The FIRE Movement: A Waste of Productive Energy
By: Manu Djirlic
Tags: Personal Finance, Finance, Careers, Financial Independence, Retirement

FIRE in a nutshell

A scenario like that is the dream of many people who follow the FIRE movement. It’s about retiring early and being free to do what you want for the rest of your life. They call it escaping the treadmill.

The FIRE in the FIRE movement is an acronym for Financial Independence, Retire Early. There are many famous bloggers out there who retired in their mid-30s or 40s.

I don’t want to go too much in detail here. Again, there are great blogs out there that can teach you way more about the topic than I can.

But at the core of FIRE is the idea that you cut your costs to the bare minimum. Really, I’ve heard ideas like putting empty bottles in your hand baggage to fill them with water in the restrooms after you’ve passed the security check at an airport. By doing so, you can avoid the high costs of the water that is sold there.

Yeah, to me, that sounds silly, too.

What do you do with the money that you save? You invest it in the stock market, usually in plain old index funds. At some point, when you’re able to live on a very tight budget, you don’t have to work anymore.

You can withdraw 4% of your total portfolio annually, and in theory, your portfolio should have a longevity of 30 years or more. This 4% should cover your expenses (think twice before getting another child). All that works perfectly, as long as nothing goes horribly wrong in the stock market.

To learn more about the perfect withdrawal rate, make sure to check out:

How much money do you need to save with that approach? That depends on your expenses, but from what I’ve heard, it’s between $250,000-$1,000,000.

You can calculate when you could retire (and how much you have to cut your costs) with this neat calculator: https://www.moneyunder30.com/fire-calculator

Okay, for now, that may or may not sound pretty bad to you. But bare with me. Let’s look at it in more detail.

FIRE? Why do you even want that?

First of all, I have to admit that I have a great portion of respect for the people who set very high goals and achieve them. Retiring in your 30s/40s is such a goal, and it has definitely a huge impact on your life.

Financial independence is something I work for every day. I think it’s sad that most people never set any goals at all. Striving for financial freedom is surely a step in the right direction and tells me that the followers of this movement are aware of their situation.

They are emotionally mature and know what they don’t like to do for the rest of their life (working in a job that they hate and listen to John’s ramblings five times a week).

These are people who want more from life, and I admire them for the discipline they have to cut back that much on consumption. These are the folks who don’t blindly accept the status quo and make decisions. These are great personal traits!

However, isn’t that focusing on the wrong side?

Compare it to football. Isn’t it like concentrating completely on the defense and trying not to allow any points for the opposite team (spending money). You don’t care about scoring a touchdown (earning more money). A field goal will be enough (earning little money).

I mean, you could argue that offense wins games, but defense wins championships. However, isn’t it more of a mixture in reality?

You can only save 100% of your income. Realistically, it’s less. Maybe you are really good and save 70% of your income. But well, that’s ‘only’ $2,100 when you earn $3,000 a month. And $900 is for sure not a lot of money to cover all your expenses.

Compare that to concentrating on the offense. Let’s say you are not cutting back that much and only save 50% of your income. Is that a problem when you make $10,000 a month? No, you have $5,000 per month to invest, and you are still better off.

You may say that I’ve increased the income by more than 300% and reduced the savings rate by just 20%. However, saving 50% of a larger sum is incredibly easier.

There is a limit on how much you can save. Is there a limit to how much money you can make?

No. There isn’t.

How to save instead?

Don’t get me wrong. Saving is important, and it is not possible to become financially free when you always spend all the money that you earn.

YOLO is terrible financial advice. It’s true that it’s not about what you earn, but what you keep.

However, you can keep a lot more by increasing your income. Don’t focus on percentage values too much. The absolute number is more important.

Try to save a solid amount of your income (and you usually have to learn this while not making a lot of money). At some point, using (read wasting) your time to save $3 on a bottle of water isn’t a smart decision.

In the long run, it is just more rational to start thinking about making more money.

Note: Don’t get me wrong here. I‘m not saying that when you save $300 per month now and then increase your income ten-fold, you should still only save $300. However, a 35–60% savings rate is totally fine and you can slowly increase it with every income boost that you get. Just make sure, that you really increase that percentage value when you get a raise.

Okay, that solves our problem with not having to cut back that much, but what to do about the job that you hate so much?