Following the FIRE: Financial Independence, Retire Early

Financial Independence Retire Early (FIRE) is a lifestyle movement which allows its proponents to retire and live off their portfolios. We take at look at FIRE and how you can take inspiration from it.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

You've probably heard or read about FIRE somewhere. You've probably wondered what it was. Financial Independence, Retire Early (FIRE) is a lifestyle movement that allows its proponents to retire and live off their portfolios far earlier than is usually the case.

We take at look at FIRE and how you can take inspiration from it. 

What is FIRE?

FIRE centres on the premise that money is time. Every purchase you make can be equated to hours spent at work to 'earn' that purchase. FIRE adherents save a high proportion of their income whilst in the traditional workforce, even up to 70%. To do so, they live a frugal lifestyle, devoting earnings to financial freedom rather than material possessions. 

FIRE focuses on devoting savings to investment from an early stage, adding to investments frequently as savings accumulate. FIRE adherents are not necessarily wealthier than anyone else. Often they subsist on average incomes. The key is to avoid extraneous or unnecessary spending in favour of future benefits. 

Financial Independence

Financial independence is the focus of FIRE. Achieving financial independence gives you the freedom to pursue your hopes and dreams. Generally, financial independence is achieved when your net worth is 25 times your annual living expenses. FIRE adherents therefore look to both increase their net worth and decrease their living expenses by optimising lifestyle choices. 

Investing is an essential component of FIRE. Simply increasing savings will generally not be sufficient to allow an early retirement, especially in today's low interest rate environment. Assets are invested in low-cost ETFs or directly in shares, property, or bonds. Returns are reinvested to allow for compounding over time.

Retire Early

Once FIRE devotees reach a certain level of assets, say $1 million, they are able to quit their day jobs or withdraw from employment altogether. To support themselves they withdraw small amounts from their portfolio, say 3–4% a year, which in theory should allow them to keep their capital intact. Of course, in reality this requires some serious budgeting and portfolio management, but it is possible. 

There are all sorts of variations on this trend. Some people may leave full-time work but chose to work part time, or in a different field. Others may leave corporate life and make their side hustle their main gig. FIRE is really about having the freedom to chose whether to work or not, rather than simply not working.

Foolish takeaway

FIRE is not a get rich quick scheme. Achieving financial independence takes time, determination, and hard work. The idea is to be intentional with your money, leveraging it to allow you to make the most of your time. By spending and investing wisely, you too could achieve FIRE. 

Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Personal Finance

A business woman looks unhappy while she flies a red flag at her laptop.
Tax

3 red flags the ATO looks for in retirement tax returns

You don't want 'that' phone call from the ATO.

Read more »

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Cash Rates

Contrarian view: The RBA will keep interest rates on hold according to these experts

The RBA has already cut rates twice so far in 2025.

Read more »

man and woman discussing superannuation
Personal Finance

Thinking about making a concessional superannuation contribution today? Read this first

What are the rules?

Read more »

Frazzled couple sitting out their kitchen table trying to figure out their finances or taxes.
Personal Finance

End of financial year: Should I sell my loss-making stocks today?

What's the verdict?

Read more »

Tax time written on wooden blocks next to a calculator and Australian dollar notes.
Tax

Franking credits from ASX dividend stocks can lower your bill this tax time. Here's how

Who knew investing can help lower your tax bill?

Read more »

A businesswoman weighs up the stack of cash she receives, with the pile in one hand significantly more than the other hand.
Investing Strategies

Should your portfolio be holding cash in this market?

It's an age old question for investment portfolios.

Read more »

Man ponders a receipt as he looks at his laptop.
Personal Finance

Tax planning: Are international shares treated differently?

Do you own international shares?

Read more »

Smiling business woman calculates tax at desk in office.
Personal Finance

3 tips to maximise your tax refund from the ATO in FY25

Are you missing anything?

Read more »