Legal & Regulatory

Is the F.I.R.E. Method Your Chance at Early Retirement?

November 13
2:22 PM 2019

If you're tired of punching the clock, a hot new saving method may be the way to fast-track your retirement.

A fire is sweeping through the nation, but don't look west to where some of the largest wildfires are currently burning in California. Look to the millennials blazing a short-cut to retirement with the F.I.R.E. method. 

These young professionals cut the long-lasting retirement benchmark of 65 in half, calling it quits as early as their 30s. 

But how practical is the F.I.R.E method for the average person? Let's take a closer look at the movement to see if it's right for you.

What is the F.I.R.E Method?

F.I.R.E is an acronym standing for "Financial Independence, Retire Early". 

It's an aggressive saving style that socks away as much as 75 percent of your net annual income. 

Sound implausible? 

The end-goal may seem lofty in comparison to traditional retirement plans, but the F.I.R.E. method boils down to two relatively simple principles.

  1. Spend almost nothing

  2. Make more money

Together, these habits mean you'll put more money towards savings until eventually, you'll have enough passive income to pay your bills, including emergencies. You may even put your days of relying on a personal line of credit in unexpected emergencies behind you.

The closer you follow these rules, the faster you'll reach financial independence and be able to retire early. 

But does that mean you say goodbye to a traditional paycheck? Not necessarily.

What is Financial Independence?

This extreme savings method has two parts. First, you must achieve financial independence. Only then can realize the second goal of retiring early. 

This first step looks different to everyone following the F.I.R.E. method. 

For some, it's what you imagine; they hope to never work again. 

But for others, it means having the luxury of being able to choose a low-paying job (or even a volunteer position) that they're passionate about over a job they hate just to earn a paycheck.

But this is only two snapshots of a life after F.I.R.E. 

There are many ways to get "fired". Cooler or less extreme methods include what's called Barista F.I.R.E. Under this version, you're nearly at full independence, but you need to bridge the gap with a part-time job. 

For many following this brand of F.I.R.E, Starbucks is their job of choice - hence the name "barista". It, and other jobs like it, add a few extra thousand dollars to your income, and you can opt into workplace benefits. 

Bottom line? Financial independence may vary from retiree to retiree. But generally, it gives you the financial security to do what you want without worrying about money. 

In other words, you won't need to rely on a traditional job or even on a loan or line of credit to get by.

F.I.R.E is the Most Extreme Budgeting Technique Yet

The F.I.R.E method is not for the faint of heart. It requires hacking away at your budget until you're left with nearly zero monthly expenses. 

While the average budgeting technique suggests cutting expenses to free up cash, it typically targets the wants of your spending plan. 

It's a tried-and-true method that helps a lot of people pay off their line of credit balances and other debts. But this modest savings technique won't let you retire before your first grey hair. 

By comparison, F.I.R.E. razes through every line of your budget, gutting both needs and wants with extreme prejudice. 

This means moving beyond the typical expense-slashing advice like skipping your daily Starbucks or breaking out of the iPhone upgrade cycle.  

Instead, you'll have to make massive changes to your regular expenses, targeting things like housing, insurance, and utilities to see the greatest impact. You'll have to commit to downsizing, sacrificing luxuries, and negotiating lower rates on other bills. 

Is it For Everyone?

Most people will baulk at the idea of the number of sacrifices required of F.I.R.E. But it's not just the thought of saying goodbye to fun splurges and larger living spaces that prevent people from being the next F.I.R.E convert.

The F.I.R.E method is a saving technique with its foundations in privilege. As the New York Times reports, most adherents tend to be male. They also work in the tech industry where according to Business.org, salaries are an average of 66% higher. 

Those profiled in recent F.I.R.E exposés are usually making six figures. 

Once gutting their budgets of most expenses, top earners can shovel tens of thousands into employer-matched 401(k)s. They can also access other individual investments only available to those with large sums of money. 

If you're working a minimum wage job, or you're paying off student loans or large line of credit loans, you don't have the same flexibility with your budget. 

You may be able to shave off expenses here and there, but there's just less money to save. Not to mention that a minimum wage job usually doesn't come with benefits or employer-matched savings plans. 

At the end of the day, minimum wage workers and people with large line of credit loan balances and other debts will have to boost their income to make it possible. It might mean changing your career path or adding a side hustle. 

While on paper, the F.I.R.E method may help retirement slowpokes quicken their pace, it's not a strategy available to everyone. It's simply not possible for every kind of worker to contribute 75 percent of their income to investments.

Nevertheless, the F.I.R.E method does serve an important lesson. 

It boils down to finding ways to keep your expenses low and increase your income. Whatever you make, you can borrow the intense focus of F.I.R.E followers and apply them to your finances.

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