Pros and Cons Of Living the FIRE Lifestyle

What is FIRE? The FIRE financial independence retire early movement has steadily gained steam since conception in the early 1990s. The crux of the movement is people saving and investing a significant portion of their income, allowing them to leave the workforce much earlier than the traditional retirement age.

Although images of early retired people sipping cocktails on the beach abound, the truth is that it takes dedication and sacrifice to become financially independent and retire early.

So, do you have what it takes to live the FIRE lifestyle? Here are the pros and cons to living the FIRE lifestyle and how you can speed up your journey to retiring early.

What Does Living a FIRE Lifestyle Mean?

What is financial independence? FIRE stands for financial independence, retire early, and is a movement of people who aggressively save and invest to retire years and even decades earlier than most. Delayed gratification is at the heart of FIRE, where individuals choose to live below their means and invest their savings until they reach financial independence.

The overall goal of FIRE is to take back control of your time and money so that you can live a life that holds meaning to you. Once you’ve reached financial independence and no longer need to work to sustain yourself, you could continue in your career, work part-time, pursue passions, or fully retire if you choose. The point is, you have the choice.

A great deal of planning goes into living the FIRE lifestyle, but almost anyone can shorten their years to retirement despite the sacrifice.

Simply put, the FIRE method involves reducing expenses, saving and investing more, and eventually, taking control of your time at a much earlier age than is typical.

Who Is the FIRE Lifestyle For?

While it may be hard to picture yourself reaching financial independence and FIRE early retirement, living the FIRE lifestyle will dramatically improve your finances and life. Given enough years and consistent dedication to the lifestyle, nearly anyone can achieve financial independence.

Of course, how long it’ll take you to reach financial freedom and the ability to retire early will depend on your current situation. Factors like your income, debt, age and current retirement savings could either help or hinder your FIRE dreams. However, even if you end up working to full retirement age, practicing the principles of the FIRE lifestyle will significantly improve your life, and better prepare you for FIRE retirement.

After all, while you may not be able to retire early, following this lifestyle may be the difference between a secure retirement and retiring at all.

Ways to Start Living a FIRE Lifestyle

The main staples of FIRE are reducing expenses, saving, investing, and increasing income. Let’s take a look at each.

Reducing Expenses

Saving money is the first step in living the FIRE lifestyle. The quickest way to save more money is to reduce living expenses. Thus, those pursuing FIRE closely monitor their expenses and budget and continually aim to reduce costs.

Some ways to reduce expenses include becoming and staying debt-free, reducing discretionary spending, and looking for ways to save on housing and transportation.

Saving and Investing

The next step in living a FIRE lifestyle is to take any savings from reducing expenses and reallocating them to your retirement plans through FIRE investing. Most utilize tax-advantaged retirement accounts like 401(k)’s and IRA’s, along with employer matches and low-cost options like ETF’s and index funds. Some may also choose to invest in real estates, such as owning a rental property.

Whatever you choose to invest in, the key is to have a diversified investment portfolio that will help ensure you have enough money to live comfortably through your retirement years. Don’t hesitate to speak with a financial advisor or investment professional for help.

Increasing Income

You can only cut costs so much, which is why most people pursuing FIRE also look to bring in additional income to reach their saving goals. Increasing your yearly income is the best way to improve your savings rate and help you pay off consumer debt, build an emergency fund, and pad your investment and bank accounts.

Common ways to increase your income include hacking your 9-5 by taking on extra assignments, overtime, or receiving bonuses/promotions and getting a second job or side hustle. You can also increase your income through passive income from your investments.

Calculate your FIRE number using our FIRE calculator!

Types of FIRE

The term FIRE generally means you’ve accumulated enough money to choose early retirement, but there are several movement variations with different goals depending on your desired lifestyle. Read on and see which FIRE strategy speaks to you.

Lean FIRE

Lean FIRE is the most frugal of the FIRE lifestyles and is for those who want to live minimally. Typically, those pursuing lean FIRE live on $40,000 or less a year.

Barista FIRE

Those living barista FIRE can partially live off their savings but must work part-time to cover the rest of their expenses. Those living barista FIRE have typically left a high-stress job before having enough passive income to retire fully.

Coast FIRE

Coast FIRE is for those who were fortunate enough to build considerable retirement savings at an early age. Their retirement savings are so significant that they don’t need to contribute to their accounts to cover their living expenses.

Fat FIRE

Fat FIRE is for people who want to live a lavish lifestyle in early retirement. Those pursuing fat FIRE will need to save a massive amount of money to support a large retirement budget.

Pros of Living the FIRE Lifestyle

There are many incredible benefits to living this lifestyle. The main pros of FIRE are discussed below.

Learning to Live Below Your Means

One of the most significant benefits of this lifestyle is learning to live below your means. Too often, people go into debt trying to live a lifestyle they simply can’t afford. Even individuals making six figures are susceptible to credit card debt and lifestyle creep. Focusing on saving and investing, FIRE encourages people to live a more frugal lifestyle, regardless of whether they reach early retirement.

Building a More Meaningful Life

What do you want from your life? For most of us, what we want is hampered by the need to make money to support our lifestyles. Once you’re financially independent, money ceases to be the main focus and frees you to pursue the things that bring meaning to your life. Even in the pursuit of FIRE comes meaning as you decide what is most important to you.

Reduced Stress

Personal finance can be stressful, leading to a host of other issues. Those pursuing FIRE build a plan for their money and know where it is going. In addition to reducing stress, a plan plays a huge role in allowing you to accumulate significant savings and investments, which may prove useful in the event of unexpected hardships.

Increased Financial Security

What if you unexpectedly lose your job or get injured and can’t work? What if you suddenly need to replace a car or major appliance? For those pursuing FIRE, these bumps in the road, while annoying, won’t throw their personal finance situation into chaos. Even if you don’t end up with early retirement, the practices of increasing your income, decreasing your spending, and investing will ensure increased financial security throughout your journey.

Flexibility

The main goal of pursuing FIRE is increased flexibility throughout your life. As you save money and your net worth increases, you gain additional flexibility and options. You can handle financial hardships as they arise, leave a stressful job, take a sabbatical, help family members, and increase your ability to practice self-care. Once you reach financial independence, you gain even more flexibility. Overall, living the FIRE lifestyle gives you increased flexibility, which will play a massive role in your happiness level throughout your life.

Cons of Living the FIRE Lifestyle

Of course, everything has a downside, and the same is true of FIRE. Some of the main drawbacks to this lifestyle are below.

Sacrifice Is Needed

The main downside to FIRE is that it requires a lot of sacrifices, and sustaining that sacrifice is hard. Unless you have copious amounts of money to begin with, there is no getting around the fact that you’ll need to deny yourself and delay gratification to pursue FIRE and retire early. Of course, following this lifestyle doesn’t mean you need a bare-bones budget and that you can never have fun, but you will likely need to cut back on discretionary spending and work harder to increase your income.

FIRE Takes Time

Another drawback to pursuing this lifestyle is that it takes time to achieve financial independence. While those with a high-paying job may be able to knuckle down for a few years and meet their savings goals relatively quickly, the majority of us will need to save and invest for years and even decades. That commitment, consistency, and sacrifice are hard to sustain over the long haul, and not everyone will be able to do it.

The Future Is Uncertain

The FIRE method sounds simple on the surface. Earn money, increase your annual income, save and invest, and increase your net worth until you’re financially independent. However, the reality is that the future is uncertain, and you never know what might pop up. For example, a significant accident or illness could drastically change your situation. Or, there could be a prolonged recession, and your retirement savings could plummet for an extended period. Likewise, while the past performance of the stock market suggests an average return of around 10% a year, you just never know what could happen.

Even the best-laid plans have the potential to be derailed, but that is even more reason to pursue this lifestyle and ensure as much financial security as you can.

Errors in Calculation Could Be Costly

Finally, the major drawback to this lifestyle is that errors in your calculations could end up costing you. What if you don’t save enough money or your annual expenses are much higher than anticipated? What if you can’t return to the workforce for some reason? These and other unknowns are why it’s so important to calculate your FIRE number and to err on the side of caution. You’re making projections and educated guesses about what you’ll need to sustain your retirement, so it’s essential to make sure you have more than enough before you pull the trigger.

Want to learn more about FIRE? Read our free FIRE guide!

Can I Speed up My FIRE Journey?

While slow and steady will almost always finish the race, you may wonder if it’s possible to speed up your journey to retirement. The answer is yes, and it has to do with your savings rate.

Your savings rate is the amount of your income you contribute to investments. It is the most crucial factor in determining how long it will take you to reach FIRE. The higher your savings rate, the more is being allocated to investing, and the faster you’ll be able to retire. It isn’t uncommon to find FIRE followers saving 50-75% of their income.

Just remember, if you stick to the principles of FIRE, it is just a matter of time before you’ll reach your goals.

The Bottom Line

Personal finance is stressful, but there is a way to take back control over your time and money. You can learn to save more, make more, and live more by joining the FIRE movement.

While this lifestyle can be demanding and requires sacrifice, the ultimate aim is financial freedom and the ability to pursue a more meaningful life.

Now you know how to retire early like others in the FIRE community. Are you ready to join the FIRE movement?