According to Money
magazine, the 1992 best-selling book, Your
Money or Your Life, has found a new and enthusiastic readership among
millennials. That age cohort comprises
the heart of a movement known now as FIRE, for “financial independence, retire
early”.
I have to admit, that is an appealing concept. Who doesn’t want to be free of money worries
or of being dependent on a job that brings no joy or fulfillment just to be
able to pay the bills? And retire early
while you’re still young enough and healthy enough to enjoy the free time—what
could be wrong with that?
There is plenty right with FIRE. Adherents make a habit of evaluating
potential purchases in terms of “real cost”, i.e. not just dollars and cents
but the amount of time or life energy it took to earn those dollars and
cents. I’ve done that—still do
sometimes. Early in my career it was an
exercise in anxiety and stress as I counted up the bills against the time I had
to work to earn the money to pay them.
Lots of people complain of running out of money before the month is
over. Imagine running out of time each
month. It was frightening. But for someone in a reasonably secure
financial state this technique can be an excellent way to stop impulse buying
and encourage wise shopping.
FIRE also encourages simple living. The goal is to live on less and invest the
savings. So the more diehard FIRE fans
scorn eating out, grow their own vegetables, hunt for their own food, repair
their own cars (if they even own one), and re-use everything they can. If this sounds to you like a hippie community
(forgive me if the term sounds derogatory or anachronistic), you would not be
far from the truth. But we should not
stereotype “FIRE walkers”, as some call them.
As with any group of human beings brought together under a common cause,
there is wide diversity in motivation and technique. Not all of them eat homegrown garden salad in
their own kitchen every night by candlelight.
They will go to a nice restaurant; take consulting jobs; drive a car
every day. You may be well acquainted
with a FIRE walker and not even know it.
What about the “retire early” part? Vicki Robin, author of Your Money or Your Life, outlines a nine-step process to achieve
this goal. It is not a get-rich
scheme. It is to live on less and save
until you reach the so-called crossover point at which your investments
generate enough income to sustain that simple lifestyle without having to touch
the principle amount. This offers the
opportunity to retire early. To her
credit, she does not recommend high-risk investments or unproven financial
strategies to get to that point.
Low-cost mutual funds and exchange-traded funds (ETF’s) along with
simple real estate strategies are her favorite vehicles for saving/investing. As I said, there’s lots to like about FIRE.
Is FIRE for you?
Don’t get fired up too quickly.
Think about the pitfalls, and in my next post I’ll share what I don’t
like about this movement.
Until then,
Roger
“Therefore I tell
you, do not worry about your life, what you will eat or drink; or about your
body, what you will wear. Is not life
more than food, and the body more than clothes?” Matthew 6:25 NIV®*
*Scripture quotations taken from the Holy Bible, New
International Version® NIV®
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