FIRE is an acronym for Financial Independence, Retire Early. It is a financial movement set on achieving financial independence and retirement early in life. The model became particularly popular among millennials in the past decade, receiving coverage in the online press via blog posts, podcast discussions and social media networks.

The reason for this is that once we have achieved financial independence, we may not be reliant on a paycheck from employment anymore. Now, paid work becomes optional and retirement from traditional work could be achieved earlier than the normal retirement age.

Let’s take a closer look at FIRE to see if it's the right choice for you.

Origins of FIRE

The original concept of FIRE was first put forward by Joe Dominguez and Vicki Robin in their best-selling book ‘Your Money or Your Life’ back in 1992. Jacob Lund Fisker’s ‘Early Retirement Extreme’, released in 2010, covered the basic idea of fusing a lifestyle of frugal living with investment earnings to gain financial independence.

Both of these books explored the connection between savings rate and time to retirement, which allows people to estimate their retirement age and forecast future income and expenses.

Types of FIRE

Since its inception, the FIRE movement has developed many strategies to achieve financial independence and early retirement:

Traditional FIRE

This is the original version of the FIRE movement, where the goal is to collect income-generating assets that reach a point where it brings enough returns to cover our present living expenses. To out it simply, collect assets that generate enough income (such as property, investments etc) to cover your day to day living costs. Here, we aim for a high-interest rate. Shrinking expenditures, living a simple life and investing to enter financial independence early (could be your 30s or 40s) would help manage a reasonable living cost.

It starts by estimating our FIRE number, which is the total amount of money we need to have saved and invested, to live off the returns during our prolonged retirement. The reason we start here is that the majority of our finances remain invested during retirement, so it continues to compound and grow.

Lean FIRE

A follower of Lean FIRE lives the most frugal life of them all and maintains this throughout retirement. They try to cut their living costs to the bare minimum.

It has two benefits. One, it enables them to skyrocket their savings and helps to build funds quickly. Two, it means they have a much lower target to accomplish. The goal here is to gather enough investments which will help them cover their basic costs.

However, this frugal way of life can often be sacrificial as it includes living in cheaper parts of the country or even other countries with a low cost of living. Many followers of Lean FIRE look for free housing and life without private transportation. They avoid expensive meals and opt for public schooling if they have children. When they travel, they do so frugally, usually at hotel alternatives like hostels rather than expensive five-star ones.

Fat FIRE

Fat FIRE refers to holding enough wealth that can cover expenditures stemming from a higher standard of living than our current lifestyle. It allows us to live it up in retirement without having to sacrifice our spending behaviour. We can easily manage without a side hustle during our retirement because our investment revenue covers more than our lavish living costs.

We can also live in some of the greatest cities on the planet without worrying about the high living expenses that may result from it. This is possible because Fat FIRE individuals have the largest portfolio requirements compared to other kinds of financial independence. Despite taking longer to accomplish, this comes with a significant benefit that other FIRE styles do not have; the incredible surge of financial flexibility.

So, if you are interested in a lavish way of living with added financial security, Fat FIRE is an excellent option to consider. The financial flexibility provided by Fat FIRE gives us a strong hedge against market fluctuations, lower spending levels, lower risk of losing financial independence forcing us to return to work and the capability to lower our withdrawal rate during a market recession.

Coast FIRE

I must admit that the name for this strategy is a bit misleading, as some seem to think that the term Coast FIRE refers to achieving financial independence and early retirement and then living somewhere on the coast.

Coast FIRE refers to having enough funds in our retirement accounts to where our net worth will grow to support retirement at the traditional retirement age, without additional inputs. Our portfolio reaches a tipping point where it can ‘coast’ to the target amount required for retirement. Coast FIRE pursuers will still have to work, but they only work to cover current living expenditures, not to pump up their savings or investments for retirement.

Coast FIRE requires a lot of dedication and patience. You will need to put in enough years so that through both compounding interest and capital appreciation, your retirement account will reach the tipping point needed to support you once you stop earning money.

Barista FIRE

Barista FIRE refers to a situation where the returns from your invested wealth cover most of your living expenditures. So you take up some part-time work that you find enjoyable to compensate for the difference and support your life in the future. It's a lifestyle where you’ve almost hit your FIRE number, but you partially continue to work.

Post-retirement jobs are generally enjoyable, stress-free work with decent pay. Barista FIRE gets its name from working as a barista at a company like Starbucks, as they consider it the quintessential job for an individual in their post-retirement phase chasing this style of FIRE.

Popularity of FIRE

The blog 'Mr. Money Mustache' fueled FIRE’s entry into the mainstream financial stage, presenting the dream of achieving retirement early through savings and investment a reality. The genius behind 'Mr. Money Mustache' is Peter Adeney. Peter is a software engineer who retired from his job at age 30 by spending only a small portion of his earnings and smartly investing the rest, primarily in stock market index funds.

Grant Sabatier, who works closely with Vicki Robin, presented the concept of side hustling as a way to achieve financial independence, in his book ‘Financial Freedom’.

The FIRE movement gained significant traction from reputed financial publications by 2018. In the same year, around 11% of affluent Americans aged 45 and older were aware of the FIRE movement by name, while another 26% had heard of the idea, according to a poll conducted by the Harris Poll. By 2020, communities and dating sites dedicated to getting partners that share the FIRE lifestyle have emerged.

Misconceptions of FIRE

Over the years, the FIRE movement has gained a lot of traction in the mainstream financial space. But surprisingly, not all of it has been good publicity. You may think that all personal finance pundits and gurus would unanimously embrace the FIRE movement. But many of them have completely rejected the idea of FIRE.

We understand that the economics behind the FIRE concept can be difficult to grasp. The online FIRE community can also come off as far-fetched and self-absorbed to a beginner looking to learn more, resulting in the formation of misconceptions about the movement among the public population.

With that in mind, we’re here to debunk a few myths that are being said about the FIRE concept:

FIRE pursuers are not prepared for emergencies

American financial advisor Suze Orman started this rumour during her interview with Paula Pant on the Afford Anything podcast. She stated that FIRE chasers haven’t thought about the accidents, disasters and life changes that could befall them during their journey.

This is incorrect because one of the very first things we learn while striving for FIRE is to set aside a fair amount of money as an emergency fund. We set aside these for medical emergencies, investment blunders, robberies, etc.

FIRE is only possible for high-income earners

This is a widely popular belief shared by even some FIRE chasers themselves. While this may be true for Fat FIRE, and a high income certainly does help in any FIRE style, it’s not a requirement.

To pile further, earning a good income doesn’t get you to FIRE by default. Maintaining an adequate gap between your earnings and expenditures is more important. The larger the gap, the quicker your progress to FIRE will be.

It is impossible to enjoy life while chasing FIRE

Admittedly, some individuals do indeed take the frugal lifestyle too far to the point where they forget to live in the present. Followers of Lean FIRE are more prone to this as it requires the most frugal lifestyle out of all the FIRE strategies. They spent their youth obsessing about every dollar while sucking the fun out of life, all to reach FIRE sooner.

Barista FIRE is the best option for people who chase FIRE but also want to live in the moment enjoying life. Barista FIRE is a slower, more sustainable approach to FIRE for those who wish to smell the roses on the path while chasing their goal.

Criticisms of FIRE

While some criticisms directed towards the FIRE movement are a result of mere misunderstandings, there are a couple of genuine criticisms that are worthy of discussion.

A prominent criticism of FIRE is that early retirees are not saving enough for premature retirement, leaving them unprepared for the many endless possibilities that may occur in the future. Some critics state that the 4% rule, which was designed for the traditional retirement period of 30 years, is inappropriate here, as the retirement period might last for 70 years in FIRE. Therefore a securer 3.5% withdrawal rate is proposed by Hester and analyst Karsten Jeske. Under this rate, one saves 30-40 times their yearly spending rather than 25 times if the plan is to retire thoroughly and never earn anything again.

Another major complaint is that the FIRE movement consists only of white ‘tech bros’, revealing the fact that white males are overly highlighted in the media representation of the FIRE movement. In response, the New York Times published a feature on the women and women of colour of the FIRE movement. It featured Kiersten Saunders and hailed Tanja Hester as ‘the matriarch of the FIRE women’. Hester runs the popular ‘Our Next Life’ blog and has authored ‘Work Optional: Retire Early the Non‑Penny‑Pinching’, a practical action guide for financial independence and early retirement. Other recognised women of colour in the FIRE movement include Jamila Souffrant - host of the Journey to Launch podcast, and Paula Pant - host of the Afford Anything podcast.

Verdict on FIRE

Always remember that you can retire at any age as long as you have the resources to fall back on. If it gets tiring, consider creating a FIRE plan. Make sure the plan reflects your values and lifestyle preferences allowing you to achieve your goals in life. Ultimately, even if you don’t retire at an early age, designing a FIRE plan is a great way for you to be prepared for life in retirement.

In the next post, we will uncover the various steps that can help you in your journey to achieve financial independence and early retirement.

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