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  • Writer's pictureRebecca Herbst

FIRE Series Part #1: It's time we talked about the F-word

Yes, we're finally talking FIRE, or Financial Independence Retire Early.


I only briefly mention FIRE on our blog and in the Learn to Invest course. And that has been intentional. In my experience, FIRE can be a polarizing topic. Some people are really into it (“financial freedom or bust!”) and some people are spooked by it (“that FIRE sh*t sounds really extreme”). For many, the aggressive savings tactics commonly deployed by FIRE folks can be off-putting, which is unfortunate because the financial planning and math behind reaching Financial Independence is insanely valuable. In fact, the investment strategies I teach you in the Learn to Invest course, are the very same fundamentals that I first learned when I began my FIRE journey. And so I hate to see people being turned off from investing and financial planning because the Early Retirement element of the equation seems a little too far fetched for people.


Not investing because you don’t find Early Retirement appealing is a mistake. It’s like deciding you don’t want to learn to ski because your only exposure to the sport is watching the X-games. You’re not gonna start with backflips, you’re gonna try your skis out on flat ground and maybe progress to the bunny slope. It’s the same with money. You start with saving, investing, and paying off debts… not with quitting your job and trying to live a crazy, alternative early retirement lifestyle.


So at the risk of scaring some of my readers, I’d love to share my personal early retiree journey with you all. I have met hundreds of amazing people pursuing FIRE, but in terms of actual early retirees who have left their full-time jobs by their mid-30s…well I have personally met one other person who has done this, and I guess two if I count my partner Joe. So not trying to toot my own horn here, but we’re a rare breed indeed.


With all that said, while we’ve achieved a lot due to our diligence, willingness to work on our finances, and our belief in taking risks, a big part of this early retiree thing is circumstantial. First off, I was born into the US, one of the richest countries in the world. This already makes me incredibly lucky. I had college educated parents who sent me to college as well and gave me the same opportunities they had. I come from generational wealth – not trust fund baby wealth – but definitely upper middle class wealth. And by the end of my career, I reached the top 10% of income earners in the US. I certainly was in many of the right circles at the right time due to my circumstances.


Not everyone is able to achieve FIRE, especially when they hit 32, but I do feel that most of my readers here can retire earlier than 65 if they choose to make that unique choice. And retiring earlier than 65 is still retiring early.


If somehow you’ve read this far and still don’t actually know what FIRE is, here is the quick skinny:

Financial Independence Retire Early (FIRE) is a philosophy and community of individuals seeking to gain greater control over their financial lives so they do not have to keep working forever. Achieving Financial Independence means you have enough passive income from your investments to cover all your living expenses without having to rely on traditional employment. People pursuing FIRE typically are trying to escape the “9-5” grind, gain freedom to pursue their passions and spend more time with family and friends.


While there is a little more to FIRE than this, here is the basic math. The following is based on the highly popular Trinity Study, and the coining of the term “the 4% rule”:


You are theoretically Financial Independent when you have 25x your annual expenses saved up and invested, and therefore you can safely withdraw 4% from your portfolio without ever running out of money. This is made possible through the power of investing and compound growth. The 4% rule takes into account historical stock/bond market growth and inflation.


Here’s a useful illustration that shows how much money you need invested to cover your expenses. For example, if you spend $40,000 a year, you need $1,000,000 to stop working (or 25x your annual expenses).


Obviously this is an oversimplified approach to retirement. You’ll need to take into a bunch of factors that are unique to you that might impact your spending like:

  • Will you own a house or rent?

  • Will your expenses go up when you have kids?

  • What type of care do you want in your old age?

  • Will you receive a pension upon traditional retirement age?

All these things are complicated questions, but the 4% rule can act as a guideline and help you begin to actively design a life you want to live based on real numbers. And I personally think decision making when you have math behind it is much easier to work with.


There is so much more to learn about FIRE, and at the end of this series I’ll point you to some of my favorite bloggers, authors, and podcasters who inspired me to leave my job early.


But for now, check out the following posts in this series:

 

Disclaimer: The information contained in the Yield & Spread website, course materials and all other related content is provided for informational and educational purposes only. It is not intended to substitute for obtaining accounting, tax, or financial advice, and may not be suitable for every individual. Yield & Spread is not a registered investment, legal or tax advisor or a broker/dealer.


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