FIRE (Financial Independence, Retire Early)

There’s a FIRE spreading in the world of personal finance. FIRE is the acronym that stands for “Financial Independence, Retire Early.” It’s popular with Millennials (which Pew Research now defines as anyone born between 1981 and 1996, or ages 22 to 37 in 2018) who want to escape soul-sucking jobs that don’t reflect their values. The movement has added to the chorus of naysayers, who complain about the generation’s work ethic, but I believe that FIRE followers are doing what they should be doing: taking control of their financial lives.

The ideas behind FIRE are pretty simple: don’t spend more than you earn; reduce major expenses with cheaper alternatives; avoid debt; cultivate side hustles or part-time work; invest in low-cost index funds; and do not withdraw too much from your retirement account. Yes, a financial life will likely become more complicated over time, but these steps would be a great start for the vast majority of Americans.

Peter Adeney, aka blogger Mr. Money Mustache, has been an early fan of frugality as a path to financial freedom.  He readily acknowledges, “Everybody uses the FIRE acronym because it is catchy and “Early Retirement” sounds desirable. But for most people who get there, Financial Independence does not mean the end of your working career. Instead it means, “Complete freedom to be the best, most powerful, energetic, happiest and most generous version of You that you can possibly be.”

I’m not sure why anyone wants to argue with that sentiment, but haters abound. Before you cast judgment, let’s remember that a huge number of Millennials ran head first into a once-in-a-lifetime (hopefully) financial crisis and recession. Many diligently went off to college and then graduated, often with tens of thousands of dollars of student loan debt, only to face a horrible employment landscape. As a result, they were forced to take any job that would service that debt. Meanwhile, the older part of the generation had just started to accumulate some wealth and then, suddenly, the financial storm knocked them off course.

While the Great Recession was tough on everyone, The Federal Reserve Bank of St Louis found that younger workers, especially those born in the 1980’s, suffered the most severe setbacks and have rebounded at a snail’s pace. “This cohort has been the slowest to recover from the Great Recession. In fact, its wealth shortfalls (relative to the age-specific benchmark levels we predicted) were the only ones to worsen from 2010 to 2016. There are reasons to be very concerned about the financial outlook for many young Americans.”

It’s not surprising these younger folks have a complicated relationship with money. The recently released Millennials with Money report from communications marketing firm Edelman, found that more than half (54 percent) of those surveyed who struggle with financial decisions say it’s because thinking about money makes them stressed and anxious. Those who are not affluent state: “I feel powerless and ineffective when it comes to finances, the system is rigged against people like me.” Three-quarters of those Millennials who are wealthy (at least $50,000 in investable assets or $100K in individual or joint income) believe it’s just a matter of time before bad behavior in the financial sector leads to another financial meltdown.

With all of this being said, why would anyone discourage these people from trying to grab hold of their financial futures? If you haven’t guessed by now, I’m an unabashed fan of the FIRE movement. As long as adherents stick to the numbers and do not fool themselves with pie in the sky forecasts, they are on the right track.