Learn how to invest in the stock market
Investing wisely is critical for anyone on a FIRE retirement plan, Shen says. “If you learn to invest and build
a portfolio instead of putting everything into a house, for example, then that
portfolio will spin off passive income—not just in capital gains, but in the
form of dividends and interest,” she says.
That recurring dividend income from a substantial investment portfolio must
eventually be large enough to support your living expenses, Leung adds.
To reach that goal of sustained, passive investment income, Allen
recommends “investing early and often. And as much as you can, for as long as you
can.” That’s because the earlier you invest, the sooner you can benefit from
the power of compounding.
Of course, you should always consider your unique financial situation
and goals before making an investment decision.
Get a side hustle
In the FIRE community, retiring early doesn’t necessarily mean that you
aren’t making some extra cash to support your lifestyle. In fact, building a
side hustle is often encouraged as part of a FIRE retirement plan.
“For us, it’s writing,” Leung says. “We run a blog, and we also wrote a
bestselling book.”
There are many reasons you need a side hustle. Leung notes that after “retiring,” a side hustle—even one that generates $5,000 to $10,000 a year—can dramatically enhance your financial position. The extra cash flow can help you limit the amount you need to withdraw from your investments, allowing your nest egg to continue to compound over the years.
If writing isn’t your thing, there are plenty of opportunities to earn
extra money in today’s economy, Allen says. Selling arts and crafts on an
online marketplace or driving for a ride-share company are great ways to boost
the longevity of your financial independence.
Reduce your cost of living
One of the most
effective ways to expedite your FIRE
retirement plan is to keep your living costs down, Shen and Leung say.
That way, you’re able to funnel even more savings into the market, where your
nest egg can grow.
If you’re interested in the retire early movement, you’ll be interested in these two ways to manage your living costs:
Travel can actually keep a lid on costs
Shen and Leung have
always had the travel bug, and they’ve found that traveling has actually helped
them reduce their living expenses in early retirement.
Shen notes that
when they were living in Toronto, they were spending between $40,000 and
$50,000 a year on living expenses.
“But when we
started traveling the world,” Shen says, “we spent $40,000 a year and it hasn’t
gone above that amount for the past five years.”
Leung says that they
no longer pay rent like they did when they were saving for early retirement.
Instead, they typically live out of their backpacks and pay for low-cost
accommodations as they travel the world.
“We’ve found that
not only is travel worth it, it’s actually helped us mitigate our risks in our
portfolio because we were able to control our costs,” Shen says.
Geoarbitrage can improve the gap between income and expenses
Shen admits that globe-trotting isn’t for everyone. For people who
would rather stay in one place as they pursue FIRE, she recommends geographic
arbitrage. It’s also known as “geoarbitrage” for short in the FIRE community.
It’s a simple idea: Live and work in a city with a competitive job
market and command a high salary. Then move to a lower-cost city or
neighborhood while continuing to make the same salary.
You might be able to score a new gig in a lower-cost location without facing
a salary adjustment, or you could commute from a lower-cost area if you’re not
able to change your headquarters. Remote work might also be a possibility.
“One outcome of the pandemic was that more and more people were able to
work from home,” Shen says, which opened up the possibility of remote work and
geoarbitrage to even more people pursuing the retire early movement.
Can a recession alter someone’s FIRE savings plan?
Saving, investing and traveling your way to
financial independence sounds nice in theory. However, a recession can throw a
wrench into your FIRE savings plan.
“If you retire into a down market, you can deplete your portfolio very quickly,” Shen says. Keeping costs down can help, but there are other strategies that can help protect you from a market downturn.
Allen thinks the best approach is to have a healthy store of cash saved up in case a recession hits while in early retirement. She is still working toward her goal of saving $50,000 in an emergency savings account—in addition to her investments—before she’ll feel ready to quit her day job.
Allen notes that many
people in the FIRE community don’t like to hold a lot of cash. This is because
it could be growing faster if it were invested in the stock market.
“I’m a little bit
different on that,” she says. “You never know when the market is going to crash,
so you want to have that financial buffer to be sure that you’re safe.”
Is FIRE right for you?
Achieving financial independence early in life
clearly has its benefits. You no longer have to work a job if you don’t enjoy
it, and you can spend more time doing what you’re passionate about. For Shen and
Leung, that’s traveling, and for Allen, it’s writing. For you, it could be
anything.
But FIRE can have its drawbacks, and sometimes
the benefits of the retire early movement can be achieved in other ways.
The FIRE retirement plan can give you major FOMO
Kali Roberge, now creative director at Beyond Your Hammock, a financial planning firm, found the retire early movement in her early 20s as she struggled to find a promising career path. Roberge graduated into the Great Recession and—like many recent grads at that time—was frustrated by the lack of prospects.
She found FIRE to be a way to sidestep the
traditional rat race. “I felt like if I couldn’t figure out how to make it in
the corporate world with a high-earning job, I needed to make just enough to
get out completely.”
Roberge believes
that achieving financial independence is a worthwhile goal. However, she found
that her intense focus on the
early retirement portion of FIRE resulted in missed experiences and
opportunities. She’d regularly skip movies and other events with friends
to save for the goal of retiring
in her early 30s.
“I really missed a
lot of time that I could have been spending with other people because I
was literally sitting at home to avoid spending money,” she says.
Roberge feels that her commitment to FIRE blinded her to paths that would have enriched her life. “I eventually realized that I could have more freedom and power by exploring ways to earn more rather than just scrimping as much as possible,” she says.
While Roberge realized
that retiring in her 30s wasn’t for her, she now has her sights set on retiring
at the age of 45.
You can be financially independent without retiring early
Shen and Leung have been able to use the FIRE
retirement plan to quit their jobs and follow their passions. But they
emphasize that the “FI” part of FIRE (financial independence) can serve anyone
who wants to take more control over their life.
“You don’t actually have to do the retire
early part,” Leung says. “If you love your job, you can stay there. But
financial independence is all about getting more power back for yourself. Not
being beholden to your boss, not being beholden to debt, not being beholden to
your mortgage.”
Allen echoes this sentiment. “I feel like FIRE should be for everyone,” she says. She also notes that even if you love your job now, that might not always be the case. She believes learning budgeting basics, how to budget your money and investing best practices can help anyone get their financial life in order, while the ethos of following your passions instead of doing what’s expected of you is important for living a fulfilled life.
Whatever you decide, do it with intention,
Roberge recommends. “Make sure you’re committing to this because it’s the right
move for you and your life,” she says. “Money is a valuable resource, but so is
time. We need to make sure we’re leveraging both wisely.”
If retiring early is your goal, consider the money moves you need to make to get there, starting with why you need to make a retirement budget before you actually retire.
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