FIRE, or Financial Independence, Retire Early movement, is both a modern and an old phenomenon. Historically there have always been people who lived frugal lives and managed to move on to life of either relative leisure or activities they truly enjoyed. Modern world, as we discuss in our philosophy section, encourages consumption, and by doing this forces us to work harder and longer.
FIRE movement tries to address this from a modern perspective. It has been around for more than a decade now. First, it tries to recognise the problem of money squandering, so rampant in the modern society. Second, it aims to provide constructive advise, tools and planning in achieving its goals, namely the individual financial independence (mainly from employed work) and early retirement. Simple “rule of 4%”, for example, targets the investment aspect of the path to independence. Simly put, if you have “enough” initial capital, say, one million USD, then investing it at 4% of annual return guarantees you, more or less, worry free financial future for the rest of your life.
We are not necessarily endorsing this rule explicitly. We think the life is somewhat less predictable and cutting it too close might one day leave you destitute. In the worst outcome, it will happen when you are already relatively old and are used to life of comfort and little effort or require expensive medical assistance. We do agree, that starting with a given set of assets, generating certain revenue passively, one can indeed cover all the expenses for the practically achievable life expectancy. Indeed, one of the main purposes of this web site is to help in evaluating different options and scenarios of this kind. We help you to track, forecast and evaluate various paths to help you to make a more informed choice.
Mr Money Mustache is a well known proponent of the FIRE movement, and he can be considered one of the early founding fathers, or at least popular figures. He is kind enough to publish his yearly budgets on his blog. Even more, he is quite frank with his personal story. We did not verify it, but it does sound reasonably believable. So, in short, MMM and his spouse worked hard for slightly over a decade, and between decent income and frugal living managed to save around one million US dollars in assets (property and cash). When they were around 30, both retired and started living on the proceeds from investing these assets. They continue living frugally, even though they have one child.
Looking at the published figures, MMM’s family usually spends somewhere around 21-25 thousands USD every year. This is very modest indeed, but apparently achievable with thrifty habits and by living in a relatively cheap area of the United States. Taking a typical budget of MMM for 2015, we can use our very own illustration functionality to note, that a) he is firmly in the black; and b) there is enough money for years to come. However, in the year 2016 he happened to spend a bit more, close to 8 thousand dollars more. While this amount of money isn’t that large, if he continues this way for the rest of his life, this would have a disastrous effect on his finances, as can be seen here. So one should be very conservative when planning for the future with passive income only.