For many people retiring means hitting a certain age, usually above 65. It is associated with stopping one’s career and having grandchildren. Recently there has been a movement that changes the perspective on retirement. Retirement is not about how old you are, it is about a financial number you have.
This is what the Financial Independence Retire Early (FIRE) movement is about. The goal of this movement is to save and invest most of your income - about 50-75% - so that you can retire very early - in your 40s or even 30s.
How do people do that?
In a nutshell, FIRE is about cutting your expenses down to the bare minimum and investing everything you save. The earlier you start, the more return you will gain.
There are different types of FIRE:
- Fat FIRE or extreme savers. These people generally have very high incomes and an aggressive saving strategy, generally about 70 or 80% of their income. After early retirement, they can keep a high level of expenses.
- Lean FIRE or moderate savers. People in this category save around 50% of their income. After achieving early retirement they can generally live without working whilst adhering to a minimalist and restricted lifestyle.
- Barista FIRE - This is for people who can’t completely sustain their lifestyle after retirement but they don’t need to work full time either. They can work part-time and use their saving to achieve a lifestyle that is comfortable for them.
The first step in achieving FIRE is calculating how much money you need. Many online tools can help you with that. The rule of thumb is saving at least 25 times the annual expenses you want to have after retirement.
FIRE is not necessarily about being idle after retiring. For many people, this movement is about being independent and financially secure. They can work as much as they want on any project they wish, without having to stick to a classic nine to five working style.