The FIRE movement

Financial Independence, Retire Early (FIRE) is about saving and investing as much as you can while you’re young, so you can retire in your 30s or 40s.

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Do you want to achieve financial independence and retire early? This FIRE guide includes the tips and strategies that will help you get there as well as what risks to be aware of.

What is the FIRE movement?

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!). 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.

Instead, the FIRE movement involves adopting an extremely frugal lifestyle, working extra jobs and saving or investing every single dollar you earn in your teens, 20s and 30s. 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 gain financial independence

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.

Change your whole lifestyle

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.

Pay off your debts

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.

Calculate how much money you can live on each year

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.

How to apply the 4% theory

A simple formula for figuring out how much you'll need to have saved to achieve financial independence is 25 x your annual living expenses. The 4% theory is the calculations behind this.

The 4% rule assumes that, when the money you've saved is invested properly in a mix of low-cost equities and other assets, it'll grow in value by about 7% each year (based on the past performance of global stock markets). Taking into account a standard inflation rate of 3%, this strategy assumes your real rate of return will be closer to about 4% a year. The idea is if you have enough saved and invested to live off the 4% returns each year, your initial investment will last forever.

So going back to our example above, if you've determined that you can live off $20,000 a year, this figure must be around 4% of the total value of your savings before you can retire. Using this example, you'd need at least $500,000 invested in order to live off your passive investment income of $20,000 a year (this is because 4% of 500,000 is 20,000).

These figures change according to how much of your annual income you can live off each year. Let's say you're still earning $80,000 a year but instead of living off 25% of it, you live off 50%. Your annual living expenses would be $40,000 instead of $20,000. Using the 4% rule, you'd now need to have saved and invested at least $1 million before you could retire and live off your investment earnings (because 4% of one million is 40,000).

Set up a detailed budget

Once you've figured out how much money you can realistically live off each year and how much you'll need to have saved and invested, it's time to put together a detailed budget to help you get there. To achieve FIRE, you need to save as much of your income as possible while also reducing your expenses to the absolute bare minimum.

The first step is to look back at your finances over the past 12 months. Look at everything, from how much you're spending on rent, bills and healthcare to things like eating out and entertainment (including Netflix!).

With all this information laid out in front of you, you can easily see where you have the capacity to cut back and save more and what lifestyle changes you can make. Use this as the basis for your new budget.

Cut back on your spending and save more

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.

It's also a good idea to open a high interest bonus savings account that pays you extra interest for making regular deposits and limiting your withdrawals. Savings accounts are a great way to benefit from compound interest, meaning you'll earn interest on top of your interest.

Increase your income

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, or rent out car space to commuters through sites like Spacer and Parkhound.

Pocket Money podcast: A FIRE expert shares his story

How to retire early

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.

What does retire early mean to you?

FIRE means something different for every individual. It might mean quitting your 9-5 job at age 40 and never working another day in your life. Or it might mean doing more meaningful, more enjoyable work or working part-time. Maybe it means pursuing a hobby you can turn into a business while having the financial safety net to take the plunge.

And even if you do stop working completely, what will you do to fill your days of retirement? And what will that cost you?

The point is that you need to have a clear idea of what your retirement will look like, and plan for it financially. If you plan to keep working in some capacity, then your FIRE experience will look different to someone who never wants to work again.

Having some form of income after you're financially independent could also make your FIRE goal more achievable and offer you more lifestyle options.

Make sure your superannuation is working for you

Superannuation is likely to be the biggest asset that most of us have when we retire, so it's important that you set it up well. Here are a few small changes you can make now that will have a big impact by the time you retire:

  • Consolidate funds. If you've got more than one super fund in your name, it's a good idea to consolidate them into just one fund so you're not paying multiple sets of fees.
  • Compare fees. The fees charged by your super fund have a huge impact on how much you get back in investment returns. Compare super funds and consider switching to one with lower annual fees.
  • Optimise your investment strategy. It's generally advised that your super can be invested in a higher-risk fund while you're young, as you have a lot of time to ride out any dips in the market. While investing your super in a growth fund as opposed to a balanced or conservative fund does come with more risk, it also offers higher potential returns.
  • Salary sacrifice. By sending some of your pre-tax income into your super via salary sacrifice, you'll be reducing your taxable income as well as helping your super fund balance grow.

Invest in low-cost index funds and listed investment companies

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.

Should you invest in property?

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

Having enough money that you can afford to stop working in your 40s is a wonderful idea on the surface, but there are some things to consider before you commit yourself to the FIRE movement.

Unplanned costs

No matter how careful you are, there will be times in life when things go wrong. Job loss, illness, car accidents, a house fire, any number of things can derail your careful plans for early retirement.

A detailed FIRE plan should include some savings for emergencies, but you can't cover all possible eventualities.

Let's say you and your partner retire at 40 and continue living carefully, but one of you falls very ill at 45. You have medical bills and your home needs to be fitted out with a wheelchair ramp. Your partner might need to return to work or hire a carer, and you may need to dip into your savings and investments in the short-term.

And it's those kinds of situations that can derail or delay your FIRE dream if you don't prepare for them.

The best you can do is prepare for the worst:

  • Take out competitive insurance policies that provide you with appropriate cover (and make sure you're not underinsured).
  • Keep yourself fit and healthy and be aware of your family's medical history.
  • Build up a cash buffer for use in emergencies and be realistic about factoring old age and illness into your financial forecasts.

You could be missing out on a fulfilling youth

The FIRE movement goes well beyond being frugal and careful with your money. It really does mean making big sacrifices today for a more comfortable tomorrow.

You need to decide if you're really willing to miss out on a lot of the things people in their 20s and 30s consider not only fun but meaningful or life-changing experiences.

The FIRE movement isn't for everyone. If it isn't for you, it would be a terrible shame to spend years living very carefully only to find you've missed out on what really matters to you.

Investment returns aren't guaranteed

A key part of the FIRE movement is investing every dollar you can and then, hopefully, earning enough in passive income from the investment returns to get by. The 4% theory is based on the past performance of local and global stock markets, and there's no real guarantee that these returns will continue into the future.

Superannuation also relies heavily on the strong performance of the stock markets. If markets plummet, a lot of Australians stand to lose a great deal of money in their superannuation. Of course, the opposite is also true, and the market could outperform predictions.

More FIRE resources

Is FIRE right for me?

Only you can answer this question. Hopefully, the information on this page has helped you get a better understanding of what FIRE is all about.

If you are serious about FIRE, then there are many ways that Finder can help you get your finances organised.

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