The FIRE movement stands for Financial Independence, Retire Early. The trend has gained awareness in recent years as a method to save for retirement. Those who follow the movement put aside significant portions of their income and then step away from work well before retirement age.
While the idea of financial independence may be appealing, there are key concepts to be aware of before you strive for an early retirement. Some key lessons from those who have followed the FIRE strategy include:
1. Get ready to spend less.
2. Practice living in retirement.
3. Change your approach to money.
4. Recognize there will be challenges.
5. Know your new goals.
6. Pick the right FIRE version.
7. Look ahead to the perks.
[READ: A Guide to the FIRE Movement.]
1. Get Ready to Spend Less
The FIRE movement advocates for saving as much of your income as you can. This might include putting away 50% or more of your salary. “Getting to early retirement requires living below your means,” says Chris Mamula, owner of Can I Retire Yet?, who retired with financial independence in 2017 at age 41. Prior to reaching FIRE, Mamula worked as a physical therapist.
A low-spend budget could impact your daily life. As your investments grow, you may give up short-term splurges. You might watch co-workers and neighbors spend higher quantities on cars, vacations and gifts.
2. Practice Living in Retirement
Try out your retirement plans before leaving your career. “Start living as much of your dream post-FIRE lifestyle as you can prior to retirement,” says Brandon Ganch, a former software engineer who became financially independent in 2016 and founded “Mad Fientist.”
If you plan to hike every day, but have never set foot on a trail, consider going out once a week. You can evaluate trails in your area and see if the activity is a good fit. “Try things out when you’re still working so that your journey is more enjoyable and your transition to post-FIRE life is smoother,” says Ganch, who now resides in Edinburgh, Scotland.
[READ:How to Start Investing and Saving for Retirement With Little Money]
3. Change Your Approach to Money
Once you reach financial independence, your budget might be different. You will no longer have a steady paycheck from a job.
“Living off investments and spending down savings in retirement requires an entirely different mindset and skill set,” says Mamula, who is based in Ogden, Utah. “It is surprisingly a lot harder than many people anticipate. It certainly was for us.”
You might need to live off less money than your original salary to avoid draining your resources. It could seem limiting to have a strict budget in place. You might also worry about how your investments will perform in the stock market during the coming years.
4. Recognize There Will Be Challenges
It can be easy to think that reaching your financial goal will bring a sense of calm. However, there are bound to be additional concerns that spring up. There can be moments of doubt regarding the decision to retire early.
“I was caught off guard by the loneliness that came with it, as my social circles were limited during the day when most of my friends were still working,” says Michael Quan, author of “The F.I.R.E. Planner” and founder of Financially Alert. Quan reached financial independence at age 36 and is based in San Diego. There can be moments of doubt regarding the decision to retire early.
5. Know Your New Goals
If you don’t have anything to pursue in retirement, there can be a sense of loss. “Early retirees are going to feel a major shift in their identity once they step out of the workplace,” Quan says. “Having a clear idea of your post-retirement goals and plans will keep you growing and contributing.”
You may revisit the reason for your retirement. Perhaps you wanted to focus more on family, develop a talent or dedicate time to a passion. “Whatever they may be, actively pursuing these goals is the best way to remain engaged, fulfilled and happy,” Quan says.
[Read: How to Save for Retirement.]
6. Pick the Right FIRE Version
There are variations of the FIRE movement. FatFIRE focuses on higher levels of savings and income than FIRE. Proponents of FatFIRE often set a goal of spending at least $100,000 a year in retirement. Lean FIRE takes a more frugal approach of perhaps living off of $40,000 or less in early retirement. The Barista FIRE strategy is to save enough to retire early and then continue part-time work for health insurance or other benefits. Coast FIRE involves frontloading retirement contributions into a 10- or 20-year span.
Choosing what works for you can reduce stress levels. “I’m a 23-year-old New Yorker, and many of my Gen Z friends have reached FIRE status, but don’t want to retire completely,” says Frederik Bussler, a marketing consultant in New York. Bussler’s acquaintances have branched into different versions. “Personally, I reached Coast FIRE, meaning that I have enough money invested that it will grow sufficiently without needing additional contributions,” Bussler says.
7. Look Forward to The Perks
Having years ahead to live how you want can bring fulfillment. “Retiring early has been a game-changer in my life,” Quan says. “After 10 years of early retirement, I can confidently say that it has been one of the best decisions I’ve ever made.”
Early retirement has opened up opportunities for Quan, including the chance to appear on live television, pursue side hustles, carry out financial coaching and start a podcast. “I wouldn’t have done these things if I had stayed in a traditional career,” Quan says. “[FIRE] has given me the freedom to explore, discover and deepen my passions and purpose in life.”
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7 Lessons From Those Who Retired By FIRE originally appeared on usnews.com
