Right now, the financial independence, retire early (FIRE) movement has a number of Americans completely rethinking early retirement.
FIRE, many believe, got started with the New York Times best-seller Your Money or Your Life, which encourages readers to transform their relationship with money—the goal being finding and having “enough,” instead of always seeking “more.” Today, the still popular book (an updated edition was published in 2018) continues to galvanize young adults, particularly in pursuing the dream of early retirement starting in their 40s or even 30s.
Retirement for FIRE followers rarely means doing nothing, though. FIRE advocates agree the goal is to eventually achieve complete financial freedom. The kind of freedom that allows you to “retire” to be the best version of yourself that you can possibly be, working for what fulfills you, rather than simply working for a paycheck.
Maybe FIRE is something you’d like to pursue. But, even if early retirement isn’t your plan, you can mine some incredible money principles from the FIRE philosophy. We’ve rounded up six of the FIRE movements basic tenets that can put you on the path to financial health, help you grow your money, and build a secure financial future.
One of the biggest steps you need to master FIRE is entirely mental. It’s about committing to changing your relationship with money. Instead of feeling owned by their finances, FIRE followers face their fears and take control of their money.
How can this work for you? A great way to build your financial confidence is by giving yourself a thorough financial education, something you won’t typically get in school. Then, once you understand the landscape of how money works, you can start the process of creating a thoughtful, detailed blueprint that will guide you toward your goals.
Of course, creating a detailed plan for financial success means spelling out exactly where you are, where you want to be, what steps you’ll take to get there, and when it’ll all come together. (That’s precisely how FIRE followers get their start.)
Get down on paper your family’s take-home pay, your current expenses, and your existing rate of savings.
Estimate as best as possible what your future income and expenses will look like. For instance, when will you pay off your mortgage? How much will you pay toward future education expenses? And what might your medical costs look like as you age?
As you progress through your working years, it’s likely you’ll see salary bumps, bonuses, commissions, tips, tax refunds, or other happy increases in your income. But mastering FIRE means funneling that excess into savings—not living more excessively, like buying a more expensive car and clothes, or dining out more often as you make more money. That’s called “lifestyle creep.” It’s easy to make allowances for luxuries as you make more money, falling victim to raising your spending as you get raises. Don’t be a victim!
Even if you’re not a FIRE fanatic, living within your means is a valuable goal. But taking it one step further and living below your means—that is the key to building your nest egg. And, if you can live well below your means, your savings can accelerate at an even faster pace.
If you’ve never heard of the FIRE movement, it’s likely you’ve seen stories about “ultra-extreme savers”—people who aim to save 70% (or more!) of their take-home pay each month and build their nest egg in just a few years.
You don’t need to hit anywhere near that level of intense frugality to build healthy finances and even reach financial independence. Instead, ask yourself these questions:
For the majority of people, housing is hands-down their #1 cost. So slashing your expenses here can easily net you major savings. We know this can be tough if you live in an expensive metropolitan area.
Some FIRE followers are happy to go all-in by relocating to tiny houses in inexpensive areas of the country. Yeah, that’s intense. Want to stay put? We figured. And you can do it by reducing your own living costs in order to save. Focus on things like switching to energy-efficient appliances to save money on electricity, upgrading your insulation, reducing internet and cable bills, you get the picture.
Another significant expense for Americans is high-interest debt, which forces you to funnel your money into hefty payments toward loans and credit cards instead of into your own savings fund. If debt is weighing you down, consider refinancing your car or consolidating at a lower interest rate to reduce your payments, and you can save the difference of what you used to pay in debt every month. Win-win!
If you want your money to beat inflation and grow, investing is essential. However, FIRE fans—like most of us—prioritize keeping the money safe they’ve worked hard to accumulate. While investing can grow your cash, it comes with risk, so it’s key to be diligent about what investments make the most sense for your financial situation. It’s generally a best practice to diversify your investment dollars so you’re not putting all your eggs in one basket. You may consider using ETFs, mutual funds, or other products that help you diversify among multiple securities. Many investors also diversify by asset class and use LendingClub Notes1 as a portfolio diversifier, giving them access to consumer credit in addition to other asset classes they may invest in, such as equities or real estate.
A key point when it comes to investing is to keep an eye on the fees attached to your investments. The SEC warns that even a modest 1% expense ratio on a mutual fund, for example, can cost you tens or even hundreds of thousands of dollars in investment expenses alone.
For some Americans, FIRE is a full-fledged way of life. But you don’t have to join the movement’s raving fans to benefit from its core principles. By following a few key FIRE principles, you can seize your own financial power and use your money to create your own future.