Have you ever imagined what your life would look like if you were financially independent and didn't rely on a wage?
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Introduction To FIRE
Today will be the first of many posts I write about in relation to a movement called FIRE. This particular movement has gained an insane amount of exposure in recent years, and it’s all focused on reaching one goal.
Achieving financial independence at grossly accelerated speeds.
What Is FIRE?
So what is this strange-sounding movement?
FIRE is an acronym that stands for Financial Independence Retire Early. The premise of this movement is living in frugality and taking extreme measures to save at accelerated rates such that you may reach retirement earlier, and I mean much earlier, than a traditional retirement journey would normally permit.
At its core, the idea of FIRE is that by maximizing the rate at which you are able to save (through reduced living expenses and/or through earning a higher income), you are able to achieve financial independence (FI) much sooner and retire early (RE) as a result.
Although the goal is to reach FI such that you could RE if you so much as wish to, often, those who actually achieve the FI status don’t typically embrace the traditional form of retirement. Instead, often they opt to continue working or find some other means of ‘work’ that brings meaning to their life that traditional employment may not allow.
To summarize it best, “FIRE allows people to choose how they want to spend their time rather than be forced to spend their time at work.”
What Happens When You Reach FI?
The milestone for having reached FI (Financial Independence) is defined as the moment when the money you earn from your passive investments covers your living expenses. This means you don't have to rely on a wage to cover the costs of living. So if and when you reach this point, assuming you are able to maintain the same level of expenses – the choice to work or not to work is entirely up to you. You are in control of how you spend your time, and your life for that matter.
More Than Just Money
FIRE embodies living your life on your terms. It aims to shift the way in which we think about money. And what I mean by that is, rather than falling into an endless cycle of mindless consumption in order to distract us from ‘working the daily grind’ which often leads to a cycle of unhappiness, FIRE is all about removing the engrained beliefs we may hold when it comes to money, such that we can essentially live a happier life with less. It’s a reawakening that urges us to rearrange our life priorities so that we can be smart and intentional with our money. FIRE represents a greater goal which actually isn’t about money at all. It’s about living, and intelligently managing our money is simply how we achieve that.
It's an incredibly simple concept, but reaching the FI status, although also incredibly simple, takes a lot of time, commitment and sometimes sacrifce.
The Road To FIRE
There are many different pathways and roads leading to FIRE, each with different timeframes and lifestyle adjustments. Typically, however, all pathways in one form or another address the following measures:
- Adjusting to living a frugal lifestyle
- Paying off any debts you may have
- Calculating your day-to-day living expenses
- Cutting back on non-essential expenses where possible and saving as much as you can
- Findings ways to increase your income
- Investing the difference
Although most of these measures seem relatively straightforward, the last point is especially important. Once you have extinguished your debts and are building up your savings, in order to truly accelerate your FI timeframe, you need to find ways to make your money work for you. And I mean, far beyond the rate at which you can earn interest on the money you hold in a bank account.
There are many ways that this can be done, but a key strategy of the FIRE movement is investing every dollar you can spare into diversified and low-cost investment portfolios. And one of the easiest ways to do this is to invest in exchange-traded funds (ETFs) or Listed Investment Companies (LICs) on the stock market.
Without going into too much detail (since this will be a dedicated post of its own in the future), instead of trying to pick the best-winning stocks or trying to ‘time the market yourself, ETFs give you an instantly diversified portfolio that contains pieces of hundreds of stocks from a huge range of companies.
ETFs do this by tracking the performance of an entire index or market, such as the S&P 500 (or the ASX200 for my Australian friends). So basically, when you purchase a single stock of an ETF, you’re essentially purchasing a small portion of hundreds of companies that make up that ETF. What this means is, that the performance of the ETF mirrors the performance of the entire index or stock market in a sense.
LICs are also similar in that they allow you to invest in a large number of companies in just one single trade. The difference, however, is that fund managers hand pick which stocks are included in a LIC, so they typically come with a higher management fee.
This is one reason why ETFs are so effective – their low management fees. The management fees of ETFs are so low because there isn’t a fund manager constantly analysing, selecting or excluding companies from their list. Instead, ETFs are quite passive and require no additional resources to manage, which is why the management fees are so cheap. You can purchase ETFs with annual fees less than 0.10%, which is fantastic considering you’re essentially getting a piece of several hundred companies from a single trade. The best part is that ETFs can be purchased just like any other stock can be through online share trading accounts.
Is The Stock Market Risky?
A common misconception that I often hear is something along the lines of “the stock market is too risky” or “I don’t know anything about it therefore it’s not for me”. And although all investments inherently come with a level of risk, there are ways to mitigate the risk involved.
In particular, when it comes to investing in the stock market, actually perhaps the most difficult part of it all is changing your mindset. It’s easy to fall into a trap of fearing the market when you look at the short-time volatility going on, especially in the current pandemic-scorned economy that is likely heading towards a recession.
But despite these major economic and financial downturns, history has shown us time and time again that many investments have, and will continue to, withstand these harsh economic conditions. And if we consider COVID-19, with many more cycles of growth and loss to come, it will be no different. Markets have always proven to be volatile in the short term, but if we take a page out of history then we can pretty confidently say that the market wins out over a long enough period.
So if the market wins out over a long-term horizon, why don’t we follow that trend?
That’s the whole idea of ETFs, they ARE effectively tracking the market’s performance. So often the hardest part about investing in the stock market is trying to transition your mindset into thinking long-term, rather than short-term since it is nearly impossible to correctly time the market and pick out the exact moment when stocks will increase or decrease in price.
So how does this all relate to the FIRE movement?
Well, FIRE isn’t about hoping to spontaneously stumble upon some big investment opportunity or dabble in a high-risk venture. Instead, it’s about learning how to intelligently manage your money in a relatively safe financial environment. That’s why investing in ETFs is such a popular method for members of the FIRE community.
Why I Like The Idea Of Fire
The reason I like the idea of FIRE is not because I want to force some lunatic movement down your throat and tell you how to live your life, but because it aims to give us the power of being able to spend our time doing what we truly love doing.
Now, what this actually entails may be entirely different for me and you, but something I think we can all agree upon as being the ultimate metric of success is having the power to do whatever it is that we love doing.
For me specifically, the premise of FIRE fits within my vision of reaching a financially independent lifestyle such that I don’t have to rely on a wage to live and enjoy my life.
But something that resonates with me about FIRE is the idea that we could all live a happier life with less.
When you really think about it, do we really need high-expense goods and services to prove to ourselves and others that we’re successful?
FIRE is as much a movement towards FI as it is a movement towards making us contemplate some of our long-standing and perhaps, outdated beliefs surrounding personal finances.
The End, But Only The Beginning
I wanted to keep this a relatively short post because FIRE is not something that happens overnight. Over the course of my blogging journey, my goal is to reach FI. Now whether that takes a month, a year, a decade, or even longer, it is a goal I am working towards. Because of this, this is only the first of many posts I will create on this topic. There are many resources, ideas and strategies that people within the FIRE community employ to work towards this goal of reaching FI.
I want to explore these ideas, so I will be dedicating a section within my blog entirely towards this movement. So if this FIRE movement spikes your interest, then don’t worry, because I will most certainly be producing more content that specifically focuses on this concept. I plan to post tools, resources and concepts that are used by the FIRE community on the journey to FI
So on that note, if you do want to receive my latest posts, then be sure to subscribe to my newsletter to receive weekly updates of everything I am posting.
Let me be clear, I’m not going to post every single resource and tip on how to minimize your expenses to reach FI earlier. Because equally as important is the actual journey of reaching FI. I want to enjoy the journey, not sacrifice opportunities solely because it could save me a penny here or there.
There’s a balance that is needed. And it is this balance that I want to write about.
I'm looking forward to delving deeper into this topic, and having you come along for the ride will only make it all that much better. So let me just end on this:
FIRE inherently involves having a degree of privilege. If you’re reading this post, then it means you have access to an internet-connected device. So please be mindful of the ways in which you are lucky. Not everyone has the opportunity to shape their life how they want to, so don’t take it for granted.
Investing always involves a level of risk. You aren’t guaranteed to make money, and it is possible to lose the money you start with. The author is not a financial advisor, so neither the author nor the publication takes any responsibility or liability for any investments, profits or losses you may incur as a result of this information. This content is intended for general informational and educational purposes only and may contain affiliate links. You should consider seeking independent legal, financial, taxation or other advice when considering whether an investment is appropriate for your objectives, financial situation or needs.