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Financial Independence, Retire Early: What Is the FIRE Movement?

by Dennis Lynch

Contributor

Updated November 15, 2024

A retired woman blows a bubble with bubblegum.

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Financial independence. Retire early. Your savings rate. The rule of 25. Extreme cost-cutting.

Just what is the FIRE movement?

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What is the FIRE Movement?

For those who don’t know, it stands for: financial independence, retire early.

You might be wondering how that’s possible. It comes down to math. But don’t worry, it’s pretty simple math called the rule of 25. Essentially, take whatever yearly amount of money you want to or plan to live on in retirement, and multiple that number by 25. It gives you a rough estimate of a retirement savings target.

This number is also known as your financial independence number. That’s because, in theory, you won’t have to do anything you don’t want to for money once you hit that goal.

For a quick example, say you want to live off of $40,000 a year in retirement. Take 40,000 and multiply it by 25. You get 1,000,000, which makes your financial independence number $1 million.

The Simplicity of FIRE

To get on the path to achieve financial Independence and retire early, you may have to change a few things about your mindset. That’s because the greater FIRE movement has a couple of core characteristics. But, there is one that is the single most important above all else. It doesn’t just refer to money, and the best FIREwalkers don’t think about money every hour of the waking and sleeping day.

That characteristic is simplicity.

It rears its head in the manifestos of numerous FIREwalkers. And, it’s clearly what’s valued by just about every FIREwalker.

People want to make their lives easier. They want to save time. People don’t want to work forever doing something that they loathe.

So how does this work with money? Simplify it.

Cut out all the noise and all the unnecessary expenses. That is your defense. Defend your finances from creep and lifestyle inflation. Simplify what you are spending money on.

Look at your budget and ask yourself: “Where can I make cuts?”

Your three biggest areas you are likely spending money on will be housing, transportation and food. These are the best places to begin trimming the financial fat, because a little bit of saved money there will go much further than the $10 you are spending on Netflix.

Some ideas? Save money on housing by getting a roommate. Spend less on transportation by buying a more fuel-efficient car, carpooling or using public transportation. Save money on food by eating out less, shopping at inexpensive grocery stores and meal prepping.

After the big three expenses, look for areas where you are probably spending too much money. There is marginal utility, and therefore marginal uselessness to some things. Is another piece of clothing going to bring you closer to your overall goals? Are you swapping it out with an old or unwanted piece?

Or, is that $20 T-shirt, $50 pair of jeans, or $100 pair of shoes going to drag you away from FIRE, even if a little?

We all collect things. I am no different. I am a sucker for video games, trading cards, LEGOs and books. But I have a pile of books that reach my height that I haven’t read. I have to ask myself: Is another book for $25 at Barnes and Noble going to make my life more complicated…or simpler? As much as I’d love to build the Roman Colosseum or a Republic AT-TE from LEGOs, where am I going to even put it? Will my $150, $200, even $500 be better spent on those items?

In order to FIRE, specifically to reach financial independence, you have to make sacrifices somewhere.

The Savings Rate

So, now you have your financial independence number. Enter the savings rate.

Your savings rate is how much you are saving each year divided by annual income, multiplied by 100. For example, with a $50,000 annual income and $10,000 annual savings, your savings rate is 20%. FIRE encourages more aggressive savings rates. Typically that’s closer to 75%. How quickly that can get you to your goal depends on your investments, inflation, salary increases and life expectancy.

It’s extremely difficult to reach a 100% savings rate, if not impossible. Lots of FIREwalkers mention the highest they ever had their savings rate was around 80%. What’s most important is having liquid investments that are earning you the money you need (3% to 4% of the value of the overall investment annually). If 3% or 4% of your investments is enough to live on, you’ve technically become financially free.

The Anti-Budget

Once your expenses are in order, it’s time to take a look at your budget. One prolific FIREwalker, Paula Pant, pioneered a very simple one that she calls the anti-budget. It’s the best budget for simplifying your life, keeping yourself on track for your financial independence goals and giving you the freedom to act with any leftover money each month.

Here’s a look at an example of the anti-budget:

Your income is $2,500 a month after taxes, all for yourself.

Your expenses are $1,700 a month. That includes every expense you can think of: Housing, transportation, food, insurances, entertainment, clothing, etc.

Now, decide how much you want to save. Say it’s $500 per month. (That would be a 20% savings rate.)

You then take that $500 when you get paid and sock it away into savings, investments or toward your debt.

And that works because $2,500 minus $500 minus $1,700 leaves you with $300 left over. So now, every month you ought to have $300 left over.

Even better, if you keep this money saving engine going exactly as is for years, you can figure out how long it will take you to FIRE. So, for a 20% savings rate, it will be 37 years.

If you started at the age of 25, that would mean you could retire at 62. Using this simple budget, it’s easy to see that you need to increase your savings rate if you want to retire earlier.

Staying consistent and disciplined with your budget, savings rate and expenses will be the way you achieve financial independence. It will take years, but it will work.

Retire Early?

When people retire early, they don’t exactly retire early. You’ll have to do something with your life after you retire. If you retire super early, you could be looking at 30 to 40 years of retirement.

If there is any other core characteristic of the FIRE Movement, it is about living your life in the present and with intent.

It just happens that in the world and time we live in, money is the most useful tool in your entire arsenal to live your life.

There is one, very, very important thing we must touch upon when discussing FIRE, living your life and working. And that thing is: hating what you do for work.

Most people will exasperatedly search how to retire early or become financially independent if they’re working a job they hate.

And maybe they realize they can FIRE. So they do it: They reach financial independence and retire early. They may hate their life while they make it to their goal, sacrificing their time for their dream, but they do it.

Let’s say they reach their financial goals by 45. Suddenly, they realize they have to do something with the rest of their lives. They didn’t think about what would happen after quitting their job the whole time they were racing away from work. But they do notice when they’re on the other side of it.

So, the simple question is: Why not just do work you like?

As long as you make enough doing work you like, you don’t even have to escape. You likely won’t even want to FIRE. Yes, financial independence is absolutely a goal that everyone should strive for in whatever capacity they can. But the retire early part? That’s completely optional.

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What the FIRE Movement Isn’t

While some misconceptions about the FIRE movement should be dispelled by now, there are still dragons to slay.

The biggest dragon in question is the stereotype of what followers of the FIRE Movement want with financial independence.

First of all, most do not want to be drinking piña coladas on a beach in the Bahamas for the rest of their lives as they’re “retired.”

Most of those who FIRE’d and retired have found out that there is a good component of work. Additionally, if you FIRE with no plans, you end up like the fish at the end of “Finding Nemo,” sitting there wondering, “What now?”

So, say you did reach FIRE at the age of 30. Congratulations! You are expected to live until 80, but many live longer. You have to do something in those 50-plus years. That’s more life than you’ve lived up until now.

And that’s the thing, the FIRE Movement isn’t about sacrificing everything until you can live the easy life. It’s simply about spending your most finite and ever-reducing resource, your time, doing more of what you want.

The Ghost of the Lentil-Eating, High-Earner

There is often an instant reaction of someone hearing of FIRE for the first time, thinking that FIRE is only accessible to someone who eats lentils every day and earns $250,000 a year.

Honestly, that’s just a caricature. There is some genuine evidence of this exact kind of person pioneering FIRE early in its embers. FIRE most likely stems from three important people of the early FIRE movement. They are Early Retirement Extreme, Mr. Money Mustache and the Mad Fientist.

Jacob Fisker From Early Retirement Extreme

Jacob was a nuclear astrophysicist. His approach to life, and FIRE, is that of a true engineer — get the most from the least. We have a word for this: optimization. Jacob’s manifesto shrieks of two ideals — simplicity and enough. In this post from 2013 about how Jacob lived (presumably still lives) on $7,000 a year, he mentions how his one post about eating lentils “because it was quick and easy” in graduate school took on a different form.

Now, someone masterful at media created the misconception that you must be a lentil-eating monster to FIRE. But as you can see, that’s not what FIRE is, even if Jacob admits his way of doing things is literally extreme.

Pete Adeney from Mr. Money Mustache

Pete from Mr. Money Mustache worked in the tech industry throughout the late 90s and early 2000s. He has a degree in computer science and engineering. He and his former wife retired in 2005 before there was even a whiff of a downturn in the 2008 Great Recession.

So yes, Pete probably made an exorbitant amount of money as he and his wife both worked tech jobs. But he lived simply and spent as much as 50% less than all of his colleagues. He then started the FIRE blog (which he is well-known for) in 2011. He created a character that’s him, but a bit sillier. This resulted in a larger outreach than what might have happened if he was not as fun to follow.

Brandon from the MadFientist

Brandon is also an early adopter of FIRE, and he started a podcast way back in 2012 discussing financial independence with other FIREwalkers. He, too, was a developer and coder. But when you listen to him, he is a very humble, calm and reasonable guy.

Honestly, Brandon is probably the most “regular” out of these three early FIRE practitioners. And Brandon, don’t take “regular” the wrong way if you read this — it just means that the average person has a better likelihood of identifying with Brandon than with the extremity of Jacob’s approach and over-the-topness of Pete’s. In fact, Brandon is so human and unrobotic, he made the silly mistake of not investing because he was waiting for the price to match his hockey jersey number.

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Dennis is a civil engineer and freelance writer with a passion for personal finance. While young, he acts as the spearhead of personal finance to just about everyone in his life, passing on his knowledge from the perspective of financial independence. You can find Dennis over at colossicus.com between his freelance ventures.