The Financial Independence, Retire Early (FIRE) movement is a way of life that involves setting aggressive saving and investing goals while you're young, so you can achieve financial independence and retire by your 30s or 40s (or even younger!).
The 1992 best-selling book Your Money or Your Life by Vicki Robin and Joe Dominguez popularised many of the concepts used by people who are part of this movement. The origins of the term and acronym FIRE are unknown, but the term came to embody a core premise of the book: People should evaluate every expense in terms of the number of working hours it took to pay for it.
It's an informal, international movement that's challenging the status quo of getting a mortgage, working 5 days a week for 40+ years to pay off that mortgage and then, if you're lucky, retiring at age 65.
Key takeaways
Embarking on the Financial Independence, Retire Early (FIRE) journey in Australia is a compelling pursuit, offering the promise of greater autonomy and control over one's financial future.
As we explore the key takeaways of the FIRE movement, it's essential to appreciate the nuances and consider the potential challenges that individuals might encounter on this path to financial freedom.
Financial independence. The cornerstone of FIRE, achieving financial independence grants individuals the freedom to design their lives according to their values. However, it's crucial to acknowledge that the road to financial independence requires a steadfast commitment and disciplined financial management.
Savings intensity. The FIRE philosophy often entails a high level of savings and frugality. While this approach resonates with many, it may not align with everyone's lifestyle choices. Balancing the pursuit of financial goals with present-day enjoyment requires thoughtful consideration.
Market volatility. Investing is a key element of FIRE strategies, and the stock market's unpredictability can impact the journey. Understanding the inherent risks and developing a resilient investment strategy is paramount to navigating the fluctuations and staying on course.
Long-term commitment. FIRE advocates early retirement, but the path to financial freedom is a marathon, not a sprint. Sustaining the necessary level of dedication and discipline over the extended journey can pose challenges for some individuals.
Healthcare and contingencies. Planning for healthcare and unexpected expenses is crucial in the FIRE landscape. Early retirees must establish robust contingency plans to address unforeseen challenges, ensuring a secure and comfortable retirement.
How FIRE works
Like the name suggests, FIRE can be broken down into two key steps:
This generally involves adopting an extremely frugal lifestyle, working extra jobs and save around 50% to 75% of their annual income until they've amassed enough money to let them retire early.
The idea is that if you make these sacrifices while you're younger, by the time you're in your 30s or 40s, you'll not only be debt-free, but you'll have enough money to no longer need to work. You'll be financially free.
How to calculate your FIRE number?
4% rule
The 4% rule is a widely recognised principle within the FIRE movement that provides a guideline for determining the amount of money needed for retirement. The rule suggests that individuals can safely withdraw 4% of their retirement savings annually without depleting their nest egg prematurely. This assumes a balanced investment portfolio, considering both equity and fixed-income assets, to withstand market fluctuations over an extended retirement period.
To calculate your FIRE number using the 4% rule, determine your anticipated annual retirement expenses and multiply this figure by 0.04. The result represents the target amount you should aim to accumulate for a sustainable retirement, where the 4% annual withdrawal aligns with your financial needs.
The 25x Rule is a straightforward method to estimate the total amount of money needed for retirement. It involves calculating the annual retirement income you intend to generate from your own savings and multiplying that figure by 25.
How to use the 25x rule:
Determine your retirement budget. Decide on the annual income you require during retirement. Consider all potential sources of income, such as Social Security and pensions.
Calculate the gap. Identify the amount you need to cover with your investments by subtracting other income sources from your desired budget.
Apply the 25x rule. Multiply the determined gap by 25. The result is the estimated savings needed for a safe withdrawal rate.
Example of the 25x rule in action:
Let's say you plan for a retirement budget of $75,000 annually. Social Security, pensions, and other income cover $25,000, leaving a gap of $50,000. Applying the 25x Rule, you would need at least $1.25 million in savings to safely withdraw $50,000 in your first year of retirement.
This aligns with the principle of the 4% Rule, a guideline allowing a retiree to withdraw 4% of their portfolio annually without depleting it early.
Understanding the relationship between the 25x rule and the 4% rule provides a strategic perspective on retirement planning, helping you set realistic savings goals for a secure and fulfilling retirement.
How to calculate your super balance needed for a comfortable retirement?
Calculating the ideal super balance for a comfortable retirement involves considering various factors. To assist you in this process, follow these steps:
Assess your retirement expenses: Identify your expected expenses during retirement, including housing, healthcare, daily living costs, travel, and any other significant financial commitments.
Determine your desired lifestyle. Consider the lifestyle you aspire to have during retirement. This influences the amount of income you'll need to maintain your chosen standard of living.
Use the superannuation calculator. To simplify the calculation, you can use our superannuation calculator. This tool takes into account factors like your current super balance, contributions, expected returns, and retirement age to estimate the super balance needed for your retirement goals.
Evaluate your income sources. Consider all potential sources of income during retirement, such as superannuation, investments, and potential government pensions.
Check your progress. Regularly review your super balance and contributions to ensure you're on track to meet your retirement goals.
For more in-depth insights and a comprehensive evaluation of your retirement readiness, you can also visit our guide on do you have enough money to retire.
This guide provides valuable information to help you make informed decisions about your retirement planning.
Types of FIRE
Lean FIRE:
Approach: Emphasises a minimalist lifestyle, focusing on essential expenses during retirement.
Goal: Achieving financial independence with a frugal approach, allowing for early retirement.
Coast FIRE:
Approach: Involves saving and investing enough to stop making contributions, allowing individuals to coast into retirement by the conventional age of 65.
Goal: Provides financial flexibility for those who prefer a more gradual transition to retirement.
Fat FIRE:
Approach: Envisions a luxurious and extravagant lifestyle in retirement, allowing for indulgences and high-cost activities.
Goal: Building a substantial nest egg to support a more opulent retirement experience.
Barista FIRE:
Approach: Balances financial independence with the pursuit of personal interests by taking on a part-time or flexible job (like working as a barista) in retirement.
Goal: Enjoying early retirement while still engaging in fulfilling activities and supplementing income.
These FIRE strategies offer flexibility, catering to different preferences and lifestyle goals.
Choosing the right approach depends on individual priorities and the desired balance between financial independence and the pursuit of personal passions.
How to gain financial independence in Australia
The first step on your FIRE journey is working towards financial independence, which involves paying down your debt, setting yourself aggressive savings targets and adjusting your lifestyle to help you meet them. But perhaps the biggest change of all is the change you need to make to your mindset.
If you're serious about retiring early, you will need to take a long, hard look at your current lifestyle and decide if you're willing to live very differently.
It's more than just setting a budget and cutting out a few luxuries. The FIRE journey requires some pretty serious frugality in your 20s and 30s (a time when many people choose to focus on their careers while also enjoying themselves).
Ask yourself if you're willing to cut out the following:
Overseas holidays
Going out multiple times a week
Cafe breakfasts
Expensive meals
Nice clothes
Hobbies that require expensive equipment
FIRE doesn't mean wearing one set of clothes and living under a bridge, but the serious savings you need to make inevitably require sacrifices. FIRE is both a radical lifestyle change and a long-term financial plan.
If the sacrifice sounds too much, then FIRE probably isn't for you. If the frugality sounds like a challenge and you're keen on a minimalistic lifestyle, then FIRE might be your path to a freer life.
Any existing debt you have will slow down your quest to financial independence and early retirement. So pay off your debts as soon as you can. That being said, it's important to recognise that not all debts are equally urgent.
High-interest debts. Credit cards and personal loans have fairly high interest rates, meaning these debts can grow surprisingly fast. You probably want to focus on these debts first.
Mortgage debt. This debt is probably bigger but less urgent because the interest rate is likely lower and you're building equity in the property. If you can make extra repayments to your loan and pay it off faster, you will end up paying less interest.
Student debt. University HECS debt is indexed for inflation, but you don't pay interest on it. Paying it off is still a good move, but it's less urgent than credit card debt. However, if you have private student debt, you should really look at your interest rate and see how much it's costing you.
Here are some ways you can manage your debt:
Debt consolidation loan. Combining multiple credit card and loan debts onto a debt consolidation loan can help by giving a single debt and a more manageable interest rate. If you have a home loan, you could consider rolling other debts into a single mortgage (but do that math first to see if this is actually cheaper).
Refinance your mortgage. Are you getting a competitive rate on your mortgage? If not, compare, switch to a lower rate and keep your repayments the same as before. You'll be paying your mortgage off faster and heading towards FIRE earlier.
Balance transfer. If you're struggling with credit card debt and possibly multiple debts, combining it all on a balance transfer credit card will make your life a lot easier.
There's no figure that's set in stone, but many FIRE advocates strive to save or invest over 50% of their income each year. This means you need to figure out your annual living expenses and find ways to keep these to the bare minimum.
For example, if your take-home income for the year is $80,000 and you want to save 75% of your income (and live off the rest), you'd need to make sure your annual living expenses are below $20,000.
Once you determine how much money you can live off each year, you can work out how much you'll need to save for retirement using the 4% theory.
More money in the bank now equals a faster path to financial independence. So you need to find ways to boost your income.
Here are some basic tips:
Ask for a pay rise. Seriously, when was your last pay rise? Are you worth more than what you're currently on? If you can make the case to your employer that you're worth more, go for it. You could even start looking for a new job solely to convince your current job to try harder to keep you.
Get a better paying job. If you can't get a pay rise, then switch jobs. Be upfront about your salary expectations, emphasise your value as an employee and ask for a base salary above what you're currently getting. Be realistic, but be bold too.
Embrace the side hustle. There are so many ways to earn money on the side. You can get a second job on sites like Fiverr, drive an Uber, pet sit or learn a new skill you can turn into a money-making venture.
Rent out your assets. There are many creative ways you can turn a car, home, spare room or garage space into cash. You can rent a spare room out on Airbnb or flatmates.com.au, or rent out car space to commuters through sites like Spacer and Parkhound.
Okay, so you've got your annual savings goal set and your new budget ready. But how are you actually going to cut down your expenses? The first way is to stop looking at all your purchases as "expenses".
Part of the FIRE mindset is looking at all purchases as either something you need or something you want. Things you need, like shelter, food and healthcare, are expenses while things you want, like Netflix, going out for dinner and new shoes, are not.
The FIRE mindset involves looking at everything you're planning to buy in terms of how many hours you'd need to work to afford it. If you want to buy a $100 bag and you earn $20 an hour, that's equivalent to five whole hours of work. By thinking of items this way and asking yourself, "Is it worth it?", you should be able to cut back on a lot of impulse purchases.
These 50 money-savings tips will give you a bunch of easy, practical ways to save some extra money without making too many drastic changes.
Choose the right fund. Explore the best super funds for strong performance and low fees.
Regular contributions. Boost savings with extra contributions, like salary sacrificing or lump sums.
Consolidate accounts. Combine super accounts to avoid fees and simplify management.
Review investments. Adjust your strategy to align with goals and risk tolerance.
Maximise employer contributions. Negotiate salary sacrifice or contribute extra to maximise employer benefits.
Utilise government initiatives. Explore incentives like the co-contribution scheme for added support.
Stay informed. Stay updated on super changes and consider professional advice for a tailored approach.
Choose the best super fund and follow these tips to actively grow your super for a financially secure retirement
Pocket Money podcast: A FIRE expert shares his story
What are the best investment options for achieving early financial independence (FIRE)?
Once you've paid down your debts and are actively working towards your savings targets, if you want to be able to retire early, you need to get your money working harder for you. This involves investing, sorting out your super and considering home ownership.
Here's what you need to know about the "Retire Early" part of the FIRE movement as well as some strategies to help you achieve this.
Investing in superannuation funds, including Self-Managed Super Funds (SMSFs), is a common avenue for individuals aiming for early financial independence (FIRE). Super funds offer tax advantages and the potential for compounding growth within the superannuation environment.
They provide a range of investment options, allowing for diversification across asset classes. However, super funds come with the limitation of restricted access to funds until retirement age, potentially limiting flexibility.
On the other hand, SMSFs grant more control over investment decisions but require a greater responsibility and time commitment from the individual.
A key strategy of the FIRE movement is investing every dollar you can into low-cost, diversified investment products. One of the easiest ways to do this is by investing in exchange traded funds (ETFs) and listed investment companies (LICs).
Rather than trying to pick winning stocks yourself, ETFs invest in a huge bundle of stocks, giving you an instantly diversified portfolio in just one trade. ETFs track the performance of a particular index or market, for example the ASX200 index, with the performance of the ETF mirroring that of the entire index it tracks.
LICs are similar to ETFs as they too invest in a large number of underlying shares, giving you access to hundreds of companies in one trade. However, LICs have investment managers actively selecting which stocks to include and exclude from the fund.
As well as the diversification factor, the major attraction to ETFs and LICs for FIRE advocates is their low cost. You can access ETFs with annual fees less than 0.10%, for the one brokerage fee. ETFs and LICs are easily bought on a stock exchange like regular shares, using an online share trading account.
Property is a heated debate in the FIRE movement. Some FIRE advocates argue that renting is actually cheaper than buying a home, and they prefer passive investments in financial products like exchange traded funds and superannuation.
These products don't require you to go into debt and don't incur maintenance costs. They also spread risk across more assets.
But investing in property is definitely an option for FIRE. You're going into debt to buy the property, but the property can pay for itself through rental income and will likely grow in value over time.
Another benefit of a property investment is that you can add value to the property through renovation and landscaping. This is something you can't do with the stock market.
But keep in mind an investment property involves maintenance costs, insurance, periods without tenants, and the possibility that your property won't grow in value as much as you expect.
Risks of the FIRE movement
The FIRE movement, advocating early retirement in one's 40s, presents notable risks. Unplanned costs, like illness or job loss, can disrupt meticulous plans, necessitating a dip into savings. To mitigate risks, comprehensive insurance, good health, and a financial buffer are essential.
The stringent frugality of FIRE may mean sacrificing meaningful experiences, demanding careful consideration of personal priorities. Additionally, the movement relies on investment returns, with no guaranteed continuity of past performance, adding uncertainty. Superannuation, tied to market fluctuations, faces similar risks, requiring a balanced approach to navigate the potential challenges of the FIRE lifestyle.
Finder survey: What do Australians do to prepare for retirement?
Response
Saved money
44.19%
Increased your super contributions
29.13%
No - I have not taken any action
28.94%
Invested in shares
21.06%
Calculated how much you need for retirement
18.9%
Changed super funds
12.01%
Purchased an investment property
9.06%
Invested in cryptocurrency
5.91%
Downsized your home
4.63%
Sold an investment property
2.46%
Other
1.38%
Source: Finder survey by Pure Profile of 1016 Australians, December 2023
Frequently Asked Questions
The FIRE movement isn't universally applicable. It requires significant lifestyle adjustments and financial sacrifices. Individuals must evaluate their goals, risk tolerance, and willingness to adhere to a stringent financial plan before committing to FIRE.
Choosing the best-performing super fund involves considering factors such as fees, investment options, and historical performance. Utilise online resources, compare funds, and explore best super fund recommendations to make an informed decision aligned with your financial goals.
The feasibility of FIRE depends on various factors, including individual financial situations, lifestyle choices, and market conditions. While achieving financial independence and early retirement is possible for some, it requires careful planning, discipline, and a realistic assessment of potential risks and sacrifices.
Accelerate debt repayment with these steps:
Budget smartly. Cut expenses and allocate more funds for debt repayment.
Prioritise high-interest debts. Tackle debts with high interest first to minimise overall interest.
Consider debt consolidation. Explore debt consolidation for a streamlined repayment.
Boost income. Increase income through part-time jobs for enhanced repayment capacity.
Automate payments. Set up automatic payments for consistent, on-time contributions.
Avoid new debt. Temporarily cut non-essential spending to prevent accruing more debt.
Build an emergency fund. Establish an emergency fund to cover unexpected expenses without relying on credit.
Alison Banney is the money editorial manager at Finder. She covers all areas of personal finance, and her areas of expertise are superannuation, banking and saving. She has written about finance for 10 years, having previously worked at Westpac and written for several other major banks and super funds. See full bio
Alison's expertise
Alison has written 634 Finder guides across topics including:
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio
Richard's expertise
Richard has written 544 Finder guides across topics including:
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