Last Updated on August 15, 2024 by Arurhose
FIRE, Financial Independence Retire Early is not new but has been packaged differently over recent years. The concept of FIRE is fundamental to many millennials. This is partly because of today’s economy and the Internet’s spread of information and ideas. On the surface, FIRE is about making a certain amount of money to live and liberate oneself. Still, behind the Financial Independence (FI) number, FIRE is all about the lifestyle people want to have in the near or far future. For many millennials, it means doing everything they want without the burden or shackles of employment.
There are various ways to achieve FIRE; the two most popular are FAT and LEAN. FIRE, by default, is LEAN, which means living a life of frugality and keeping only necessary expenditures. It also means cutting out the fat, focusing on the minimum, and ignoring the rest. Cooking spaghetti bolognese and adding salt, you get to eat while others go hungry.
Conversely, FAT FIRE requires investing and saving far more than the basic lifestyle. Bolognese with all the seasoning, Parmesan, and champagne, and that’s just the main course. We still have a starter and the dessert to go. Other well-known FIRE strategies are Coast and Barista FIRE.
Why Fire, And Truths On The Cost
There are many reasons to retire early and achieve financial independence. Some of the big ones include: providing wealth after death for generations to come (otherwise known as generational wealth), caring for family members and loved ones, not needing to work, doing work that you love, and one of the biggest reasons: live a fearless way – an authentically abundant lifestyle.
A less talked about reason for FIRE, Retiring Early or pursuing Financial Independence, is the cost of living that has globally increased. Millennials in the workforce do not see a way out, Instead, they foresee themselves tied to their jobs. With an ever-increasing retirement age, when one finally retires, there won’t be much life left to enjoy. This increase in the cost of living and enjoying life also reflects declining birth rates in Western countries and the rise of DINKs – Double Income, No Kids.
Authentically living the life you desire with all the freedoms it brings, makes for a fulfilling life. Whether your choice is FAT or LEAN versions of FIRE, everything connects to cost. This is something we have to decide for ourselves, how much we are willing to pay – in terms of life cost. The cost could be financial or lifestyle – cutting out the way you live in the present for the future. This also comes with no guarantees that you’ll be able to achieve your goal, or you will even be around to see it happen. They could be a loss of social connections and activities due to time (working longer hours, multiple jobs etc). You might sacrifice too much. Also, retirement is only for some, not everyone, something to think about.
Understanding the True Cost of Financial Independence and Early Retirement
As mentioned earlier, another cost is the potential strain on relationships, which is hard to quantify. Friends and family might not understand or agree with your decision to pursue financial independence and/or retire early. They may question your lifestyle choices and/or become resentful if you can no longer participate in certain activities due to budget constraints. Even worse, they may feel envious and disconnected from your ongoing success. Tensions can lead to strained relationships, and it is vital to maintain honest communication to maintain your connections. In addition, intentional living might mean cooling out some existing relationships.
One of the most significant costs of Financial Independence is having a good level of financial literacy. You must become well-versed in personal finance and investment strategies to make informed decisions about your money. This knowledge will require educating yourself, attending seminars, or even hiring a financial advisor to guide you.
Lastly, the cost of financial independence and early retirement is the risk of the unknown. Giving up a steady income and the security of a traditional job comes with uncertainty. The economy could fluctuate, investments can sour, or unexpected expenses can arise. It’s essential to have a contingency plan and emergency fund to mitigate these risks and ensure you have a safety net in case things don’t go as planned. The unknown unknowns are one of many reasons this blog is about Financial independence without the RE (Retire Early)—more about FI-no-RE in a future post.
In conclusion, while financial independence and early retirement may seem like a dream come true, it’s important to understand the true cost involved. It requires financial literacy, sacrifices, potential strain on relationships, and a willingness to face uncertainty. Intentional Living.
Is Financial Independence Really Worth the Cost? Exploring the Benefits
So, is financial independence worth the cost? Yes, it is. The benefits of financial independence outweigh the sacrifices to achieve it. Firstly, financial independence provides a sense of security and peace of mind. You no longer need to rely on a paycheck, which means being able to handle unexpected emergencies and having the freedom to make choices based on what matters to you. Freedom to choose.
Another aspect of FI is empowerment and control over your future. You can create a lifestyle that reflects your goals rather than being dictated by external circumstances. Your autonomy can improve well-being and a more profound sense of purpose: a by-product of living an intentional life. Ultimately, while the journey to financial independence may involve considerable effort and sacrifice, the long-term benefits outweigh the initial costs, making it a worthy pursuit.
Finally, you will have a sense of security. Even before reaching FI, you will experience a significant reduction in stress related to financial uncertainties (which is most things), allowing you to focus on other matters of meaning to you. You’ll be surprised at new opportunities and pursuits you might have, for example: starting a business, giving your time, altruism, local politics etc. The ability to make decisions without the constraints of financial pressure can significantly change your life. Most importantly, FI provides the opportunity to spend more quality time with the people you love.
FI Over FIRE
The difference between FI (Financial Independence) and FIRE (RE – Retire Early) is the RE. Financial Independence can be 100%, 80%, 70% or somewhere around that. It represents being independent enough to enable you to work how, and where you want to and live the life you want. Many people have not considered retirement. Poor retirement planning or stopping work can be a very lonely situation. A pattern change with friends, society, social connections and the rhythms we take for granted when having a job. Our work has many human essential elements associated with it.
Another thing to consider with early retirement is inflation or sudden things that cause you to run out of money. With huge gaps in your CV, it can be challenging to return to work, and you need to be in the workforce and keep your skills up to date to find work. That’s why this blog is more focused on Financial Independence while ensuring you are still keeping an active life with work, because contrary to popular belief, we are made to/need to work. What work is for you, and how you define that can be different. It could be money-related, but as people, we need to work – the counterintuitive part about FIRE.
Financial Independence over Retiring Early has its main benefit in keeping you active and filling you with purpose, which is most fulfilling when serving something else. Without worrying about making a profit or loss, imagine owning (for example) your comic store, which makes a monthly loss (without impact to yourself), but you do it for your love of comics, good stories, people and the joy it gives you.
The Cost of Delay: Why Starting Your FI/FIRE Journey Now Is Essential
The implications of postponing your FI or FIRE journey are significant. Delaying the process prolongs the time you need to achieve your goals and increases the overall associated FI cost (relationships, working long hours, two jobs, etc). The earlier you begin, the more time your money has to grow through the power of compounding. The longer you wait, the more time slips away to save, invest, and take advantage of compound interest. This principle highlights the importance of taking action now rather than waiting for a perfect scenario in the future. The perfect time is now. Let this be a source of motivation and inspiration to start your journey. Alternatively, you could also reduce your FI goal and FI age; this has a 100% impact on your cost to achieve FI.
Procrastination comes with an actual monetary cost, pushing back your freedom and forcing you to work longer than you would have planned. There is also an opportunity cost that goes beyond financial factors, such as the number of kids you can have, investments, marriage, where to live, etc. The list goes on. The sooner you start the journey, the more control and flexibility you’ll have over your life and choices.
Starting early also makes everything a lot easier. Very easy, almost passive, really. This can bring ease and less stress about your financial future.
Ultimately, FI/FIRE is more than accumulating wealth; it’s about creating a lifestyle that prioritizes financial freedom to make a meaningful life. The sooner you start, the longer you can live that.
In Conclusion, Everyone Should Be On FI
In life, there are circles of influence, some of which are within our immediate responsibility that we affect directly. They include family, your home, work, and so on. Others are beyond our influence and too great to change over a short period, such as government or local city. Financial Independence can protect your immediate influence circle from external factors. Conversely, FI enables you expand your circle of influence, bringing further rings of influence within your reach – future generations, opportunities for others, etc.
Late or early in life, it’s never too late. Everyone should be on a Financial Independence journey, and the beauty is it’s personal, unique to everyone. This means you get to determine your Financial Independence (FI) number and the life it represents. You also get to adjust the FI life you want, how much you need to work, and the cost to achieve your goal; the amends are in your hands.
In summary, reaching Financial Independence (without RE) should be the first goal (set it this year). We can decide to Retire Early after we get there.