The FIRE (Financial Independence, Retire Early) movement is, in the opinion of many, one of the best human-driven efforts in the last decade to get a grip on their lifestyle.
The supporters of the FIRE movement reject the idea that they have to sit helplessly in traffic for the next 30 years in order to spend at least eight hours a day in the office. Instead, they find ways to earn, save and invest as much of their income as possible as soon as possible in an effort to become completely financially independent.
The ultimate goal is to have the financial ability to focus on the really meaningful things in life and maybe even retire very early. On the way there, it is worth thinking about how this idea could go wrong.
Have no idea how to spend your free time
Suppose your money needs are permanently covered. Have you really thought about how you will spend all your free time? For example, if you become financially independent at the age of 40, you still have an average of 350,000 hours to live.
It is likely that most of your peers are not on the same schedule and that will usually make you feel isolated. This is by no means an argument for avoiding financial independence, but it is certainly a good plan to really think about how you will spend your time once you no longer feel the need (and need) to work full-time.
Not saved enough
Current recommendations according to the FIRE movement advise to follow the 4% rule: once you saved 25x your annual expenses, you would be financially independent. With a nest egg of this size, you can withdraw 4% from the initial principal (annual and adjusted for inflation) with minimal chance of ever running out of money. The 4% rule comes from a study conducted when bond yields were much higher than they are now, nor is there any guarantee that future stock returns will reflect those of the past. A rule of 2% or 3% may make more sense in the future, so you need to make sure you've saved enough - life can be unexpectedly expensive or get more expensive!
Reject paid work forever
If you have had a bad work experience in the past, know that every work environment is different. If you find yourself hating the idea of traditional work - complete with commuting, long working days, and office politics - you can still find manners (like making money onlinen!) to get money that eliminates most of the unpleasantness.
Being financially independent does not in any way rule out work as an option, but it does allow you to find work that suits your interests and lifestyle - the way you want it. Moreover, the coming in of extra money ensures that you are less dependent on the hard-earned and accumulated savings.
Not the same as your life partner thinks about it
Ideally, you'll tackle this before the person becomes your lifelong companion, but it's extremely important to be on the same page with your partner when it comes to money.
If you find yourself wanting a minimalist lifestyle where you don't have to work, while your partner wants a big house, kids, and three cars in an expensive area, it's vital to find common ground in an open and honest manner .
While the idea of financial independence can appeal to almost everyone, the piece “retiring early” can mean something completely different to almost everyone. Try to outline a plan, work it out together for your partner for life, and find areas of compromise.
Switch from building to spending
Suppose you became financially independent in your 40s or 50s and you are considering taking early retirement. To get to this point, you have most likely spent decades saving and investing hard.
There is a psychological barrier that comes when you move from relentlessly accumulating assets to spending them. If you've saved more than you basically need, it's easier to do this.
However, know that the complete lack of a salary can be shocking if you've gotten used to it for years, which is another reason why financial independence doesn't necessarily mean retiring permanently.
The FIRE movement is still a winning strategy
Anything that helps people become more aware of how they spend their precious time is, in our opinion, a benefit to society.
In the words of the early FIRE movement adopter Vicki Robin, financial independence allows you to become 'sovereign'.
You no longer have to depend on an outside provider to live: this is a concept that most people can understand and understand. Still, make sure you know where and how your plan could go wrong so you can anticipate it and prepare for what may come.
Sources including BusinessInsider (link), CutTheCrapInvesting (link), Fool (link), LiveMint (link), TheFioneers (link), TheGlobeAndMail (link)
