What is the FIRE Movement?
The FIRE movement has taken the personal finance world by storm in the past decade. It has become a way of life for many. But what the heck is FIRE?
It stands for financial independence retire early. But again, what does this really mean? For most it means being able to live life exactly the way that you want, without being restricted by money or a lack of. Convention finds most people working jobs to provide for themselves and their families until they are on average 65 years of age, whereby they will then, and only then, enjoy the freedoms of retirement.
The FIRE movement re-writes this age old script. It preaches the ability to achieve financial independence decades earlier than what convention states is possible. For many, it is the notion of becoming financially independent that drives them to live a FIRE lifestyle.
But how can it be possible to retire at 30, 40 or 50? The FIRE movement follows a relatively simple formula. By living frugally and cutting expenses aggressively, you will increase your savings rate significantly. This increased savings is invested in investments that generate passive income. Over time these investments grow in size. As they grow in size, so does the amount of passive income that they generate. Eventually, this passive income is able to replace a primary income. The result? Financial freedom.
The driving force behind this working is multi-faceted. Firstly, the more frugal someone can live (the more they can reduce expenses), the more money they can afford to put into investments. The more investments they own – the more passive income they will receive. The second element to this however, is that the more someone can reduce their expenses, the less passive income they need to be able to financially support themselves.
Basic FIRE formula = increase savings rate –> invest aggressively to generate passive income –> continue this until passive income can replace your primary income
At this point you a financially free. Your investments now cover your expenses. You no longer need to work 9 hours a day to pay your bills. You are truly free.
Financial Independence in a Nutshell
Financial independence. It is likely a term that you have heard before, but what does it really mean? What any quick google search will tell you is that being financially independent is having enough money or passive income to fund your life without needing to work.
To many people this sounds great. But financial independence is more complex than this. Not having to work is probably enough for many, but financial independence means more than that. When you are no longer forced to go to work each day, you gain true freedom. You have the ability to chase your dreams, follow your passions and spend your extremely limited and precious time on planet earth exactly the way that you desire.
But what if you like working? It keeps you fit and healthy, or it keeps you from losing your marbles? Being financially free doesn’t necessarily mean no work. It means not being forced to work in order to pay your bills. For context, if you look at someone like Jeff Bezos (founder of Amazon and about as financially independent as one can get), he still works despite having more than enough money to stop working.
Financial freedom opens many doors that otherwise may remain shut. Society has a knack of condemning those who step out of line with convention. Those who seek freedom as a product of financial independence are often labelled lazy, greedy or unrealistic. Don’t less those people stop you from chasing financial independence. They are the same people who spend 45 hours a week working a job they hate. They are the same people who can’t spend as much time with their friends and family as they would like. And they are the same people that can only afford to go overseas once every two years.
Here are some key ways being financially free can change your life for the better. You might find financially independence creeping up your list once you read these.
Family/Friends | In most peoples lives, friends and family come above all else. For many people though, finding the time to spend quality time with your family or friends can be hard. When you spend 45 hours a week working, you are straight away restricted to after work on weekdays or weekends. The freedom that comes with financial independence completely changes this – you can spend as much time as you want with the people you are closest to in your life.
Travel | Maybe this is just me, but I have a strong desire to travel the world and explore what is out there. And when I say travel, I mean really travel. I don’t mean going on an overseas trip to Bali once every two years. But for most people travelling for more than a couple of weeks a year is unrealistic and unachievable. They have jobs that tie them down and bills that need paying. Financial independence makes travelling more entirely possible. You no longer have a job with two weeks of annual leave a year. You are financially independent!
Lifestyle | Have you ever embarked on a personal mission? Committed to regularly working out? Committed to changing your eating habits? Committing to cold showers? Committed to becoming a morning person? Everything goes great for the first week but then life gets in the way. You have to work late so you get home at 6:30 pm. You have made a commitment to get in the gym so you force yourself to do so. By the time you finish gym, get changed and have a shower it’s 8pm. Again you have committed to eating healthy so rather than ordering take away you get in the kitchen and cook for yourself. By the time you eat dinner its 9pm. You’re absolutely drained and don’t feel like doing anything but putting your head on a pillow. The next day you wake up and do the same, except today you are too tired to go to the gym and end up ordering take out and eating on the couch. The problem here is that when things you commit to become unenjoyable, sort of like a chore, they also become unsustainable. When you are financially independent you are no longer enslaved by a 9-5 job, you have the time and energy to commit to things and follow through with them. You have the freedom and time to craft the lifestyle that you want. And, most importantly, enjoy that lifestyle.
Happiness | If you are working your backside off all week just to keep yourself afloat, i’m going to take a stab in the dark and say that your happiness levels are probably not at their highest. What is probably high, is your stress levels. Having your finances under control can remove huge amounts of stress. Rather than focusing on how you are going to pay your rent this week, you can focus on your happiness.
Chase your Dreams | Have you had a childhood dream? Maybe you have wanted to become a pro surfer, wanted to create a business, change the world etc. But you could never pursue that dream because you are stuck working a 9-5 job with little time spare to do anything else. Being financially free allows you to chase your dreams and passions.
The benefits to being financially free are endless. You have freedom, time and choice. The world suddenly becomes your oyster. Here at Aussie FI our motivation to become financially free is our desire to travel the world and live freely. What is your motivation to become financially free? Let me know in the comments I would love to know!
Aussie FI’s FIRE Formula
So as you now know, the typical fire formula involves aggressively reducing living expenses through frugality in order to allow more money to be placed into investments. So, what does Aussie FI think about FIRE? Well, we think it is great, and is more than capable of helping people reach financial independence and retire early. However, in our opinion, it misses one key element. Income. We believe that an equal if not larger amount of attention should be given to increasing income as it is given to reducing expenses. The reason for this is simple, you can only reduce your expenses by so much, yet there is no limit to how much you can increase your income. It is for this reason that Aussie FI strongly recommends focusing on increasing your income just as much as you focus on decreasing your expenses.
Increase Income –> Decrease Expenses –> Invest Aggressively
It really is as simple as that. All of Aussie FI’s posts will revolve around these key elements. We hope to share with you everything we have learnt to help you on your journey towards financial independence.
Common Misconceptions about the FIRE Movement
It is unrealistic | The most common reason people don’t achieve financial independence is usually because they don’t think they can, so they don’t even try to. Let me tell you this, becoming financially independent is entirely possible. It won’t happen overnight, but if you make it a focus by increasing your income, cutting your expenses and investing aggressively, financial independence will come and will probably come sooner than expected.
I like my current lifestyle too much | Many people believe that the FIRE movement means no more take away coffee or avocado on toast. This is completely not true. Whilst of course the more you can cut expenses the sooner you will reach financial independence, you do not have to cut out every single expense in your life. At Aussie FI we believe in finding the right balance between frugal living and still enjoying the present. Starting your journey towards financial independence does not mean you have to completely destroy your current lifestyle, perhaps it just needs slight tweaking.
Im to old to start | Don’t get me wrong, the earlier you start the better. The reason? Your investments will have more time to compound. However, it is never too late to start you FIRE journey. Bill Gates once said “people overestimate what they can achieve in one year, but underestimate what they can achieve in ten”. Please do not ever think it is too late to start your financial independence journey, it most definitely is not.
How can you become Financially Independent?
Ok so now you understand what the FIRE movement is, what financial independence is and the enormous potential it has to change your life for the better. But where do you start? The internet is full of amazing information but sometimes the information is not actionable. Here are some actionable steps you can use to start your journey today.
Income | Start looking at ways that you can increase your income. For many people a good starting point is their current career or job. Maybe its focusing on a promotion or pay rise, changing jobs or even picking up some part time work to supplement your existing income. Next you could focus on picking up a side hustle. There is a perfect side hustle out there for everyone. At Aussie FI, one of our favourite side hustles is matched betting, you can read our step-by-step guide on this here. What about maximising your tax return or selling some things around the house? At first the prospect of increasing your income can seem unrealistic, but it isn’t. Remember, you don’t need to double your income overnight, small increases still make a massive difference over the long term.
Expenses | Now that you have maximised your income, how can you keep as much of this in your own pockets through reducing your expenses? You don’t need to create a budget, but it can be a good idea at first to review bank statements over the past 3 months to determine where your money is going. Now that you know where your money is going you can focus on cutting down some key expenses. Maybe you are spending more than you thought in certain areas? Aussie FI has compiled a list of ways that you can possibly cut down your expenses, you can find that here. Once you have done so, you should now be saving additional money which can be invested.
Investing | When it comes to investing you firstly need to define your goals and determine what asset classes you wish to invest in. Currently in Australia the most popular type of investments tend to be shares, bonds and real estate. We strongly advise you do your own research when it comes to your investments. At Aussie FI our investment strategy involves investing in exchanged traded funds that track key indexes with future plans to diversify into real estate. Your investment strategy is something that only you can determine. To do so a good place to start can be to learn about each asset classes, set goals and create a plan. If you are not confident doing so, you can get a financial advisor to help you do so. If you are looking to invest in shares, I recommend you check out this review of an Australian investment platform called Pearler.
Becoming financially independent can seriously change your life in so many ways. It is not hard to reach a level of financial independence it just takes attention, dedication and time. But I cannot stress enough how worth it it is. Aussie FI exists solely to help its readers on their journeys towards financial independence.
Let me know in the comments what is was that sparked your desire to become financially independent – I’d love to know.
Don’t wait until tomorrow, start your FIRE journey today!