The FIRE Movement: Pros, Cons, and How to Make It Work for You

Imagine retiring decades before your peers and having the freedom to live life on your own terms! That’s the promise of the FIRE movement—Financial Independence, Retire Early.

But is it all smooth sailing?

I've been on this path for the last few years and I can tell you that the concept is simple but the application is not easy.

While the dream of financial freedom sounds incredible, there are pros, cons, and critical strategies you need to know. Whether you’re just hearing about FIRE or are already on your journey, this guide breaks it all down.

Keep an open mind and I'll show you how FIRE could transform your life.

What Is the FIRE Movement?

Although the origins of the movement are unknown the idea has become more widespread since the early 2000's and has grown over the decades.

The FIRE movement is centered around a few key principles. It's "retire early", so as you can imagine it won't be utilizing the traditional model of retirement planning.

This isn't to say that retirement accounts such as your employer's 401k plan or IRA should be neglected. In fact I encourage taking advantage of those as well.

FIRE is focused on making investments in assets that will cover your lifestyle long before, often decades sooner, than the typical retirement age.

Since the FIRE movement began there have been different types that have become popular:

Lean - Devotion to minimalist living and extreme savings. Living on $25k is not uncommon
Fat - Saving more while giving up less. Great for those who earn higher than average incomes and can be more aggressive with the amount they contribute to their future.
Barista - For those who want to quit the 9 to 5 and are willing to cut back their spending while working only part-time. A happy medium of the two other methods.
Coast - When you've saved up enough money for retirement at a traditional retirement age that you now only need to make enough money to pay for your ongoing expenses, because the amount that you've saved will continue to grow at a rate to support your retirement needs.

Whatever your preferred lifestyle is there's an option for you. It doesn't mean you have to give up working, rather you live life on your terms without the stress of job security.

The Pros of the FIRE Movement

Obviously the benefits need to outweigh cost before making a decision to work towards something as ambitious as being financially independent earlier than normal.

This becomes the "Why" that keeps us aligned on the path and can face those challenging times and moments of uncertainty with confidence that we're doing this for all the right reasons.

Financial freedom and flexibility: Freedom is defined as "the power to act, speak, or think as one wants without hindrance or restraint."

This is about gaining control over your time as well as your money. For many, a job is a necessity, and we make a conscious decision that we are going to trade our time on this earth in exchange for monetary compensation.

Sure you may enjoy what you do and get a sense of purpose or fulfillment from your role but you're certainly not doing it for charity.

Your work hours may be defined or open-ended leaving your constrained to build your personal life around the remaining hours outside of your job. Imagine not having to ask permission to have time off or better yet take time off whenever it's convenient to you for any reason at all.

You live life on your terms and on your own schedule.

Early retirement: So many work their entire lives with the thought that when they retire they'll finally be able to do all those things they wanted to do in life. When they finally get there they want to travel and live freely but their bodies say otherwise.

This is about breaking away from traditional work timelines, living life on your terms, and getting everything you want to get done during your prime on forward.

Increased focus on intentional living: This doesn't necessarily mean you have to shift to a minimalist lifestyle. You can set your sites on living as simply or extravagantly as you desire.

The common thread for either of these preferences comes down maintaining a value-driven lifestyle.

Do you want to not only see those amazing places and experience everything this world offers but also be able to take others along for the ride? Perhaps you want to be able to give more than some people earn towards causes you care deeply about that are making a difference.

Lower financial stress: It's not uncommon for people who are employed to still feel a looming sense of stress over their heads. A feeling that they can't speak their mind for fear of being fired. Maybe you live in a state of uncertainty that the rug can be pulled out from under you with by being laid off without any warning.

Building wealth and reducing dependence on a paycheck go hand in hand. You are assuring yourself that your financial security stays in tact by your own means not outside employment circumstances.

Imagine how it would feel going to work knowing that you're there because you choose to be and not because it simply pays the bills.

The Cons of the FIRE Movement

I don't remember who this belongs to but I love this quote:

"They see the glory but not the story"

Nothing great is without it's own set of drawbacks. Let me break down the primary ones when it comes to walking this path.

Aggressive saving requirements: If you want to follow the "traditional" retirement plan then you've got to save about 10-20% of your income over your working career. This isn't going to cut it though if you're trying to become financially independent in your 30's, 40's, or 50's.

You're going to have to dig deep and set aside a significant portion, often the majority, of your income to invest in assets that will provide passive income.

This means that you'll be focusing on living on a tight budget to hit ambitious goals. If you have a higher than average income then you may be able to hit your savings targets while being a bit more lax on the budget but you've still got to keep your foot on the gas and make sure you're maintaining discipline.

Potential sacrifices: When it comes to becoming a champion at something most people mention discipline and will power. What isn't discussed enough is the sacrifice that it will take to accomplish our goals. Missing out on leisure or experiences in the short term is a normal part of the process. There will be early mornings and long workdays. You will have to live like no one else so that one day you will live like no one else.

Market risks and unpredictability: FIRE depends on strong investments providing income to support your lifestyle. Having a well diversified portfolio and multiple investments is a great way to mitigate your risk but nothing can ever eliminate it.

Recessions can happen, pandemics can hit, markets can turn ugly. Life simply happens and part of having a solid plan is having contingencies in place.

Social challenges: Balancing a unique lifestyle with societal norms might be a weird problem to have but an issue none the less. Your loved ones may not understand why you're doing what you're doing and cause you to doubt your own decisions. They may even resent you for it when you start to make headway and become more successful.

Steps to Start Your FIRE Journey

Step 1: Set your FIRE goal: Calculate your financial independence number, here's a couple of methods:

The traditional method is to take the income you feel will support your desired lifestyle and multiply by 25. This will give you the total you need to have accumulated in your investment portfolio that you'll draw income from.

For example if you need $75,000 then you'll need to accumulate $1.875M.

An alternative is to focus on assets that you can invest in such as real estate, a business, or stocks that will provide this income to you.

Using the same scenario as above you can invest in 8 real estate properties providing you $10,000 annually to hit your income needs.

Step 2: Assess and track your expenses: You've got to know your spending habits so you can stay the course while working your plan and beyond. Why do so many millionaires still track their spending? Because those are the habits that got them there in the first place.

It's a lifestyle choice but a critical one that you'll carry on forever so get used to it now. It's like when you decide to take on a fitness challenge and burn off some extra pounds. In the beginning you've got to track calories in and out.

Eventually you'll build good behaviors and make not have to be so granular in tracking everything because you now make primarily good food choices.

Same thing goes for spending. By increasing your awareness in the beginning you'll develop a better understanding of what your normal spending patterns are.

Step 3: Maximize your income: If you aren't earning what you would like to make when you're financially free then you're going to have to find ways to grow your earnings. Build skills and learn like crazy to get that promotion or jump to a better paying job.

If you're in sales then work on increasing your ability to effectively close each opportunity to increase your income. You will need to shoot for a higher than average income so you can put as much as you can away into your investments.

Step 4: Save and invest aggressively: This ties back to the previous step. Achieving a high savings rate means you either have to cut back in certain areas or earn more. It's that simple.

You've got to be hyper aggressive with the amount that you allot for investing. I personally shoot for 70% of my income to be set aside for future investments. I think 50% is a good minimum to shoot for.

You may need to work towards this and push yourself to gradually bump up your savings rate.

Step 5: Stay consistent and adaptable: The key trait any successful person has is their ability to adjust to life’s changes while staying on track. Your success, or failure, is not determined by outside circumstances.

There will be setbacks so let's just acknowledge that right off the bat. Our expectations may change and how we accomplish our goals isn't always how we pictured it.

That's a part of life and we need to embrace that. The sooner you do the sooner you'll be able to recover from these speedbumps and make it up the mountain.

Is the FIRE Movement Right for You?

Start by assessing your personal financial situation and seeing where you currently stand. Determine if this path lines up with timeline that you desire to be financially free earlier in life or if the traditional retirement route makes a better fit.

Balancing ambition with realism is an critical process. Don't get discouraged if you're not where you think you need to be. With a strong enough purpose you'll get creative and figure out how to turn things around.

History has proven that people can do a complete 180 degree turn from living in poverty to abundance by having a strong enough purpose.

Remember that there are alternatives to FIRE if it’s not a perfect fit you. Perhaps you can attain financial security through investing which means your living needs and bills are taken care of. The lifestyle wants can then come from your employment.

There is no one size fits all and the main thing to keep in mind that it has to make sense for you.

The FIRE movement offers a unique and inspiring approach to personal finance and lifestyle design. While it requires discipline and trade-offs, the potential rewards of financial freedom and an early retirement can be life-changing.

Whether you embrace full FIRE or adapt its principles to fit your own goals, the journey is worth exploring.

Take that first step and see for yourself.