Imagine working your 9-to-5 job, commuting by bicycle, eating all your meals at home, skipping vacations, and spending weekends without your favorite streaming service.
This ultra-frugal lifestyle is part of the Financial Independence, Retire Early (FIRE) movement, which emphasizes aggressive saving, investing, and frugality to achieve financial independence and retire significantly earlier—often in your 40s or early 50s. It’s essentially about taking sound financial practices to an extreme. But the question remains: is it sustainable?
FIRE proponents aim to save up to 75% of their income, with their target “number” typically being 25 times their annual expenses. For someone planning to retire at 45, this means saving enough to sustain their lifestyle for the next 40 to 50 years. While the FIRE method can work if you’re willing to live a modest lifestyle indefinitely, it’s crucial to ensure that lifestyle feels fulfilling. Living frugally to avoid working, only to find yourself unhappy, defeats the purpose.
Like most concepts, the FIRE method has varying levels of intensity. For example, Lean FIRE focuses on living on $25,000 or less annually, while Coast FIRE involves working part-time to cover expenses after saving enough to retire.
Many are drawn to the FIRE method because they feel stuck in unfulfilling jobs. However, there are alternatives, such as finding work that brings you meaning and satisfaction, even if it pays less. It is a quality-of-life decision that balances financial goals with personal fulfillment.
Last week, we discussed the importance of having purpose in life and retirement. Adopting the FIRE method, can cut 15 to 20 years off your working life—but this may come at the expense of years that could be spent on meaningful and purposeful activities.
A key component of this strategy is the compounding of savings. By starting to save aggressively in your 20s or 30s, your money has 30 years to grow and compound, meaning earnings from investments, such as interest or dividends, are reinvested to generate additional earnings, creating a snowball effect that accelerates growth. The earlier you start, the greater your potential to accumulate wealth.
The FIRE movement emerged as a response to miserable working conditions. However, current employment trends challenge the urgency of this lifestyle. The pandemic demonstrated that businesses can decentralize, allowing employees to work remotely. Flexible work arrangements—like working from home, spending more time with family, or fitting in midday gym sessions—have made many people happier in their jobs. This newfound flexibility has lessened the need for an aggressive race toward financial independence.
If you choose the FIRE path, ensure your financial plan is robust, revisiting it every few years to account for life changes. Over-saving is essential because, as the saying goes, life happens while you’re making plans. If you retire at 50 and encounter unexpected events, you need the ability to adapt.
As with any retirement strategy, the key is defining what financial independence means to you in the context of a fulfilling life and creating a plan to achieve it.
If you have questions on your savings strategy for retirement, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the January 18, 2025 “Henssler Money Talks” episode.
