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The FIRE Movement
Have you heard of the FI/FIRE movement? It turns out there is an entire community of people that are passionate about the Financial Independence and Retire Early path. There’s even an entire Reddit category with 364,000 members, all dedicated to FI. I’m just starting to dig deeper and learn everything I can, because I’m pretty sure this FI community is onto something amazing.
First off, what is FIRE? I’ll start with what it is NOT. The first part, Financial Independence, is NOT about having excessive amounts of money. It’s not about accumulating every materialistic possession you could hope for. And Retiring Early doesn’t mean sitting around and no longer accomplishing anything or contributing to society. By my definition, FIRE is just the opposite.
Financial Independence, aka, Freedom
At the surface, FI is reached when living expenses are covered by passive income streams. This can be business earnings that you collect in your sleep, such as income earned from real estate rentals. Or, it can be income earned from interest collected on investments, such as stocks.
But when you dig deeper, FI is the liberation from money. If I am no longer hyper-focused on acquiring material possessions and earning money, what would I focus on instead?
First, I’ll look at where my focus is now. The majority of my time and effort is on commuting, working for my paycheck, and decompressing from job stress. The majority of my money goes towards the maintenance of a life spent working. Money is spent on the need to indulge in “retail therapy” and eating out because I’m too tired to cook. The desire to have entertainment, a stylish professional wardrobe and an enviable social status add to the cost of this lifestyle. If I want more respect or admiration, I need the house and the car to match the station I feel I’ve earned. All of these material acquisitions require more focus on earning more money.
What would FI mean to your life?
Secondly, what would I focus on if I didn’t have to put so much time and energy into earning my paycheck and keeping up with the Joneses? What would happen if I could liberate myself from this vicious cycle? Could I let go of the emotional ties to all my “stuff’ and become hyper-focused instead on saving a larger percentage of my earnings. Perhaps, if I’m no longer focused on the car I drive or elevating my social status with materialistic upgrades, just maybe I wouldn’t feel so shackled to them.
By changing my relationship with money, I could save so much more, while simultaneously requiring less, that I could aim to reach a point where I don’t have to rely on a paycheck anymore. Then, my focus could instead go towards the people and experiences in life that add more happiness to my days. This is the core of FI.
The second part, Retire Early, is what you get to do now that you aren’t tied to money or your paycheck. What would it mean to be able to retire early? To me, this means freedom. The freedom to spend my time however I choose.
My time is my most valuable asset and when I am so focused on earning to cover all my needs, I miss out on utilizing my time for the things that make my life richer. I miss out on opportunities. Therefore, early retirement means time with my loved ones, time on myself and my health, time for my community, and time to experience life, filling it with travel, learning, building and contributing.
Financial Independence: The point at which life can be enjoyed free of the need to earn an income because all living expenses are covered by either passive income or interest earnings from investments.
Retire Early: When you decide to actually leave your paycheck earning job because you have achieved Financial Independence or Financial Freedom.
Side Note: I define Financial Freedom (FF) and Financial Independence (FI) differently. When passive income covers living expenses, FI is achieved. This assumes that living expenses stay the same. This could mean $40,000/year for some or $100,000/year for others. Financial Freedom, however, is reached when passive income covers living expenses PLUS some extra cushion for the unexpected. Many people chose to continue working and saving beyond FI in order to ensure that unexpected expenses can be covered or occasional extravagances can be enjoyed (first class travel or ordering the filet mignon instead of the chicken).
The possible start of the FIRE movement
Introducing Your Money or Your Life
The crazy concept of FI and the growing community of individuals achieving it started back in the 1970’s with the original FI’er Joe Dominguez. He met and teamed up with Vicki Robin to write the book Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Fully Revised and Updated for 2018. Joe grew up in an impoverished neighborhood and used his intelligence to navigate and survive the local gangs, build a hugely successful career on Wall Street and then retire at the ripe old age of 31. He met Vicki and together they founded the New Road Map Foundation, an all-volunteer, non-profit organization that promotes a human, sustainable future for our world. I’ll provide a thorough book review soon.
This book is the pivotal introduction to the monumental flaws in the “American Dream”. The dawn of consumerism and how it has impacted us. The now ingrained belief that the more we have, the happier we will be. The consequence of this lifestyle is the vicious cycle of living paycheck to paycheck and remaining tied to your job.
Through their seminars, educational materials and the book, Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Fully Revised and Updated for 2018, Joe and Vicki reached out to half the US population. Half! The foundations of FI and how to take control of overspending were exposed to a huge number of people. In a recent interview with Vicki, I heard her express that she thought for sure there would be a FI movement such that changes in over-consumption on the National level would begin to occur. But nothing changed.
Change is hard. Not everyone is ready to welcome change into their lives.
Furthermore, it isn’t just change that the FI movement is suggesting. It’s incorporating an entirely new way of thinking. It’s transformation. Lifelong change in the way you think about money.
That’s asking a lot. It’s asking so much that even though half the population purchased Your Money or Your Life, the concepts taught never became mainstream.
Or did they?
Will it catch on like FIRE?
In my post Defining Financial Freedom, I talk about the change in mindset of the millennial generation. Maybe this is the movement that the FI community has been waiting to see. Interestingly, there is a very clear shift in the way millennials think about money. The millennial population is soon to be the largest in the US. Therefore, changes in the millennial patterns of consumerism will lead to an overall transformation in our workplace and economy. Millennials have a higher savings rate and are earning for life experiences rather than possessions. They are working to develop skills and enjoy FI.
The FI community is growing. It started small in the 70’s but finally the millennials are driving growth and change. Perhaps it’s time to wake up and start listening to the message being presented.
Either that or continue running in the hamster wheel, making a living instead of making a life.
FIRE isn’t about becoming rich and there aren’t any instant finance fixes or get-rich-fast schemes. It isn’t about luxury, entitlement or idleness. Here is a recap of what FIRE is:
- FIRE stands for Financial Independence and Retire Early.
- FI is reached when passive income > expenses.
- There is a growing FI community with thousands of people achieving FIRE and enjoying the freedom of not being tied to a paycheck.
- Focusing on achieving FI often leads to a new perspective on money. This includes both how you earn money and how you spend money.
- This new perspective liberates you from feeling tied to material possessions and frees you from living in debt or paycheck to paycheck.
- The belief that the more we have, be it material possessions or earnings, the happier we will be is very seldom true.*
- FI allows for the freedom to choose how you spend your time, and time is what creates happiness.
- Time spent generating a paycheck (commuting, working, decompressing) can then become time available to spend with loved ones. Time to develop new skills or contribute to your community, pursue new opportunities or enjoy your favorite hobbies.
- RE is the achieved when you actually leave your paycheck earning job because you have reached FI or Financial Freedom (FF).
- RE allows you to break free from the cycle of making a living, allowing you to finally make your life.
- FIRE is taking control of your life and living it with purpose.
Think about the following questions:
- Imagine what it would be like to not have to work for your paycheck. What do you see yourself doing with your time?
- Can you think of any dreams you had when you were younger but gave up on because life got in the way? What if you could go back and pursue those dreams?
- What do your material possessions mean to you?
- Would you feel sad if you had to eliminate half of your possessions or would you feel liberated?
- If spending less now allowed you to retire in just 5 years, would you find a way to cut back on your expenses?
- What would it mean to you to find your path to FIRE?
- After reading this post, soul search and decide if this is something worth learning about and making some initial steps to create your FIRE path.
*You can refer to Figure 1-1 in chapter 1 of Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Fully Revised and Updated for 2018 by Vicki Robin and Joe Dominguez.