Financial independence retire early (FIRE) can refer to two things: the state of having enough wealth that you no longer need to work in order to maintain your standard of living, or the process of reaching that point by saving and investing money over many years.
It’s also sometimes called Early Retirement or Retire Early because people who achieve this goal typically stop working at an age much younger than average.
A Look at the Concept of F.I.R.E.
There are many different definitions of financial independence retire early (or FIRE) out there, but you can boil it down to a few key principles.
To earn FIRE, you need to have enough passive income coming in that your living expenses are covered without having to work full-time. Having money saved up for emergencies, though important, isn't a requirement.
The point at which you achieve financial independence may change over time as your goals and your situation shift—for example, as you get married or buy a house—but figuring out what will make you happy is an important first step on your journey to achieving financial independence.
How Did You Know When It Was Time?
When I was 22, my twin brother and I took a road trip from Dallas to San Francisco for a friend’s wedding. Because we didn’t have much extra money, we decided to fly into Los Angeles and drive north.
The trip wasn’t cheap: roughly $1,000 in gas alone. But by that point, both of us had started working full-time and saved up a little bit of money.
We made our way up Route 101 until I decided to call it quits in Eugene, Oregon. He kept going all the way to Vancouver, Canada.
Did You Work While Saving?
If you’re able to work, but choose not to, that's a different kind of personal decision. You could be deciding to retire early and leave a job that doesn’t suit you, or you could be simply choosing not to take another job because you don’t want one.
It’s your choice whether you continue working while saving for retirement—there are no hard and fast rules.
But understand that if you do work while saving, it'll mean fewer years until retirement; work only if it's truly important to your overall financial plan.
Why Should We Even Bother Saving Money?
A lot of people feel it’s pointless to save money. They see saving as an exercise in futility and will say things like,
They don’t teach you how to save in school. Others live paycheck-to-paycheck, give all their disposable income to credit card companies and banks, and just figure they’ll deal with any problems when they arise.
Some are afraid of going broke (which may happen if they spend all their money now), while others figure that debt isn’t really a problem because it doesn't affect them right now so why think about it?
There are more reasons than can be listed here; however, they all boil down to one point: lack of information.
How Much Do We Need to Save?
There are no hard and fast rules for how much you need to save in order to retire early, or when exactly you’ll be able to quit your job.
But planning for retirement is just like any other financial plan: it helps if you have some idea of what’s coming down the road.
Research shows that most people will require at least 70% of their current income in order to maintain their standard of living after they retire.
If you can live on less, great—you might be able to retire even earlier than planned! And if not, know that it’s better to go into debt during your working years than it is later in life, when interest rates will most likely be higher.
Where Should I Invest My Money?
Once you’ve calculated your FI number, it’s time to decide how to invest that money. There are several options, ranging from a mutual fund or ETF that tracks an index to individual stocks and bonds.
For most people, investing in index funds makes sense. These low-cost investments give you a broad base of exposure without tying up too much of your cash.
If you want more control over what companies you invest in, then individual stocks and bonds are worth considering—but keep in mind that these investments are generally riskier than their counterparts.
The Best Advice I Ever Received About Finances
The very best advice I've ever received about money came from my father. When I was a teenager, he sat me down and told me that everything would change once I became an adult.
He reminded me of who he was and how much responsibility he had to bear as an adult, but at some point, you have to get past all of your bills and responsibilities—and figure out what kind of life you want to live.
That's not to say it will be easy—he said, It’s just harder for those with families—but that there would come a day when you can realize your dreams if you just don't give up on them.