FIRE: What is it, and what can we learn from it?

Financial Independence Retire Early, also known as FIRE, is a people-driven movement to earn, save and invest aggressively. The ultimate goal? Being able to leave full-time employment at a much younger age, often in your 30s or 40s.

It may not mean retiring completely, but perhaps opting to work part-time, or transitioning to a career
that provides more personal satisfaction but less financial security. The internet is full of websites and blogs where people share their FIRE experiences and achievements.

FIRE is not for everyone. It appeals to younger workers who have longer earning and savings
potential, but the aggressive savings targets of 50 per cent or more of take home pay may not be achievable for lower income workers whose basic needs make up a greater proportion of their total expenditures.

However, Brandon Ganch, an avid FIRE blogger, thinks any FIRE step can be a step in the right direction. “Even if you make little money, just making your spending more conscious and efficient can be helpful to anyone,” he says.

A more conscious financial outlook

There are some valuable takeaway lessons in FIRE for all of us. Perhaps the most important is that FIRE focuses our attention on assessing our current financial health and thinking about our future financial needs. How much do you actually spend each month? How much of that is on “needs” and how much is on “wants”? What will your ideal retirement look like? How much will that cost?

Many Canadians of all ages cannot answer those questions. A 2018 study by the Aegon Centre for Longevity and Retirement reported that 72 per cent of Canadians were somewhat aware or very aware of the need to plan financially for retirement, while only 44 per cent have a well-developed financial plan for their retirement and 13 per cent don’t have a plan at all.

The same study also found that 51 per cent of Canadians are retiring earlier than they had planned to, but only 22 per cent of those were doing so for “positive” reasons, such as an unexpected financial windfall, like an inheritance, or realizing that they had saved enough for retirement and could therefore stop working. The remaining 78 per cent retired earlier than planned because of their own ill health, a job loss, family responsibilities or other reasons.

Smart spending and saving

Tracking your spending carefully is the first step in answering those questions, especially to determine how much is spent on your needs versus discretionary spending. This process may seem straightforward, but in practice the lines can be blurry sometimes. You may feel that you need your morning cup of coffee to function but the non-fat pistachio latte version may fall more into the wants category. When you track your spending, it becomes very clear how much some of those wants are eating into your cash flow. Cutting out spending that does not support your short-term or long-term goals will boost your savings.

The other side of the savings equation to consider is increasing your income. This can be achieved by changing your job or negotiating an increase in pay, taking on a side hustle, or even purchasing a rental property. In fact, some of those popular FIRE websites and blogs often turn into a successful side hustle for their creators – transforming them into FIRE influencers!

Values-based budgeting and credit

Many people think of budgeting as an unpleasant, punitive experience, to be avoided at all costs, yet the principles of FIRE can help you understand that budgeting is really about evaluating and aligning your spending with your values and priorities, once your needs have been covered. You can decide whether to spend money now on a hobby that brings you pleasure, or you can save and invest that money to fund your retirement. Either way, the key is making a conscious, well-informed decision.

“Once you find the true meaning of enough, buying yourself more than enough doesn’t really make you any happier,” says Pete Adney, also known as Mr. Money Moustache, a father figure in the FIRE community.

One concern that has been raised about FIRE is that some advocates argue that it is better to use your credit card to pay for everything, since this makes tracking your expenditures easier and you can earn rewards for your spending. There are even many active online forums to help you determine which is the best credit card for rewards. Yet studies consistently show that people spend more when using a credit card rather than cash, so this option does require more self-discipline. That said, the negative impact should be minimal for most following FIRE principles since the movement advocates for more mindful spending.

Happiness is an investment

If you are following the FIRE path, you may think it makes sense to stay at a job you hate that is financially rewarding, just so that you can retire early and find something that you love to do – but this is hardly a recipe for a happy life. Plus identifying what you want to do in your retirement can be challenging, especially if your spouse or friends are not also retiring at the same time.

We are often defined by our professions, what we do, who we work for. Even if retirement is something we plan for and look forward to, this can be a significant adjustment.

The essence of FIRE isn’t really all that new – live within your means and save money for the future. As Charles Dickens wrote in David Copperfield, first published in 1849, “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” FIRE just brings this into the twenty-first century.