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Fire It Up

How much is your time worth? How about your life? Have you – or do you – feel trapped in a work treadmill, working just to keep up and never getting ahead? The FIRE movement – the catchy acronym for Financial Independence Retire Early –  is helping people focus on how we exchange time in our lives for money and material things.

The financial independence movement is hot stuff as of late but don’t be fooled into thinking it’s a fad. FIRE got its start back in 1992 when Vicki Robin and Jose Dominguez published their best selling book, ‘Your Money or Your Life.’  Robbin and Dominguez wrote about the fine balance between making money and the finite hours of life, urging readers to think about how much time at work each purchase requires. FIRE remained almost unheard of until approximately 2010 when the internet made the sharing of ideas and information much easier.

The cornerstone ideas behind FIRE are

  • live extremely frugally, saving up to 70% of your annual income
  • amass savings equivalent to 30 times your annual income – often roughly $1 million dollars
  • retire from your ‘rat race’ job
  • redefine how and when you earn money to fit your lifestyle
  • afford your frugal lifestyle by withdrawing 3% to 4% of savings on an annual basis

The end step – affording your frugal lifestyle on 3%-4% draw down of your savings can take many shapes. Some of them are:

  • Fat FIRE: drawing more than 3% – 4% each year because you amassed more than $1 million in savings
  • Barista FIRE: defray current expenses by taking part time jobs. Additional income is a necessity for a successful Barista FIRE lifestyle, perhaps because $1 million in savings was not amassed or because of unexpected or large expenses.
  • Lean FIRE: living extremely frugally so as not to have needed to have amassed $1 million in savings before starting
  • Coast FIRE: living on the 3% – 4% drawdown, no additional income generated.

How, exactly, does one manage to save up to 70% of their income on a regular, ongoing basis? Frugal living combined with extra income make this possible for many at any age – some as early as 30 years old. Keep in mind that early retirement is defined as retiring before your 60’s.

Frugal living is a cornerstone of FIRE. FIRE proponents often make unconventional living choices to be able to save a huge chunk of their incomes. Common living choices include not owning a car, sharing an apartment or having roommates, stop eating out, cancel all subscriptions and memberships, use a budget cell phone and cell service, buy everything used, and have fun for free.

Earning additional income, also known as side hustles, can make amassing your million dollars happen a lot faster as well as making the Barista FIRE lifestyle realistic.  We live in a gig economy right now and side jobs or ways to make money are expanding exponentially fast. Can you get a part-time job evenings or weekends? Can you sell unused or no longer needed items you own? Can you work as a consultant? What about starting your own business?

Cutting expenses and earning side money alone won’t make FIRE work – the third critical element is investing. You need your $1 million dollars in savings to generate income that you can live off of. One of the most popular investing trends for FIRE is investing that creates passive income. Passive income streams can generate extra income while leaving your critical principal untouched. Real estate, dividends from investments, peer to peer lending, royalties from a book or something you create, and interest from savings are examples of the top passive savings methods favored by FIRE proponents.

Wondering what FIRE looks like in real life? A new documentary film, Playing with FIRE, debuted in June 2019. The documentary shows the real life struggle of a young family trying to make the change from a so called ‘normal’ 2 income American lifestyle to a frugal, independent FIRE lifestyle.

The big FIRE takeaway is how we can all benefit from stopping and taking a close look at how our consumerism and lifestyle binds us down and how, with some big changes, we can each have more control of how we spend our time and energy. This message is particularly powerful right now as the economy shows indications of a potential recession in the near future. Not having debt and having both savings and passive income could certainly make a recession far less impactful on a personal level. Perhaps it really is time to FIRE up!

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