Chapter 1

What Is F.I.R.E.?

IN THIS CHAPTER

Focusing on the F.I.R.E. philosophies

Harnessing the power of financial independence

Understanding the popularity of F.I.R.E. and what sparked the movement

Flaming perspectives from the media and others

Embracing the different flavors of F.I.

You may have picked up this book because of the cool acronym, but you’ll stay for the vision that will begin to form in your mind — the vision of freedom to do what you love. This book is a guide to help you make that freedom materialize. Your biggest obstacle, as it is for so many people, has probably been clarity and intentionality (or lack thereof) around finances.

Wait … I’m getting ahead of myself. I should back up and explain what F.I.R.E. stands for, in case you don’t know:

• Financial Independence (the F.I.) is living a life you enjoy without having to rely on a paycheck to support that lifestyle. You’ve heard sayings like “I’m working to pay the bills.” Not a glamourous thought but it’s true for so many. F.I. happens in the mind as much as in the wallet because the emotions and feelings around freedom are profound and intentional.
• Retiring Early (the R.E.) is decoupling from the full-time workforce much sooner than society is used to (typically in your 60s or 70s) so that you can enjoy yourself more while you’re younger. Instead of working 70% of your adult life and being retired 30%, why not reverse that? To be clear, the early retirement part of F.I.R.E. is optional; you do it on your terms. Don’t let anyone box you into a corner or fit what they think your retirement should look like. Hint: F.I.R.E. doesn’t have to mean you never make another dime or do anything productive. You can flex your freedom any way you want.

The big picture (as illustrated in Figure 1-1) of wealth building for F.I.R.E. is

• Increasing income, savings, and investing
• Decreasing debt, taxes, and expenses

Understanding the F.I.R.E. Philosophies

There is no doctrine or fixed set of rules you need to agree to in order to be a part of the F.I.R.E. community. There are, however, some common tenets to help achieve the primary goal of buying your time back and creating freedom in your life.

Here are some of the philosophies of F.I.R.E.:

• Living on less than you earn: That may mean earning a higher income, lowering your expenses, or both (see Chapters 10 and 14).
• Maintaining a high savings rate: The gap you have created between your income and your expenses will give you room to save and invest more than the average. A savings rate of 50% or more is considered high, and it’s the goal you want to work toward. The more you save and invest, the faster it gets you to F.I.R.E (see Chapter 4).
• Keeping investing simple and low cost: The strategy is to invest in index funds that offer a diversified basket of stocks or other investments and stay the course even when the market is down (see Chapter 12).
• Minimizing taxes: Taxes are controllable, and there are many opportunities to reduce your tax liability when you understand how taxes work. This includes big areas such as tax advantaged retirement accounts and other investments with favorable tax treatment (see Chapter 15).
• Optimizing corners of your life that matter most: It’s impossible to optimize everything, but everyone has superpowers in certain areas. Common places in which the F.I.R.E. community optimizes are travel rewards, house hacking, and real estate investing (see Chapter 2).
• Being a lifelong learner and doer: Some of the smartest people you will find when it comes to personal finance are F.I.R.E. people who are curious and act on that curiosity (see Chapter 2).
• Valuing community and connections: You will find support from other like-minded people with common goals. The community has grown big enough that you can connect with others in all kinds of ways: online, in person, one on one, small groups, big groups, and so on (see Chapter 3).
• Enjoying the journey: How you feel and your happiness is key even when you are hyper-focused on your goals. The psychology of F.I.R.E. is real and deserves as much mental energy as the math (see Chapter 3).

Grasping the Power of F.I.

Financial Independence (F.I.) is a powerful place to be because it opens up so many options. It’s the real emphasis of the F.I.R.E. movement. In this section, I talk about time freedom and removing money as an obstacle to doing what you love.

Time freedom

Working full time at a job or doing work you don’t like takes nearly one-third of your week, your month, your year. That portion of your life is controlled by your employer, and it’s the price you pay when you have to exchange your time for money.

Even if you love the work that you do, it doesn’t have to keep you tied to a job where someone else makes the rules. Think about how different your impact may look if you did the work you loved on your own terms. You could choose the hours, the approach, and the people you want to work with.

Realizing that there is a way to get your time back and still pay your bills is powerful. It’s freeing. Many have discovered the F.I.R.E. movement after searching with keywords like “how to retire early.”

Heading down the path to reclaim your time doesn’t mean you have to have it all figured out. You just need a reason to head in that direction, maybe something as simple as not wanting someone else to own your time. You won’t have total clarity at the start of your journey, but the light gets brighter as you move closer to F.I.R.E.

Hurdling the money obstacle to do what you love

Money is often the obstacle between you and the freedom to do what you love. Removing that obstacle is essentially what you’re doing by pursuing F.I.R.E.

The typical F.I.R.E. number is to accumulate a fund that’s 25 times your expected annual expenses in retirement. You can achieve that target with the philosophies mentioned earlier in this chapter.

Here’s an example of how to figure your F.I.R.E. number:

• You expect $60,000 to be your annual spending in early retirement.

  $60,000 × 25 = $1,500,000

Once you reach F.I. you have unlocked many life choices that you may not have thought you’d ever have. That freedom can lead you in all kinds of directions, including

• Retiring early
• Changing your career
• Traveling
• Spending more time with your kids or other family

I grew up in poverty, and the default reason for everything I couldn’t have was money. It was the thing that always got in the way of having new clothes, eating at restaurants, or going to ride the roller coasters at Six Flags. It took a while for the idea that F.I.R.E. was possible for me to sink in, but it changed my world once I embraced it.

Who Wants F.I.R.E. and Why?

Many people would choose to spend their time in different careers and jobs if money were not a factor.

If all careers and jobs paid the same amount of money, would you change yours? Do you feel stuck in a job you don’t love, or would you simply like to do the work you love on your own terms without being beholden to an employer?

F.I.R.E. is a whole community of people who reject the default construct of work and retirement. Thinking differently about the balance of labor, leisure, and life leads many people to want more freedom to define this themselves.

Most of the F.I.R.E. concepts are simple and aren’t new. They are just updated versions of the advice from wise people — parents, grandparents, and other influential people — who came before you.

If you’ve read the book Your Money or Your Life by Vicki Robin and Joe Dominguez, you had an early glimpse into what financial independence and retiring early looks like. Just think about the legacy this iconic pair built and how many people they’ve touched since reaching F.I.R.E.

If you’ve never imagined having an identity that did not include your job or career, you’re not alone. But there’s a lot of power in creating your own identity with you as the lead character and everything else in a supporting role.

There are many different reasons people navigate toward F.I.R.E. Here are some examples:

• One tough day at work pushes someone to the point where they’ve just had enough.
• Someone has a series of reminders that they don’t have the control of their time they’d like to have.
• A person discovers a passion or project that they can’t do because of commitments to work.

What’s on the other side of F.I.R.E. can motivate you more than what you’re moving away from. Think about your “why.” Every person’s why is different than the next person’s. One of the great things about F.I.R.E. is that it’s flexible, and there’s not one precise way to do it.

My why for F.I.R.E. was to follow my big dream of creating a financially...