- What is FIRE?
- Types of FIRE
- How did we find out about FIRE?
- Why do we want to FIRE?
- Why should Gen Z think about it now?
- Our Goal
We briefly mentioned FIRE in our previous blogs, but in this post, we would like to explain a little about what FIRE is, and why Gen Z should start thinking about it now!
What is FIRE?
FIRE stands for Financial Independence and Retiring Early. It is a popular financial movement, started in the 2010s amongst millennials after the recession of 2008, that focuses on achieving financial independence early on in life, and therefore you can retire much earlier than normal.
Achieving financial independence means you are at a point in life where you have enough money, either through investment/saving or passive income, to pay for your lifestyle without having to depend on any job.
Typically, people would follow the 4% rule when it comes to funding their lifestyles in retirement. This is kind of a rule of thumb for retirement spending, but it’s definitely not set in stone given the uncertainties we’ve experienced in the past 2 – 3 years alone. The 4% rule states that you could withdraw around 4% of your savings/investments every year to cover your expenses without worrying about running out of money.
Types of FIRE
There are 2 main types of FIRE:
LeanFIRE – A state of FIRE where your savings and investments can be withdrawn at a 4% rate each year, and are enough to cover your basic living expenses such as mortgages, taxes, food expenses, utilities, and healthcare. However, you may want to consider a part-time job to pay for your immediate wants or unexpected expenses. Most people who consider this goal are also considering a more minimalist lifestyle to cut down on costs.
FatFIRE – Also known as luxuryFIRE, where your savings and investments can be withdrawn at a 4% rate each year and are enough to cover your ideal lifestyle without needing to work.
And there are some in-between like BaristaFIRE and CoastFire. But all of these different FIREs have the same goal and purpose of having enough money in savings and investments to cover most, if not all, of your living expenses through the power of compound interest.
How did we find out about FIRE?
Around the last semester of college, we were watching a lot of personal finance videos on Youtube learning how to budget in order to prepare for the upcoming venture into adulthood! The best way to learn from examples, so we watched Glamour’s “Money Tours”, “Honest Accounts”, “How XX person living in XX city spending their XX income”, and of course CNBC “Millennial Money”. All of these series were really fun to watch, and they gave great insights into personal finance for someone who had not had an income yet.
Eventually, we stumbled upon FIRE-related videos from MarketWatch and other finance YouTubers like Graham Stephan. It was refreshing to see people talking about retirement in their 20s – 40s and not in their early 60s. Everyone’s retirement varies: some folks are single and still working leisurely, some folks are married with kids and are living abroad, and some folks are single and living abroad.
We like the flexibility and financial freedom that comes with FIRE, so we decided to embark on this journey.
Why do we want to FIRE?
If any of us were given a choice, probably none of us would choose to work.
However, we are living in a society that conditions us to attend k-12, go to college and get a degree, and work 9-5 until the ripe retirement age of 62-67. Or the alternative is to invent or own something so crazy that shoots us into billionaire status like Jeff Bezos or Elon Musk and never have to think about money ever again.
We have no intention of working for that long, let alone into my 60s, and we do not have the energy to do something outrageous to become a billionaire in this lifetime. But how can we live our life doing what we want but still be financially stable? FIRE is the answer to that.
Why should Gen Z think about it now?
Given the current state of our climate, economy, and politics, nothing is certain. It is difficult to predict what the world is going to be like in the next year or the 5 years, let alone what the world will be like when Gen Z finally retires 50 years from now!
However, 1-5 years of uncertainty is easier to grasp than 50 years of uncertainty.
After watching a plethora of FIRE videos on youtube, we noticed almost all of the millennials retire after 5-7 years of setting their financial goals. Of course, this is given the perfect conditions of minimal debts and a growing economy, but it is still obtainable under most conditions.
Some of the other conditions include a middle-class income of between $45,000 – $70,000, with little to no dependents, and living in a standard American city such as Raleigh, North Carolina, or Cincinnati, Ohio.
So if a Gen Z sets out their FIRE plans between the age of 18-22, that means they will most likely be able to retire before 30. Of course, whether it is a LeanFIRE or FatFIRE, it depends on the individual.
We intended the bracket to be 18-22 years old because not everyone wants to pursue college, and they could find a good-paying job without the added debt.
Our Goal
As for us, we decided on a skinny LeanFIRE retirement. This means that our investments will cover most of our living expenses in the future, and we can choose to work if we want to live a more inflated lifestyle.
After calculating our first year of adulting expenses, with the very inflated economy of 2021, our magic number for 2 is roughly $650,000. You can refer to our first blog post about our saving and investment plan!
Our goal may change due to the economy and other unexpected life changes, but ideally, I want to retire at exactly the age of 29 and 50 weeks old. The BF wants to retire in his early 30s but has no exact goal in mind. The sooner the better!
We will go over how to come up with our retirement goal in a later post, and how you can calculate your own goal too!