Financial Independence Retire Early (FIRE) is a new lifestyle movement that aims to give you freedom as you age to live life however you want without a financial burden. Saving a lot, making smart investments and leading a frugal lifestyle are great ways to build enough wealth to support yourself for the rest of your life.
FIRE is a very attractive thought, however, it can result in significant issues including life sacrifices, viability and long-term financial management. As long as you understand this when embarking on your FIRE venture, you can be prepared for any downfalls in your life and have a better chance of achieving it.
In this article, we examine the fundamentals of FIRE and assess if those aiming for financial independence can actually achieve it in the modern era.
The Three Pillars of FIRE
Financial Independence
Living expenses are getting higher, making it more difficult to be financially stable and independent. To achieve FIRE, you need to accumulate enough savings to cover living expenses for the rest of your life. You can do this by minimising spending, disciplining your investments and keeping more money aside.
Early Retirement
The average age of retirement around the world is currently 64, as that age either comes with your pension or is the age where you have saved up enough wealth. FIRE has the aim of retiring before this age, with the more ambitious looking to retire by their late 30s. This allows many more years of freedom.
Minimalist Lifestyle
Adopting a minimalist lifestyle is a key feature of the FIRE way of life, as it can reduce expenditure and increase savings. Downsizing your house in the meantime, cutting down on unnecessary expenses and ditching material possessions are some ways that you can live a minimalist lifestyle to achieve FIRE.
Challenges of FIRE
The prospect of FIRE can be mouth-watering, but it does come with some challenges that you need to consider before embarking on your financial journey. Some of these challenges include:
- Income and Expenses: Those with low incomes in high living cost areas will find it increasingly difficult to achieve FIRE, as the savings needed might not be attainable.
- Life Sacrifices: While FIRE always allows you to have more freedom as you age, it means sacrificing a lot of life experiences during your 20s. For many people, this isn’t something that they are willing to risk.
- Investment Risks: There is always a risk when it comes to investment due to economic downturns and market volatility. This can make a FIRE plan unsustainable.
Is FIRE Achievable?
A person’s ability to achieve FIRE depends on a number of variables, such as their income level, spending habits and personal priorities. While some people may be successful in pursuing FIRE, others might prefer a more balanced approach to financial planning that emphasises wealth accumulation alongside current life enjoyment. A thorough assessment of your personal situation, objectives and principles is imperative prior to implementing an effective FIRE plan.
Conclusion
Early retirement and financial independence is the dream of many people who want to live life to the fullest without any money burdens. Self-control, sacrifices and future planning need to be a necessary aspect of your life if you want to achieve FIRE. This makes it not achievable for everyone but only those who are willing to put in the effort.
You should prioritise the things that you value the most in life and not get carried away with setting gigantic goals that are unattainable. Make well-informed decisions that add a level of consistency to your life if you want to be financially stable and avoid any debt. A simple goal of avoiding any debt or needing bad debt insurance can be a great way to start your financial journey.
