The term FIRE (also seen as FI/RE) stands for Financial Independence / Retire Early. It is a term that was coined in the 1992 book, Your Money or Your Life. Recently, the FIRE movement has experienced a comeback as the internet has enabled financial resources to be more readily available. Here at Rebalance, we prioritize financial education and literacy to help empower individuals to reach their financial goals. And, as a member of the FIRE movement myself, I enjoy working with clients and clients’ children to help them work toward these goals.

While FIRE consists of many different components, a key element is knowing how to invest your savings to achieve early retirement. Without prudent investing, it is not possible to amass a nest egg sufficient enough for FIRE by simply hiding your savings under the mattress. One of the first steps I took when I decided to join the FIRE movement was to find a financial advisor with low fees, and who invests in index funds.

What does FIRE mean?

FIRE is a movement for individuals who are devoted to a program of extreme savings with the goal to retire far earlier (or in a shorter time period) than traditional means. This could apply to a 55-year-old who has 10 years remaining before retirement to compensate for a small nest egg. This could also apply to a 25-year-old with an ambitious goal of retiring at 35. Both have the same 10-year time horizon for reaching their retirement goals. Although, it is certainly worth noting that the 25-year-old will need their nest egg to last significantly longer than the 55-year-old will.

For some, the “Financial Independence” of “Financial Independence Retire Early” is the reason they aim for this goal. These individuals do not necessarily want to retire early when they reach their “FIRE number,” but rather, they value the peace of mind that financial security brings. They want the option to not have to work or the option to take a lower paying job that they enjoy more.

Ultimately, FIRE is not only about the money: it is about using money to open doors. What do you want to do with your time? What do you want your legacy to be after you are gone? What brings you purpose and joy? For some, they want the financial resources to pursue a passion project. For others, they want to spend more time traveling or with family.

Types of FIRE

Fat FIRE: The term “Fat FIRE” refers to an individual with a traditional lifestyle who aims to maintain their current standard of living in early retirement. These individuals do not want to compromise their lifestyle in an effort to retire early. As a result, achieving Fat FIRE typically takes longer, more planning, and more aggressive saving pre-retirement.

Lean FIRE: The term “Lean FIRE” refers to an individual with a minimalist lifestyle who aims to retire with enough money to cover just the necessities in life. These individuals typically live off of $30,000 or less per year.

Barista FIRE: The term “Barista FIRE” refers to an individual who would like something in-between the two choices above. These individuals will “semi-retire” by quitting their 9-to-5 jobs but work part-time in some capacity.

How to Achieve FIRE

You might be asking how you can go about achieving FIRE, and you are not alone.  The number one piece of advice for achieving FIRE is to set goals. Set goals, and stick to them. Many refer to the overall FIRE goal, or amount needed to retire, as the “FIRE number.” To figure out your “FIRE number” we recommend this blog post that reviews how a financial plan can help you as well as the math behind the “4% rule”.

Once you have your FIRE number, there are three levers that you can pull to reach this goal:

  1. Save: This may seem obvious, but it can be far from simple. Many FIRE folks aim for a savings rate between 50-80% of their net income. We recommend beginning by tracking your expenses and calculating your current savings rate. By tracking your savings rate, you can begin to optimize it as time goes on. My personal savings rate is 75% and it is something that I monitor monthly.
  2. Earn: Once you optimize your savings rate, it will eventually become evident that you can only save so much. It is not possible to save 100% of your net income – there are mortgage/rent payments, bills, groceries, and activities! So, the next step, is optimizing how much you make. Consider meeting with your employer to develop a roadmap to earning a promotion, asking for a raise, or searching Glassdoor to ensure you are earning the market rate for your position. Fidelity has a some resources on how to ask for a raise.
  1. Grow: Let’s face it, there is only so much that you can save and there is only so much that you can earn. At some point, you have done all that you can without compromising your standard of living. It is at THIS point that you need your money to work just as hard as you are.

Investing to grow your wealth is the most important of these three levers to get right because it has the most upside potential for you. Without this lever, retiring at all (forget about early), would be next to impossible for most.

Investment Strategies for FIRE

While these vary depending on individual circumstances, the investing plan that most FIRE investors follow is to first max out tax-advantaged accounts in this order:

  1. 401k Employer Match
  2. HSA (Health Savings Account)
  3. Roth IRA
  4. 401k

From there, you can invest anything remaining into a taxable brokerage account.

As for what to invest in within these accounts, FIRE investors should absolutely be in investments with low fees to optimize their returns. Even a seemingly small fees can eat away at returns over time, and with early retirees needing their nest egg to last even longer than most, low fees are essential. If your investment manager or financial advisor is charging you over 1% in fees – you need to find a new advisor. If your financial advisor is investing in individual stocks/securities rather than low-cost ETFs or Index Funds – you need to find a new advisor.

Rebalance financial advisors invest in low-cost index funds, and our fees are well below 1%.

For more information on lower fees and other cost-efficient money management tips, I recommend this NPR interview with the Rebalance investment committee member, Charley Ellis.

For more information on if you have saved enough for retirement, how much you should save, or other FIRE-related questions, feel free to reach out to Rebalance.

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