Over the past decade, the FIRE movement has been picking up steam. More and more young folks strive to take control of their finances and retire earlier than once seemed possible. But with recent market volatility, some are beginning to question the legitimacy of this lifestyle.
While there are definitely benefits to this pursuit, it’s possible to have too much of a good thing. If you’re on a path to financial independence, be sure to consider these pros and cons of the FIRE movement while planning for the future.
What is the FIRE movement?
“FIRE” stands for “financial independence, retire early.” Typically, people who are pursuing FIRE focus on cutting their living expenses. They save large amounts of money from each paycheck, and invest it in hopes that they can retire in their 40s, 30s, or even sometimes 20s!
They achieve this by living well below their means and investing the difference in the stock market, usually in index funds within a low-cost portfolio. FIRE is achieved when a person can generate a stream of cash flow from accumulated assets that exceed their spending needs. Many shoot to have a portfolio worth 25x their annual expenses. This then allows them to quit their job, making work completely optional. Sounds pretty nice, right!
Most people who pursue FIRE stick to the 4% rule to plan for their lengthy retirement. This means that they can draw down on 4% of their portfolio each year in retirement and theoretically never run out of money. However, some who achieve FIRE choose to return to part-time work, volunteer, or work on passion projects. FIRE looks different for everyone who achieves it, which is one of its greatest strengths!
The Pros of the FIRE Movement
When approaching FIRE from an intentional and balanced place, there are plenty of benefits to pursuing financial independence! Here are just just some of the many benefits that FIRE can bring to your life.
It Gives You A Clear Goal
Deciding you want to quit your job and retire early gives you a clear goal to pursue. If you’re serious about achieving FIRE, chances are you’ve crunched the numbers. You probably know exactly what you need to save each month to achieve your dreams.
Having clear money goals is a wonderful thing, because it’s been scientifically shown that those who write down their goals are 33% more likely to achieve them.
If you have something to specific and measurable to strive for, it will help you to make smarter spending decisions in general because you have something to weigh your decision against. Without an intentional goal, you’re more likely to make impulse purchases or forgo creating a budget. However, if you’re pursuing FIRE, you may find yourself thinking twice about whether or not a purchase is worth it. It could set you back in your larger pursuit.
It Can Encourage You To Save More…
According to the Bureau of Economic Analysis, the average Americans savings rate in December of 2022 was only 3.4%. At HTM, we always want to encourage you to do better than average, which is why we love that the FIRE movement puts such a large emphasis on saving.
One of our favorite aspects of the FIRE movement is that it encourages you to leave no stone unturned when looking for additional savings! Instead of simply accepting an increase in insurance rates, FIRE community members might opt to shop around or work to qualify for additional discounts. The FIRE lifestyle could encourage you to consider unconventional ways to save. Like getting roommates or house hacking, and we love that!
Overall, it encourages its followers to take a mindful spending approach, because they weigh their financial decisions against that clearly defined goal.
FIRE Helps You Spend Less!
Another awesome aspect of the FIRE movement is that it encourages you to spend less. There’s a natural focus on frugality when pursuing early retirement. It allows adherents to make the most of their salaries.
Reducing your spending not only allows you to save at a faster pace, it has the added benefit of reducing the total nest egg you need to save up for retirement. Every dollar has the potential to add up to something life changing. And people pursuing FIRE are well-versed in knowing the potential that each dollar can create!
This challenge to continually minimize expenses encourages people to consider buying secondhand, taking advantage of credit card signup bonuses, and cutting out things that don’t truly add value to their life. In fact, with a big goal in mind like retiring early, it can actually make you happy to forego certain purchases, knowing that it puts you closer to living your dreams.
It Leads To More Freedom
If you dream of taking off to catch a movie at your local cinema at 12pm on a Tuesday, the FIRE movement may be for you!
The best thing about having work be optional is the freedom to spend your time as you wish. Without a boss, you’ll have added flexibility in your life. You don’t need to request a vacation months in advance, clock in at a certain time, or waste hours commuting to an office. Retiring early gives you the ability to follow your passions, and gives you more control over your daily life.
Some people choose to pursue FIRE because they feel a deeper sense of purpose or mission to pursue more meaningful things. Helping others, volunteering, and spending time with loved ones to name a few. Not needing to depend on a job for a paycheck can allow you to focus on the things you care about most.
It’s important to mention that “freedom” in life isn’t only available once you reach retirement. Financial freedom is built gradually, over time. It starts with your very first dollar, and each dollar you save on top adds more flexibility and freedom to your life. Members of the FIRE Movement learn to enjoy the journey, taking advantage of little freedoms along the way – even if they haven’t reached their ultimate FIRE savings goal.
It Can Lead To Less Stress
Lastly, focusing on financial independence and retiring early can lead to less stress! Stress can be detrimental to your health, and money is one of the biggest stressors for most Americans. In fact, it’s the number one stressor for adults ages 18-57. That’s a lot of people who are worried about money!
Having your finances all set, and not having to depend on a paycheck each month to be able to pay rent or for living expenses could seriously decrease the stress you feel in a meaningful way. This leads to greater levels of happiness, mental energy and focus!
Also, the FIRE movement goes hand in hand with Minimalism. When you start shedding useless possessions and spending much less on your cost of living, your stress decreases too. It’s been said that the stuff we own actually owns us. There’s a lot of truth in that statement!
Bonus: If you’re looking for ways to transform your stress into powerful money moves, check out our episode on using financial stress to your advantage!
The Cons of the FIRE Movement:
Most people enter the FIRE lifestyle with good intentions. But as this movement become more mainstream, there are definitely a few challenges that have formed. It’s possible to take FIRE to an extreme place where it does more harm than good.
Sure, candy is delicious, but eating a 5-pound Hershey bar by yourself will leave you doubled over in pain. Make sure to beware of the downsides of the FIRE movement to make sure you don’t look back on the years you spend hustling with regret.
You Could Sacrifice Too Much
We’ve all seen an episode of Extreme Cheapskates. I don’t know about you, but I’m not interested in becoming one of those folks!
When people are aggressively working to achieve early retirement, they have a tendency to sacrifice too much of their happiness today, in hopes of buying more happiness later when they have excess time and money. Sadly, they eventually realize that money doesn’t buy happiness. And that depriving yourself of some of the joy that money can bring now changes the type of person you are. It takes years to rebuild happiness into your life later, no matter how rich or young you are.
While we love the emphasis FIRE places on saving money, it can be easily taken too far. You can miss out on some of the things that make life worth living. Don’t pass up on time with family and friends now thinking you’ll have more time in the future. The harsh truth is that no day is promised. And if you don’t cherish your loved ones now, you may be missing out on precious days. If you neglect your relationships in order to pull more hours at work or in an effort to avoid spending money, there is no guarantee that those relationships will still be there when you retire.
If you’re on a FIRE journey, chances are that it will take about 10-20 years! That’s a large chunk of your life. You don’t want to look back on it with regret. Be sure to incorporate some of the things you enjoy in the present while simultaneously socking away money for the future!
There’s a false dichotomy that some in the FIRE world buy into that people cannot both enjoy their lives in the present and retire early in the future. That’s definitely not the case!
It Can Create A Negative Relationship With Work
One of the biggest downfalls of the FIRE movement is that it can often paint “work” in a negative light. Work becomes the problem that you’re trying to furiously run away from.
The whole goal of FIRE is to life a life where you don’t have to trade time for money anymore. Ironically, people think the best way to get there is to TRADE THEIR TIME FOR MONEY – as much as they can, even if it makes them miserable.
While some FIRE influencers choose to work high paying jobs that they hate in order to achieve retirement as early as possible, we would encourage you to seek satisfaction in your work, even if it means pivoting careers or switching to a job you’re more passionate about. Sure, it may take you a little longer to achieve financial independence. But you’ll be able to look back fondly on the years you spent pursuing it.
Work is not the enemy in life. It’s actually an ally. It’s called work for a reason, meaning that it’s not all rainbows and sunshine. But it’s worth working towards making work a meaningful part of your life. It’s not just something you’re trying to avoid completely. Don’t make work your nemesis.
Retirement Isn’t For Everyone…
If you retire without a solid plan of what you’re retiring to, you may find yourself struggling with boredom or feelings of loss of purpose! Even people who retire at a more typical age sometimes choose to return to work after retiring.
In 2019, a British study found that the average retiree often feels bored after just one year without working! A great way around this is to pursue multiple passions with gusto before you fully retire. Friend of the show Wes Moss found that the happiest retirees participate in more ‘core pursuits.’ Make sure that you aren’t just trying to get ditch work, but that you’re actively pursuing and exploring meaningful interests.
It’s crucial to spend time considering how you will spend your time after you retire before you retire. This can be particularly difficult for many FIRE devotees. And it’s not that relationships won’t continue to provide joy in your non-working years. It’s just more difficult to spend the afternoon hanging out with your friends if they’re still working!
You Risk Running Out of Money
To calculate how much it takes to retire early, you need to make a lot of assumptions. Your future lifestyle, cost of living, how long you will live, etc. The reality is, a lot of unknowns can pop up in life, causing you to run out of money and forcing a return to work.
While the 4% rule is considered a “safe withdrawal rate,” the analysis has a few flaws. One of which is the study was based on a 30 year retirement timeframe investing in only stocks and bonds. What happens if someone lives for 40 years after retirement? Or 50 years? Or longer!?
It’s nearly impossible to predict how long you will live and what your life will look like decades down the road. For example, healthcare expenses can be one of the biggest expenses you face later in life. Fidelity estimates that people will need $285,000 to cover medical expenses in retirement alone. The unpredictability of inflation is another huge risk that is taking people by surprise and hurting many current retirees.
All in all, followers of the FIRE moment must build in various safeguards and back-up plans to make sure their money will truly last forever. Retiring solely based on a loose rule of thumb can be naive.
You Could Face Difficulty Getting Back Into The Workforce
So you retired a few years ago, but realized the FIRE life wasn’t for you. Now what?
Large gaps in your resume can make it difficult to re-enter the workforce. The needs of your industry and technology updates could make it tricky to get a position similar to where you left off.
If you work in an industry that is ever changing, consider keeping up with trends. Try learning new skills throughout retirement to keep yourself employable should you need to return to work in the future!
It Can Be Kind of Selfish, and Lonely
Now this might be a little philosophical sounding, but we believe that when taken to an extreme, the pursuit of FIRE can put too much emphasis on the individual. That “nose to the grindstone” mentality could isolate you from your loved ones and peers. It can cause you to neglect your community.
Living an unconventional lifestyle means walking a different path than almost everyone you know. We certainly encourage folks to break from the norm and achieve greatness in their own way. But sometimes this can lead to a sense of self-righteousness, and judging of how others live their life.
If you follow the FIRE movement, remember you still need to co-exist with everyone else that isn’t in the FIRE movement.
We also believe that giving some of your money away to important causes and allowing yourself to be generous is part of developing a healthy relationship with money. If you’re on your FIRE journey, be sure to have a plan in place for charitable giving, whether it’s with your time or money!
The Bottom Line:
The FIRE movement encourages those on their personal finance journeys to save more, spend less, and plan for their future. This is all awesome stuff! As long as FIRE is done in a positive and balanced manner, it can certainly change your personal finance journey for the better.
Just make sure that you don’t delay living the life you want for too long. With some creativity and thoughtfulness, you can incorporate a little bit of that magic in your life right now. No need to wait until you hit some magical wealth number first!
Whether or not the FIRE movement is right for you is up to you to decide. That’s the fun part about personal finance. It’s ~personal!~
Well, that’s all we have to say about that! If you’re interested in pursuing FIRE, make sure to check out our episode about the current state of the early retirement community!
**Feature pic by Peter Conlan on Unsplash
Beer notes from the show!
During this episode we enjoyed a Fruit and Hops on the Bottom which. This is a collaboration between Stillwater and Hoof Hearted Brewing! And as we’ve ramped up the podcast with an additional Friday episode every week, we could really use your help to spread the word- let friends and family know about How to Money! Hit the share button, and subscribe if you’re not already a regular. Or give us a quick review in Apple Podcasts or wherever you get your podcasts. Help us to spread the word to get more people doing smart things with their money in these difficult times!
Best friends out!
