What is the FIRE movement?
October 12, 2022
5 minutes to read
A smart FIRE approach? Tips for making your money work for you efficiently and safely
Your retirement? Surely, that's still a long way off? And yet some twentysomethings are already thinking about the end of their careers. And they don't want to wait until they are 67. No, they want it at 50, or even 40. They adhere to the FIRE philosophy of life: Financial Independence, Retire Early. So what is the FIRE movement? And is it for you? What pitfalls should you try to avoid? FIRE originated in the United States. The movement is based on the 1992 book Your Money or Your Life by Vicki Robin and Joe Dominguez. FIRE supporters have one main goal: financial freedom. That is, not being stuck in a full-time job trying to make ends meet. Those who believe in FIRE want to be masters of their own time. For some, that means retiring early to stop working altogether. Others want to choose how many hours they work at what times. What's not to like? Well, to gain your financial freedom you do have make sacrifices. Forget about loads of parties, takeaways, festivals or faraway trips. The focus is on growing your savings and on investing your money wisely. However, even if you think the FIRE principles are too extreme, some ideas will help you make the most of your pay. We list the three basic FIRE principles for you here:
Save, save and save some more
FIRE supporters are avid savers. They set aside 25 to 50% of their income every month. So, if you don't mind cutting your expenses to that level, you need to clearly list what expenses are unavoidable – rent, food, heating, electricity – and what expenses you can reduce. Then you need to adjust your lifestyle and spend as little as possible. Of course, your approach doesn't have to be that drastic. We will help you get started:
- Explore 10 ways to save more with the app.
- Discover 10 things you can do in one day to improve your financial health.
Generate more income
The more you earn, the more money you can save. As a student, this doesn't apply to you yet, but you can already think about your career now. Will you simply let everything happen to you? Or will you act like a true FIRE follower and plan your entire career path in advance? If you have started your career already, you can take a second part-time job in the evenings after your day job, for example. And if your employer is happy with your commitment, don't be afraid to ask for a raise during your appraisal. Make sure to give plenty of well-founded arguments about why you deserve that pay rise. Finally, it is best to improve your professional skills regularly. This will make sure you remain an attractive employee to employers, worthy of some extra pay.
Keep your money alive
So, what will you do with the money you have earned? Do you put it in a savings account? You could do that, but avid FIRE followers know that that would simply allow the value of your money to melt away, because most things in life get more expensive due to inflation, especially today. So, the trick is to make your money grow faster than inflation. That is why investing is a good idea. You have to invest wisely based on all the facts, though. The people who have become instantly rich by buying crypto coins or investing in other risky ventures are far and few between. If something looks too good to be true, it usually is.
Flemish television series 'FIRE: vroeg op pensioen' (VRT) This series is about FIRE and early retirement, and tells the story of seven young people trying to achieve financial independence. To get rich quick, some go for crypto currency, luxury real estate in Dubai or other risky investments. The series delivers a non-realistic message. Most FIRE movement followers are not looking for a way to get rich quickly. They handle their money very carefully to achieve financial independence. That doesn't mean getting filthy rich and spending the rest of your life in opulence. It means investing wisely and spending in moderation, even during retirement.
If you want to invest your money wisely, you need to take into account these three basic rules.
- Know yourself: is investing something for you? It's a good idea to take a good look in the mirror first. Ask yourself these questions: what do I want to achieve with my investments? How long am I planning to invest: one, five or ten years? Do I understand the mechanism well enough to explain it to someone else? Your answers will help you make the right investment choices.
- Diversify your investments. The stock exchange is like a buffet restaurant: there’s something for everyone. But if you keep putting the same thing on your plate over and over again, you run a high 'concentration risk'. Suppose you have invested in two stocks and one of them is not performing well at all, then that will have a strong impact on your total return. A simple way to diversify your investments is to opt for mutual funds or trackers. They are baskets containing dozens or even hundreds of different stocks and bonds. You invest in a single product – the fund or tracker – so you don't have to buy any shares and bonds separately. Keytrade Bank's KEYPLAN also allows you to focus on sustainable investment funds only.
- Invest in the long term. The stock markets can fluctuate a lot, but they do tend to go up in the longer term. This means that if you hold on to your funds for longer, you are more likely to succeed. That is precisely why it is best to only invest money you can spare for a long time. Want to find out more about investing? Get started step by step with our videos.
Ready to take your first steps on the stock market? Open a free stock market account at Keytrade Bank.