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The Fire Within Me. Breaking Down FIRE.

What is FIRE?  

Financial.  Independence.  Retire.  Early.

I’m not wasting any time getting started today, because these FIRE folks aren’t messing around.

In personal finance, FIRE refers to a subset community of people who are actively stashing away giant portions of their income, while maintaining low cost of living expenses, in order to retire early with the cushion of a financial nest egg that will sustain them for the rest of their lives.

And when I say retire early- think 36.  32.  28.

“Broadway Joe, you’ve said some crazy things already on this blog- but retiring at 28?!  That’s impossible!”

“Really reader!  It’s possible!  It’s Paaaah-siiih-bull!!”

It’s Possible!

People pursuing the FIRE route are saving and investing as much as 60/70/80%+ of their income, to reach their personal retirement goal that much faster.  It’s not an easy pathway at all.

It requires diligence- your budget is your best friend, and non-essential spending is the enemy.

It means living in low cost areas – with roommates – or even more dramatically no cost situations with roommates (Hi Mom and Dad).

It’s a journey that requires constant sacrifice, and carries an immense emotional toll.

But at the end of the road…freedom.  Once you have saved all you need- you’re not beholden to anyone.  You need not work, unless you choose to.  And many folks do intend to keep working- there are varying degrees of FIRE.

How To Succeed In Saving By Trying Really Hard

For folks chasing “financial independence” the first question you need to ask is: how much do I actually need to retire?

Traditional thought says you should pursue a retirement goal that takes your “anticipated spending per year” and multiplies it by 25 years.

So, if you want to be able to spend $100,000 per year in retirement, you ought to save $2,500,000. (Big number, but we know how we’re getting there with Compound Interest).

And then once you’re sitting on top of that tiny gold mine somewhere between 60-72 years old, how much can you take out each year to ensure your retirement monies continue to grow and combat inflation along the final decades of your life?

Enter the 4% rule.

The 4% rule serves as a marker to say you can actually withdraw 4% of your monies each year, to allow the remaining balance to grow steady while fighting inflation.

If you had $2.5 million in retirement savings – you could take $100,000 out that year for retirement (back where we started, math is fun).

This is the generally accepted model for how folks can plan for a secure and fruitful retirement.

FIRE folks tend to look at this entire model a bit differently.

FIRE isn’t just about how quickly you can save money, it’s entirely linked to how slowly you can spend money at the same time.

Let’s say Bud Frump starts pursuing FIRE at 22 years old, right after graduating college.  Bud lands a decently paying job at a general business firm starting at $60,000, with a 10% pay increase over the following 8 years.  Nice Bud!

By the end of Year 8 Bud is making a handsome $116k per year.  But Bud hates this job.  He’s not even really trying to be honest.  He dreams of another life where he doesn’t have to do business things all day long for this business company he works for.  Maybe Bud wants to go into botany.  Bud connects with his friend Seymour on LinkedIn, Seymour endorses Bud for his entrepreneurship- but that’s another story, never mind, anyway!

In Year 1 while Bud is making $60k per year, he is able to keep his expenses extremely modest and low.  Let’s say he only spends about $2,000/month, while taking in $5,000/month (or $60,000/year).  Bud is saving 60% of his income!

Now normally as a person starts to make more money, they start to spend more money also.

Maybe someone else would move out of their shared apartment and get their own place.  Maybe lease a new car to zip around town, going to all the cool bars and restaurants you can now afford in years 2/3 and onwards.

Not Bud.  Bud’s on that FIRE path.

Bud will maintain as close to his $2,000 expenses as humanly possible.  Bud’s friends are all going on expensive vacations while Bud stays home.

It’s hard for Bud.  It’s an exercise in mental restraint, and it’s probably emotionally exhausting.

But if Bud is able to maintain that amount of spending over the same 8 years through his 20s- let’s see how much Bud actually saved each year.  We’ll even give Bud a modest increase in spending each year.

Woah.  So, in 8 years’ time, Bud was able to save a whopping $438,152.

That money alone might be enough to sustain our dear friend Bud.  He’s used to spending only $30-40k per year at this point, and an 8% return on that nearly half a million dollars annual will be about $35,000.

But wait!  Compound interest has also been at work this whole time!

With the power of compound interest and investment, assuming an 8% annual return, Bud will actually have closer to $601,321 saved.

That means Bud is getting a $48,000 return on his savings annually, which is way more than he’s used to spending at that point.

Bud doesn’t need to work another day in his life if he doesn’t want to.  He’s done at 30 years old.

Financial Independence. Retire Early.

Frugal Ain’t Always Pretty

The story of Bud is obviously a very broad strokes example, but that’s a glimpse into FIRE and what it signifies in the grand scheme of things.

It wouldn’t be Creative Finance if we didn’t think about how this concept applies to the Creative community at large.

I’m not advocating that FIRE is right for you, or even any artist per say.  As mentioned, it’s an emotionally draining journey.  And sure, it seems to make sense when you have a salaried job you can rely on year after year, but so many folks working in the arts are used to short term engagement.  Not necessarily knowing where the next job can or may come from.

But I think there are elements in there definitely worth considering.  

When you see the power of what a little frugality can offer- it’s an enticing thing.

I find that one of the great joys I see in my friends pursuing creative careers is the true, romantic, and unabashed notion of “I could do this for the rest of my life.”

By throwing even just a little bit of FIRE into the mix- you might be able to afford yourself that joy, without having to worry about where all your income is going to come from in between jobs.

Even ESPECIALLY at 30 years old, Bud is at the prime of his life.  He can do whatever he wants to do, and he need not worry about what he needs to do to pay bills.

Wherein FIRE can be an extremely difficult process- it can afford you more time with family, more time to see the world, and more time to pursue the things that bring you joy.

FIRE is a niche financial movement for a reason.  It simply can’t be for everyone.  My favorite personal example is my love of Kerrygold Irish butter and Duck Eggs (if you know you know).

Both of these things are more expensive than their generic alternatives at the supermarket.  A FIRE person would scoff at me for not choosing XXX generic butter on sale, and a jumbo 18 chicken egg carton for half the price of what I pay for half a dozen duck eggs.

But I’ll be damned, they both bring me enough joy that I simply don’t care.  If enjoying the journey along the way is going to make it last just a bit longer- I’m OK with that.

This doesn’t mean I can’t incorporate some FIRE into my life- and trust me, I do.  

I used to be a “Starbucks or two” per day kind of guy (when they begin test trialing the Coffee-IV, sign me up).  When we were thrust into quarantine earlier this spring, I developed some amazing at home coffee habits that have cut down my coffee spending immensely.  What used to be $100-200/month on coffee has now become $25-50 at most.  

That’s a potential savings of $1,800 per year.  Just a little bit of FIRE.

At the end of the day it’s a personal decision.  It’s personal finance after all.

There’s a great documentary on this subject I watched a few months back – “Playing With Fire” (available on Amazon Prime – I’ve got no vested interest, just a cool examination of the community).

I hope you enjoyed learning a bit about FIRE.  Have a think if this is something you might enjoy incorporating into your life in some capacity also.  The FIRE within me, within all of us.  

Did you enjoy today’s post?  Do you have some ideas on how to incorporate little bits of FIRE into your daily/weekly/monthly spending?  Drop a comment below and let me know!   

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