FINANCIAL PLANNING TIDBITS: 5 LESSONS WE CAN LEARN FROM FIRE
SUMMARY
The Financial Independence and Retire Early movement, better known as FIRE, is not for everyone. But there are useful lessons to be learned from the people who strategize for early retirement.
ON FIRE
The idea of saving more so that you can retire earlier than the “normal” retirement age was around long before modern practitioners branded it with a fancy acronym. Consequently, the FIRE movement, which stands for Financial Independence and Retiring Early, has been catching on in the last decade or so, finding followers among those who dream of a life of financial self-sufficiency and recreational freedom achieved earlier than social standards. Many FIRE savers consistently put away over 20% of their income with the intent of retiring as early as possible.
Whether it’s saving to travel the world whenever you want or simply being financially secure enough to walk away from a job you don’t like (the colloquial—do pardon my French—FU money), the FIRE community comprises an enormous variety of people with goals just as diverse. Nonetheless, FIRE methodology often implements—and amplifies—generally effective financial strategies and mindsets. The good news is that you don’t have to practice such extreme measures as these “super-savers” to benefit from the wisdom on which they act. Here are five lessons we can pull from the FIRE movement, no matter our goals.
PAY YOUR (FUTURE) SELF FIRST
The FIRE movement emphasizes making your future a financial priority. While bills must be paid and it’s important to enjoy yourself throughout your life, it’s equally important to avoid being backed into financial corners. Whenever you receive a paycheck or income, strongly consider putting at least some of that aside right away, either in your savings, retirement, or investment funds. Your future self will thank you.
TAKE ADVANTAGE OF YOUR WORK BENEFITS
With the passage of the SECURE 2.0 Act, employers are now required to automatically enroll those who qualify into their retirement plans. Nonetheless, if you’re still working, it is your responsibility to know what types of benefits your company offers and use them. Whether this includes retirement plan options like the mega-backdoor Roth, tax-friendly HSAs and FSAs, or training and education stipends, knowing the resources at your disposal can help you to improve your career growth and prospects and your options in retirement.
AUTOMATE
FIRE practitioners emphasize unemotional consistency in saving and try to optimize their finances as much as possible so they can focus instead on living their lives. An easy way to make this happen is to take the decisions off your plate and the tasks off your list by automating your investment contributions. You won’t have to worry about remembering to move money and can instead focus on building your life into what you want.
BE OPEN TO BETTER OPTIONS
One of the focal points of the FIRE movement is increasing compensation as much as possible. Elevating your income isn’t always a matter of taking on a side hustle, cutting back your expenses, or asking for a raise. Sometimes it means finding another opportunity with a different company, pursuing further education, or taking on extra responsibilities where you are. It’s easy to get comfortable in your current position—and for some, it’s preferable—but professional and compensation growth happens when you are open to change and take the initiative.
BALANCE IS IMPORTANT
Just as moderation is key, balance is important. FIRE practitioners, while sometimes extreme in their savings, make a point of not depriving themselves of what life has to offer. Exploring hobbies and building community are necessary for a life well-lived. There is no sense in declining good opportunities to broaden your world just to put a few extra dollars away. On the flip side, while enjoying life is crucial, it should be coupled with good stewardship of your assets. Balance is a question of trial, error, and course correction, and not everyone’s path will look the same.
CATCHING FIRE
You don’t have to plan to retire early or hoard assets to implement effective money practices. Whatever your goals, the FIRE tenets above can be universally applied to different aspects of your financial life and bring you that much closer to living the life you want.
Natalie Brown, CFP®
Director of Client Services & Financial Planning
Day Hagan Private Wealth
—Written 04.18.2023.
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