Last Updated on November 2, 2020 by Emma @ Making and Saving Money
FIRE stands for Financial Independence Retire Early. It’s a movement of people who believe in minimising their living costs, maximising their incomes, and investing for years until they reach the stage that they have enough money invested that they can live off their investments for the rest of their lives. They create the option to retire, but many choose to work on something that brings them joy and fulfilment.
At makingandsavingmoney.com, we’ve been fascinated with the FIRE movement for some time. We’ve compiled the results of our experiences and research into this free guide for you.
This post contains affiliate links. If you decide to use them, my blog may earn a small commission at no additional cost to you, which helps to fund more helpful articles for you to enjoy. Find out more in my Affiliate Disclosure. Nothing in this article constitutes financial, or other, advice. These are my views and the results of years of research, testing and learning.
What is the FIRE method?
FIRE (Financial Independence Retire Early) involves the following steps:
- Decide on what lifestyle you want to have in early retirement. The two options the community talk about the most are leanFIRE and fatFIRE.
- Calculate how much money you need to be able to retire early at a specific age – the FIRE movement generally uses 25 times your annual expenses and the principle of the 4% rule.
- Maximise your earnings to reach FIRE as soon as possible.
- Minimise your expenses – typically people in the FIRE movement save 50 to 75% of what they earn.
- Invest as much as possible.
What is the 4% rule?
The 4% rule states that you can withdraw four per cent of your investments’ value annually, with your withdrawal in future years adjusted for inflation, and still enough to live on for another 30 plus years.
This rule is based on the theory that over the longer term, funds invested in the stock market trends upwards and deliver on average 4% returns, accounting for some dips along the way.
The positive thing about this rule is that it is simple to understand. That said, there are several drawbacks that you need to know if you use this rule to determine your financial plans for retiring:
- It assumes a consistent rate of withdrawal from your investments, just updated for inflation. This withdrawal rate may not mirror the reality of the money you need in retirement as you could need more money in one year and less the next.
- It works off data from historical stock market data, which may not hold true for this decade or the next. We can’t predict the future. A 4% withdrawal rate could be too high by the time you reach your retirement years, meaning you need to save and invest more to sustain that amount of spending.
- It models for your portfolio lasting for 30 years, which may not be enough if you want to retire young.
Overall, the most important thing is to pick an investment strategy that you understand and to monitor your investments, so you know what withdrawal rate is realistic. If 4% is too much, then you can reduce how much you spend each month, or take up a new way to make some extra money, like a side hustle.
What is leanFIRE and fatFIRE?
LeanFIRE or lean fire is typically the fastest way to retire early, and it involves living a frugal lifestyle, perhaps similar to the student lifestyle. Proponents of this method often live in tiny houses, sometimes off-grid. They may grow their food and shower with rainwater. They avoid spending money on everything possible, by seeking out second hand or free items. They may also provide labour or other items in return for things they need, in a similar way to how the barter economy used to function before we used currency.
The pros of leanFIRE are:
- the reduced time it takes to reach financial freedom
- the beneficial impacts on the environment from consuming less.
The downsides of leanFIRE are:
- it’s a very frugal lifestyle, which can be difficult to sustain
- it can be quite an isolating lifestyle choice as you may opt not to socialise with friends in settings that require spending.
In contrast, fatFIRE or fat FIRE is a more luxurious lifestyle, involving investing a sufficient amount that allows you to maintain or improve your lifestyle. For example, you may have a big home, a nice car, and frequent holidays.
The pros of fatFIRE are:
- It can be a more enjoyable lifestyle for some people
- It involves less material sacrifice
The downside of fatFIRE are:
- It takes a lot longer to achieve, unless you’re able to earn a lot of money quickly
- Arguably you are trading more time for possessions that are not that meaningful.
The journey to FIRE is a very personal one, and alongside fatFire and leanFIRE there are numerous strategies to retiring early on your terms.
How much money do you need for FIRE?
People in the FIRE movement calculate their FIRE number with some variant of the following formula and thinking:
- Calculate 25 times your household spending – this is the number you want to aim to have saved in investment funds with low fees
- The total typically equates to £1m to £2m for many in the movement
- The popular 4% (four per cent) rule states that on average it should be safe to withdraw 4% of your investment portfolio each year, plus inflation in future years
- There are of course variables such as if your family grows, if there are significant changes in the stock market, and if your salary and lifestyle changes while you are working on achieving FIRE.
Some websites offer a FIRE calculator to let you model your numbers:
- Moneyed (UK)
- Playing with FIRE
Who started the FIRE movement?
Two authors, Vicki Robin and Joe Dominguez, are accredited with writing the first book on FIRE, called Your Money or Your Life, which they published in 1992. Their ethos was why wait until later life to enjoy retirement? Instead, reach financial independence as young a possible, so you have the health and youth to enjoy it properly.
Vicki and Joe encouraged their readers to think about the real cost of everything they are buying. For example, that new handbag costing £1000, really costs 50 hours of your life if you earn £20 an hour, even more when you factor in tax and national insurance deductions.
While we can always make more money, we can never replace the time we have already invested in something. Therefore, time is our most precious asset.
Achieving financial independence gives us the freedom to choose how we invest our time now and in the future. When we live the traditional lifestyle, our time is dictated by our possessions and arguably things that don’t matter, which take us away from the ones that do, like our family, friends and passions.
It wasn’t until the 2010s that FIRE became more mainstream, and some prominent personalities like Mr Money Moustache started blogging and vlogging about their financial independence journeys.
Why don’t more people reach FIRE?
Relatively few people achieve financial independence due to living a lifestyle in which they spend the amount they earn, or they spend beyond their means. The saying ‘keeping up with the Joneses’ often rings true; we work hard and spend hard to keep up a particular lifestyle.
If you enjoy living that way, then that is perfectly fine. However, people in the FIRE movement typically report waking up one day and thinking, “there must be more to life than this”. Spending long hours doing a job that they no longer enjoy, to pay for things that they don’t get time to use, and perhaps owing lots of money on credit, can feel quite an empty existence.
Once you peel back the layers, are you spending your time in a way that brings you fulfilment and can you see yourself doing that for the rest of your working life until you reach the traditional retirement age?
Why would you want to stop working so young?
Some people manage to retire at 30 years old or younger through FIRE, and stop working, but you don’t have to!
The first two letters in F.I.R.E are the most important ‘FI’, Financial Independence.
Once you reach the stage that you have enough of an income stream from your investments to live on, you can decide how you want to spend your time. For some people, the right decision is to stay in their job because they love it, and they now have the peace of mind that they can stop at any time. Others may decide to go part-time, or completely change their career, or take a break and go travelling full time.
Having enough investments to live off gives you more choices in life. Once you’ve reached your savings goal, you have the opportunity to give back and be incredibly generous to others for years to come.
What are the pros of FIRE?
The pros of FIRE include:
- Having the financial independence to decide how and when you want to work
- Having more freedom at an earlier age, when you may be in better health to make the most of it
- Less focus on material possessions and more emphasis on the value of your time and the most important things to spend it on
- It focusses you on planning for retirement, which so many people fail to do
- In the UK, it reduces reliance on the state-provided pension which is under strain and not guaranteed for future generations as the population ages
- It encourages reduced spending, which can stop you from wasting money. For ideas on how to reduce your spending, check out Top Tips to Start Saving Money
- It promotes awareness of investing, from a young age. The sooner you start, the more you can benefit from the effects of compound interest
- It encourages people to look for ways to boost their income, whether that’s through securing a pay rise, promotion, a second job or starting a side hustle.
What are the downsides of FIRE?
The downsides of FIRE include:
- Typically to retire very young you’ll either need to adopt an extremely frugal lifestyle, which may not be enjoyable, or to have a very high income.
- People in the FIRE movement often encourage spending on credit cards to receive cashback, reward points and free travel. Some financial gurus, such as Dave Ramsey, see this as a risky strategy which can encourage bad spending habits.
- It’s not a good solution to having a job you hate. You’ll be better off finding one you enjoy more, and that still keeps you on track with your financial goals, rather than risking burning out in one you hate to escape it through financial independence.
What do people in the FIRE movement invest in?
The FIRE movement recommends investing in funds with low management costs such as exchange-traded funds (ETFs), like the ones offered by Vanguard. They invest in these funds for the long-term rather than trying to time the market.
What if I lose money on my FIRE investments?
Any money that you invest in the stock market has the potential to increase or decrease in value.
These risks reduce when you invest in a fund, rather than in individual shares, and when you invest over a longer period.
If you are interested in investing in funds, then it is essential to do your research and to understand the risks and potential rewards of this strategy.
How can I spend less to get to FIRE?
Reducing levels of spending is one of the key ways that people can become financially independent and achieve early retirement. Savings rates of 50% to 70% of earnings are common within the movement.
There are so many ways to reduce your expenses, including:
- Moving to live in a lower-cost area, especially if you have the opportunity to work remotely
- Not buying luxuries
- Selling unwanted possessions
- Buying second-hand items
- Growing your food
- Cycling and walking rather than driving, where possible
- Entertaining at home
- Taking your lunch to work.
If you’d like more ideas and inspiration for savings, you can read Tips to Start Saving, which contains ideas for reducing expenses in all areas of your life.
Does Dave Ramsey agree with FIRE?
Dave Ramsey is a prominent figure in America who speaks on personal finance topics.
Dave agrees with many of the FIRE movement’s principles around earning more, spending less, and investing, but he disagrees with the movement’s views on spending on credit cards to maximise the financial rewards of cashback, air miles or other reward points.
Dave believes that credit cards encourage poor spending habits, and he encourages people to spend cash, using the envelope method of budgeting, and to use debit cards where cash is not convenient.
How do I get started with FIRE?
The first step is to determine why FIRE is important to you.
To become financially independent and have the possibility of retiring early, you’ll need to make some sacrifices. Many people need a strong why to motivate them to save enough money from their income, to invest and achieve financial freedom.
Once you have your why, the next steps are:
- Calculate the amount of money that you will need to generate for FIRE. The community often work off a rule of investing 25 times their monthly expenses, following which they plan to withdraw 4% of the investment each year (the 4% rule). You can use one of the various calculators online to work out what the right number for you is.
- Calculate how much money you need to save each month to reach your FIRE goal in a specific number of years.
- Increase your income to increase your chances of reaching that monthly saving level. The following articles may spark some ideas on how to increase your income: Best Side Hustles, How to Make Money At Home Online.
- Decrease your expenses to save as much of what you earn as possible each month. People in the FIRE movement tend to aim for a saving rate of 50% to 70% of their income, so you may need to increase your income to have enough to live on at that level.
- If you are debt-free, apart from your mortgage, you can start investing. Do plenty of research to find the best investment options for you and to avoid investment scams. Consider investing in a qualified investment professional.
Where can I find out more about FIRE?
These are some of my favourite blogs from the FIRE movement:
These are our favourite books on FIRE:
- Playing with FIRE (Financial Independence Retire Early): How Far Would You Go for Financial Freedom? by Scott Rieckens
- Financial Freedom: A Proven Path To All The Money You Will Ever Need by Grant Sabatier
- Your Money or Your Life by Vicki Robin & Joe Dominguez
FIRE is a way to gain financial freedom and increase your choices
So what do you think? Is FIRE something that you would like to aim?
Could you imagine saving 50 to 70% plus of what you earn?
We’d love to hear about your experiences in the comments below.
If you enjoyed this article, you might also like:
- Tips to Start Saving Money
- Best Side Hustles
- How to Make Money At Home Online
- How to Get out of Debt Quickly
14 thoughts on “What is the FIRE Financial Movement?”
Hello there. I really think this fire movement is a great idea cause hey who wouldn’t want to retire early and spend the rest of their days doing what they love with the people they love right?
The lean fire method seems a bit extreme for people used to having things around them in order to make their lives convenient though since you cannot spend as you wish. Thank you for all the helpful tips and advice here. Cheers.
Hi Energy, you are very welcome. I agree that lean FIRE is an extreme lifestyle choice, but it works for some people.
I think it’s all about finding the lifestyle that is right for you and realistic financially. I wish you all the best for your journey.
A good read and worthwhile for anyone who would like to enjoy a greater level financial freedom in their later life (which is everyone!)
Thanks for your message Stavros. It’s great to hear that you enjoyed reading this article. I wish you every success with your journey.
I have not heard of the FIRE financial movement before and found this to be a very interesting article. It is so difficult to know how much money one would need to retire, so the guidelines of 25 times your annual expenses, is very helpful. I started investing in ETF’s a few years ago, including some Vanguard funds, and would certainly recommend doing that. And yes the value can go up or down, but over the long term it will grow. I just wish I had started it earlier to reach financial independence sooner.
Thanks so much for your message! It sounds like you are ahead of many people as you have started investing. I also wish I had started in my teens and twenties so compound interest could have worked more of its magic. However, I’m also grateful that I came across FIRE with enough time to get on track.
Really, it’s never too late to make a positive difference. You just have to work harder on earning more and saving more the longer you leave it, or the sooner you want to reach FIRE.
I wish you every success!
I’ve been a big supporter of saving and investing but it’s hard for me to keep some records of earning and spending as neither I nor my boyfriend gets a stable income that would be the same every month. Some months are great and some are not very good but we do have savings, we live in our own house without a mortgage, don’t have any debts so I don’t worry about it too much.
It was harder when we had to pay the mortgage every month, but now it’s paid off so it’s a different situation.
But I know it’s still necessary to deal with money correctly to have a lifestyle we want to have i.e. to travel and not to worry about money at all.
This FIRE movement looks very wise and it’s great that it was invented. I think people should start thinking about how they are going to spend their life at a very early age because they can enjoy life much more.
I wonder what’s your goal i.e. what age you would like to reach FIRE?
It’s great to hear from you. Thanks so much for sharing your story. It can be tough to budget when you have a fluctuating income. I am self-employed and have the same challenge. I’ve covered some tips in this article: How To Do A Monthly Budget.
I’m aiming to reach FIRE by middle age but I have no intention of retiring in the traditional sense. I am blessed to love what I do, so for me, it’s about being in a position to have more choices and to be able to give more.
I wish you every success!
Same here, I think I will never retire, I’ll keep doing what I love!
You are right, it’s about having more choices, more freedom, and being able to give more to those who are in need.
That’s great to hear Lenka. I’d love to keep in touch as you progress on your journey.
Wow, this FIRE movement is really mind blowing, i really like reading articles like this because being financial independent has always been a goal from day one and articles like this always hit me differently and i felt like this article was just written for me, and I had to share it with my friends and loved ones as well.
Thanks for your message Collins. Becoming financially free is attainable for all of us if we focus on maximising our earnings and minimising our spending. You might find these articles helpful for doing just that:
Tips to Start Saving Money
Best Side Hustles in 2020
The Best Ways to Create Passive Income
I wish you every success!
Sounds interesting but a bit late for me as I retired early when I was made redundant. Actually my being out of work only lasted 15 days then I was back working for the next 15 years
I like the handbag example and thinking in terms of how many Working hours it takes to pay for things
At present the uncertainty around the world will probably make people think this is nice to think of but will the finances add up?
Once again another great article Emma
I’m glad that you enjoyed it Derek!