Why Everyone Needs to Think About FIRE

We’ve been chiming in on the trending topic of Financial Independence/Early Retirement (FIRE) here lately. But what if FIRE is the furthest thing from your thoughts? Maybe you’re just making it. Maybe you’re retirement age, but with no end in sight. Or maybe you’re still in college, just trying to get through the semester. No matter what your phase of life or financial situation, you owe it to yourself to think about at least the FI in FIRE.

We’ve critiqued some of the philosophical/theological implications of the phrase “financial independence,” but we can’t argue with the math. We would all love to be as free financially as possible, right? While that might be far from your reality today, there are realistic steps everyone can take to work toward freeing up your finances in the future. Rather than focusing exclusively on the finish line of “financial independence,” we like to think of it as a continuum of increasing freedom, which we call financial flexibility.

The basic recipe for financial flexibility looks like less expenses and more passive income, especially from investments. The less money we need to actively earn via a traditional job/paycheck, the more options we’ll have. More options for taking opportunities that come our way. For changing careers or our reducing workloads. For family, travel, service, and charitable giving. And options for retiring.

Sounds great, but some common misconceptions get in the way of planning for retirement and/or financial flexibility. Are any of these holding you up?

1. I’m never going to retire. Not with that attitude, you aren’t! But there are lots of real reasons people feel pessimistic about money. Overwhelming debt or other large financial responsibilities can make us feel like we’ll never dig our way out. Rather than getting defeated by the obstacles, try to focus on what you can do. At the very minimum, strive contribute enough to your retirement account to get your employer’s match. Otherwise, you’re essentially kissing part of your paycheck good-bye. More on next steps under #3.
2. The stock market isn’t safe. We don’t believe true “safety” comes from any financial source. But as far as destinations for your retirement savings go, the stock market is where it’s at. While it certainly takes its dips, the roller coaster has steadily trended upward over time, generally at a rate of 7-8%. That’s far better than you’ll get in a savings account–and the only way to beat inflation. And the power of compounding interest really takes off over time.
3. Investing is for the wealthy. I used to believe this, not realizing that investing is exactly how “average” people get wealthy. Investing slowly and steadily over the course of 20-30 years can get you where you need to be to retire without doing anything extreme. Start by getting that employer match. Next, work your way up to 15%. Got that down? Then see if you can max out your 401(k) ($19,000 per person per year) and IRAs ($6000).
4. You never know what will happen. I used to feel like declaring a big financial plan was unwise because you never know what life will bring. If we set a big goal and didn’t meet it on time due to unforeseen circumstances, this would feel like a failure. Yet life’s unexpected nature is exactly why you should be saving and planning for the future. Yes, sickness, emergency, career change, or other surprises could dramatically modify your financial outlook. So why not be prepared? In addition to investing, get a good life insurance policy for both spouses, and long-term disability insurance.

What can you do today? It all depends on your situation. But everyone should consider the following potential steps toward increasing financial flexibility–and therefore freedom.

1. Reduce debt. If you’re still in school, seek alternatives to paying for a portion of tuition, such as scholarships, grant, work-study, and summer/side jobs. And please, don’t take out loans to cover living expenses. When you’re out of school, resist the urge to defer loans unless absolutely necessary. Try to keep living expenses low at least until you’re done paying off those loans. And avoid consumer debt by starting an emergency fund of $1000, and then building it to 3-6 months’ living expenses.
2. Spend less. I know it sounds obvious, but the less you spend, the less income you need. At the same time, the more you can invest for the future. You can also spend more on causes you care about, like charitable giving and pursuing dreams like travel, being home to raise kids, or entrepreneurship. There are a million and one ways to cut expenses, and it all depends on what’s worth it to you. Some of the top areas to cut are:
   —housing (mortgage/rent no more than 25% of your income; get a roommate)
   —transportation (try saving up for an older car vs. taking a loan),
   —food (cook at home, pack lunch, pre-game restaurant outings).
3. Learn about investing. If the stock market sounds intimidating or confusing, read about it in straightforward books like The Legacy Journey (see appendix) or The Simple Path to Wealth. The thing I love about investing is that we don’t have to spend a lot of time side-hustling to earn future passive income. We can build wealth without additional effort, simply by putting money in low-fee index funds (we use Vanguard) consistently over time.

What are your hang-ups when it comes to planning for retirement? And what step could you take today to invest in your future?