By AnnaMarie Mock, C.F.P. ®
Put your extinguishers back because it’s not that type of fire, although the concept is spreading like wildfire.
F.I.R.E., Financial Independence Retire Early, is a movement that began based on the idea of minimalist living and extreme frugality to save for early retirement. The initial adopters were aggressive in their approach. In some instances, the early adopters saved all income above fixed costs associated with housing and groceries and invested the proceeds for their goal of retiring decades earlier than expected.
Let’s be honest; this is not feasible for most people. As a result, the definition of F.I.R.E. has become looser with a greater emphasis on the “financial independence” aspect instead of the retire early.
F.I.R.E. is the latest movement to redefine Retirement. For many people, coming from a work-centric culture, retirement may feel like crossing the finish line in your 60s, followed by a period of winding down. However, retirement has evolved into an extended period of newfound freedom attainable by younger individuals through proper planning. For F.I.R.E. adopters, it is not necessarily about attaining the traditional idea of retirement but about having the ability to choose the work you enjoy doing without being concerned about salary.
F.I.R.E. involves a shift in perspective regarding money and work, prioritizing what is most important to your work-life balance, and making decisions not dictated by the need to earn money but the ultimate goal of financial freedom.
All the variations of F.I.R.E. share a common theme of focusing on saving enough money to provide financial flexibility. Still, the definition of financial flexibility is unique and varies from person to person. There are several main types of categories.
Lean F.I.R.E. - Based on the original purpose of living on the bare minimum and saving the rest to live a modest early retirement. F.I.R.E. could be achieved sooner because of its extremeness, but this means the nest egg may be lower.
Fat F.I.R.E. - This builds on the Lean approach, but this method is less extreme. There are fewer lifestyle sacrifices, but mindfulness around purchases takes precedent. Based on current lifestyle expenses, the asset threshold needed to provide flexibility will be higher than with Lean, so this may not be possible for every type of earner.
Barista F.I.R.E. - This focuses on saving enough money to allow you to retire from your full-time job early. Instead of not working at all, people may use their financial independence to work part-time, do freelance work, or pursue a less lucrative dream career.
This movement may not be for everyone, but we can all learn something from it. Overall, we need to be conscious of living within one’s means while saving for the future. It does not have to mean sacrificing all comforts and should encourage better habits around personal finances. This ideology is the foundation for financial planning and understanding your financial situation.
The next installment will be taking a deeper dive into additional aspects of F.I.R.E.
AnnaMarie Mock is a CERTIFIED FINANCIAL PLANNER™ and Partner at HIGHLAND Financial Advisors, LLC, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management. AnnaMarie graduated from Montclair State University with a degree in finance and management and successfully passed the CFP® national exam in 2016. She has been working at Highland Financial Advisors since 2013 as a fee-only, fiduciary Wealth Advisor and is a member of NAPFA.