In finance, FIRE stands for “Financial Independence, Retire Early.” It is a movement and a lifestyle strategy that aims to achieve financial independence and early retirement through disciplined saving, frugal living, and strategic investments. The core principles of FIRE include:
- High Savings Rate: Individuals pursuing FIRE typically save a significant portion of their income, often 50% or more. This high savings rate accelerates the accumulation of wealth, allowing them to reach financial independence sooner.
- Frugality: Emphasizing a frugal lifestyle, adherents of FIRE focus on reducing expenses and living below their means. This includes cutting unnecessary costs, finding cost-effective alternatives, and prioritizing spending on what truly matters.
- Investing Wisely: The savings accumulated are strategically invested to generate passive income. Common investment vehicles include stocks, bonds, real estate, and low-cost index funds. The goal is to create a diversified portfolio that grows over time.
- Financial Independence: Achieving financial independence means having enough wealth and passive income to cover living expenses without needing to work for money. This is typically calculated as having 25 to 30 times one’s annual expenses saved and invested, based on the 4% safe withdrawal rate rule.
- Early Retirement: Once financial independence is achieved, individuals have the option to retire early, well before the traditional retirement age. Early retirement allows for more freedom and flexibility to pursue personal interests, hobbies, travel, or other non-work-related activities.
- Mindset and Lifestyle: FIRE is not just about financial strategies but also about adopting a mindset that values time, freedom, and intentional living. This often includes reassessing life goals, prioritizing experiences over material possessions, and seeking fulfillment beyond a traditional career.