The FIRE movement (Financial Independence Retire Early) explained

Do you dream about reaching your retirement goal before your 20th college reunion? Whether you want to live large as a retired 40-something or dream about your kids having the same options, you’ll want to know about the FIRE movement.

The FIRE movement stands for "financial independence, retire early," and it signifies the ultimate in money success for millions of people. 

What is the FIRE movement?

The FIRE movement is a worldwide community of super-savers. It encourages people to save and invest a large chunk of their income, often making strategic budgets, living below their means, and limiting spending on non-necessities. The goal is to cut back now so you can retire young.

Some FIRE devotees have retired as early as their 30s, compared to the full Social Security retirement age of 67. That's three extra decades to do as you please — enjoy your kids, pursue your hobbies, or return to school. You could even start a new career you "couldn't afford" before.

Origins and philosophy of FIRE

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FIRE is the brainchild of Vicki Robin and Joe Dominguez, co-authors of Your Money or Your Life. Since its 1992 publication, the book has promoted a frugal lifestyle and aggressive savings strategies and inspired people to reduce living expenses to reach goals sooner.

The FIRE method really took off with the rise of blogger Peter Adeney, a.k.a. Mr. Money Mustache. Adeney taught people how to retire early before it was cool, becoming famous as a 30-year-old retiree.

Adeney emphasized the importance of passive income as the key to escaping the rat race. He generated so many FIRE movement tips and strategies that you might say he did "start the FIRE."

The pillars of FIRE

FIRE movement retirement looks different for everyone who achieves it, but the goal is universal — give yourself the financial freedom to take back your days.

Financial independence

Financial independence means different things to different people. Some associate it with never having to worry about money, while others say you're financially independent if you're out of debt.

For most people, the most essential element is not having to work to maintain your standard of living. You might choose to have a job, but you can live off your passive income and savings if you want.

It takes time to build passive income, especially when you have kids to support. Fortunately, the FIRE movement has been around long enough that people have figured out a strategy. Get your screenshot shortcut ready because here are the FIRE movement steps to financial freedom:

• Determine your FIRE number. This is how much you'll need to save to live comfortably in early retirement. Plan on saving 25 times your yearly expense total. Use an online FIRE movement calculator to help with the math.

• Start saving. The typical recommendation is 50% to 75% of your income. While that may seem like a big number, remember that FIRE is all about delayed gratification.

• Set aside an emergency fund. An investment strategy is the next step, but investment comes with risk. Protect at least three to six months' living expenses in a separate account.

• Create a FIRE investment strategy. This involves many important choices, so consider talking with a financial adviser. They'll help you make choices that match your priorities.

• Revisit your budget often. Assess whether your expenses are low enough to reach your savings goals. Consider whether your current income is on track or if you need to take on a side hustle or two.

These are valuable strategies for building long-term wealth, whether or not you catch FIRE as planned. 

Retire early

Early retirement is the second pillar of FIRE. It ignites your destination, while financial security guides you along the way.

Having this flaming financial lighthouse is essential. It reminds you to save so you can stop working before people typically retire — a financial goal that should change how you save.

For example, if you put money into retirement accounts, pay attention to early withdrawal penalties. Until you reach age 60, you'll probably want your passive income to come from other, more liquid accounts. Working with a financial planner can be extremely beneficial for this part of FIRE.

Variations within the FIRE movement

A FIRE movement financial plan looks different for everyone. Some have bigger dreams for their retirement lifestyle, so they need to save more. Others want to get out of the rat race as quickly as possible.

The key is finding the retirement goal that works for you. Here are three FIRE movement examples to get you started:

• Fat FIRE: This one's all about living large in retirement. Fat FIRE followers expect to spend more than $100,000 annually after retirement. They're less into frugal living and more into saving big so they can travel, live in a nice house, or do whatever else they love that costs money.

• Lean FIRE: This is the minimalist version and the opposite of fat FIRE. You live a simple basics-only lifestyle, so you can retire early and live just as sparely without the work part. It's the most achievable form of FIRE for modest earners, but it requires a lot of discipline.

• Barista FIRE: This one is in between Fat and Lean FIRE. You retire from your "real" job early but don't quite have enough to live comfortably, so you take on a part-time job somewhere that isn't too stressful.

• Coast FIRE: You reach your goal but keep working until you're closer to retirement, but you back off on your savings habits so you can live a bit more comfortably in your late working years.

Is the FIRE movement right for you?

Adeney made FIRE famous by making frugal living look cool, but it's a lot of work. You have to keep your annual expenses down and make some tough sacrifices. This may go beyond cutting back on your daily coffee shop trip. 

You also have to get really, really comfortable talking about money with your family, especially if you're a parent looking to retire early. That goal will require the whole family to live frugally and mindfully, so everyone should be on board.

Make financial independence a reality with Greenlight

Financial independence can change how you live as a family. It can also change how your kids see the world and expand their thinking about their future. 

Give them hands-on practice and experience with Greenlight. Greenlight lets kids experience financial management in a fun and safe way, with full parental supervision and game-based learning. 

With Greenlight’s in-app investing, kids can even learn how to invest. They research investments, and you approve every trade so they can start building wealth at a young age. Get started investing with Greenlight today, and watch your kids discover FIRE.