250,000. Thats a big number, but it was my target.

You can sit down with a piece of paper and see how much money you need to retire early by checking this calculator I built.

Saving is an opportunity to live a life you love. Its not a sacrifice. As long as you view it as a sacrifice youre always going be in a scarcity mindset.

The only way that youll be able to reach financial freedom and FIRE is by saving as much money as you can and investing it to grow.

Remember what I said about living differently? A 50% saving/investing rate is more common than you would think amongst the FIRE (financial independence early retirement) crowd. I know a lot of people that save this much each month because they get it.

Saving 50%+ of your income is definitely going against the status quo, but thats how you fast track wealth. If you want to go deeper, here are two posts onhow much money you should be saving and my investing strategy.

The easiest way to monitor how much money youre saving is by tracking whats known as your savings rate. Your savings rate is simply the percentage of your income(s) that you are saving.

To calculate your savings rate, you want to add up all of the dollars that you save, both in pretax accounts (for example, 401(k)s and IRAs) and after-tax accounts (brokerage) and divide it by your income.

Here is an example of how it looks if you have a $100,000 income and are saving 40 percent.

Its pretty simple. The more money you can save the faster, and bigger, it can grow. The average savings rate in the United States is currently around 3.2%, which based on simple math means that a majority of Americans will never be able to retire.

But if you can get that savings rate to 20%, 30%, or even 50% youll be able to cut years and even decades off of your retirement.

Keeping a budget is really hard and its what stops most people from really fast tracking their financial independence.

Im not going to tell you to create a budget or cut back on all of your expenses. What you need is to balance how much you spend. Ive always viewed saving as an opportunity, not a sacrifice.

But you do need to find a way to reduce how much you are spending so you can increase how much you save.

The easiest way to do it is by cutting back on your housing, transportation, and food costs. The average American spends 70% of their money on housing, transportation, and food, so if you can spend less on them (say 25% or so, then you can bank the difference). If you move to a smaller apartment, walk to work, and cook at home, you could realistically increase your savings rate to 25%+ or even higher.

By reducing what I spent on my housing, transportation, and food costs, I increased my savings rate to 40% and sometimes as high as 80% while I was fast tracking my financial independence. The only way I was able to fast track was by cutting way back on my living expenses and investing the difference.

Focus on where you spend the most money to save the most money. Cut back your housing expense as much as you can through a strategy known as house hacking where you rent or buy a 3 or 4 bedroom apartment or house and rent out the other room. Youre going to save a lot more money doing that than by cutting out things like your $5 latte.

Im not here to tell you what to buy or not to buy, but its important to recognize that whenever you buy anything youre actually trading your future freedom for it.

At the end of the day it comes down to a personal choice, but I was happy moving to a smaller apartment, moving closer to my office, and eating out less, to bank the difference. And I definitely was able to bank the differencesaving at least an additional $13,000 per year by cutting back.

While I dont have the exact figures, I estimate that cutting back for 2 years, before buying my first home, I was able to save about $25,000 that I invested in 2011 and 2012, and that cutting back is now worth more than $100,000 in my investment accounts. Im going to continue to let it grow and hopefully making that decision 2 years ago will compound in 20 years into a lot more money. It was totally worth cutting back on my three biggest expenses. Try it out.

When I was on my own financial independence journey I calculated that for every $100 I saved I was buying a week of freedom in the future.

Not all debt is created equal. There is good debt vs bad debt. Some debt you lose money on and some debt you can make money with.

Good debt is debt like mortgage debt you use for investing in real estate or building a real estate empire or in some cases student loan debt if it helps you get a better job or make more money over your career.

Bad debt is credit card debt since the interest rate on it is probably over 20%. Pay down any credit card debt you have immediately since you are losing money with it.

While there are a bunch of different debt payoff strategies, the best strategy is simply to pay down your debt with the highest interest rate first, which in most cases is going to be credit card debt, then any personal loans, followed by student loans, and then mortgages.

The simple rationale is that compounding works both ways, meaning that just like your investments can grow and compound over time, so can your debt.

So whenever youre paying off a debt you want to pay down your highest interest rate debt because its like getting that percentage return on your money.

If you pay off your 20% interest rate credit card its like you made 20% because your debt is no longer growing, as opposed to paying down your student loan balance with a 5% interest rate where youd only be getting 5% on your money.

Since your full-time job is where youre likely currently making the most money, its important to try and get paid as much as possible.

The simple fact is that most people deserve a raise, but theyre too afraid to ask for one. The impact of a single raise of a few thousands of dollars can actually add up to tons of additional money over time.

Just getting 1 percent bigger raises each year can make you literally hundreds of thousands of dollars richer over the next twenty to thirty years by investing and compounding that small raise difference.

A simple study that looked at an annual 3 percent versus a 4 percent raise each year showed that after thirty years the 4 percent raise was worth $578,549 more when that small 1 percent difference was invested in the stock market.

This is because your future earning potential is impacted by your base salary today. Most people are underpaid in their roles, but many dont do anything about it.

Eighty-nine percent of Americans believe they deserve a raise, but only 54 percent plan to ask for one in the next year.

We typically spend more time planning for a vacation than working to improve and optimize our careers, which is a missed opportunity.

In reality, most of the jobs that will exist in 20 years havent even been created yet, so while traditional advice is that you should become an expert in one thing, its actually more valuable to have a broad range of complementary skill sets.

For example, if you know how to use Google Analytics, you should also learn about branding and how to start a blog.

A side hustle is anything you do to make money outside of your full-time job.

While you can make money doing literally anything, the best side hustles are the ones where you can make money doing something you actually enjoy and where you can control what youre getting paid and when you work.

Far too many people drive for Lyft or Uber and are limited by the hours in a day they have to drive and what they get paid because the rates are set by the company, not the drivers.

While there is an infinite number of side hustles that you can launch, I like the side hustles that you can do online because they give you the ultimate flexibility to make money from anywhere in the world and on your own time.

Some of the best current side hustles are learning how to become a virtual assistant, start a blog using Bluehost (check out how to make money blogging), and running Facebook ads.

Its essential to switch from a saving to an investing mindset. Its not possible to fast track financial independence by keeping your money in a savings accountinvesting is an essential ingredient.

I have made more money through investing than anything else and most of it in my sleep! Just recently, I was looking at my investing returns over a 90 day period and realized that I had made over $15,000 in gains from one of my investments, which is more money than I made in 6 months working at my first job after college. If you really want to make money, then you need to be investing as much money as you can.

Investing your money is what really accelerates your ability to reach financial freedom faster because your money starts making money and then the growth accelerates.

While you can invest in literally anything, the most dependable investments are stocks, bonds, and real estate. You need a short term investing strategy (money youre going to need in the next 5 years) and long term investing strategy (for the money youre going to need in 10+ years).

Note: Its always worth keeping at least 6 months of expenses saved in high-interest online savings account for any unexpected emergencies in whats known as an emergency fund.

Your short term investments should be kept in a high interest online savings account and your long term investments for retirement should be largely kept in low cost highly diversified index funds like the Vanguard Total Stock Market Index Fund (VTSAX) or something similar that holds most of the stocks in the U.S. stock market.

You can invest in a total stock market or S&P 500 index fund in most employee retirement plans like a 401(k), 403(b), or 457(b), as well as individual retirement accounts like a Roth IRA, Traditional IRA, SEP IRA, and Solo 401(k). While I personally invest in a few individual stocks, I largely recommend that you avoid investing in individual stocks unless its with less than 10% of your total net worth.

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The FIRE Movement | Financial Independence Retire Early