Financial Freedom Under FIRE...

There is nothing new under the sun when it comes to financial planning. All you really need to know is that you should spend less than you make – at least that is what Benjamin Franklin believed. But much like diet fads, there will always be a new theory on how you can gain financial freedom.

According to a 2017 survey, 1 in 3 Americans have no retirement savings and it’s projected that more than half of Americans will retire broke. This is not a new problem, Thomas Jefferson was very successful, but died broke from spending more than he made. So behaviorally something needs to change to correct this – but what?

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One such movement hoping to change this trend is FIRE – “financial independence, retire early”. FIRE advocates strive to retire in their 50s, 40s or even 30s by stashing away more than half of their paychecks. There is a documentary on how this all works titled, “Playing with FIRE,” which is worth checking out.

This movement of extreme frugality and early retirement began in 2001 and today it has become wildly popular with hundreds of thousands of people ditching their BMW’s for a bicycle. Advocates view retirement differently than most. Early retirement means quitting any job you wouldn’t do for free – but many continue to work after “retirement” in areas they enjoy. They cut spending and increase savings in an extreme way so they can eventually choose what to do without financial worry.

Some sell their houses, buy an RV and travel around the country. Others work part-time at Starbucks to cover health insurance costs or backpack across Europe. If this sounds good to you, the math is simple; Accumulate a nest egg equal to 25x your annual expenses. So, if you can live on $40,000 per year, you need to save $1 million dollars to achieve financial independence.

This all sounds well and good, but implementing such a dramatic shift in one’s behavior is the hard part. Committing to altering spending habits is difficult especially for us Americans who are so good at spending our hard-earned money on the next thing.

Anne wrote a few months ago about the adrenaline rush most people feel from buying new stuff, be it a car or article of clothing. Conversely, some people save diligently all their working days and then have extreme anxiety during retirement when they need to pull from their accounts. We are all wired differently. Most cannot follow through with something like FIRE, but we can learn from it. Do not bite off more than you can chew. Start with small changes. Repair your credit, create a budget, control your spending and save more for retirement.

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But remember what’s most important in life is your happiness, not money or things. Making smart decisions with your money provides the flexibility needed for you to pursue what’s most important to you, whatever that might be.