What Is The FIRE Movement?
If you have spent more than 5 minutes on the internet looking for info on personal finance and investing, you’ve probably stumbled across the concept of FIRE. If you’re wondering what money and fire have to do with each other, let me reassure you that no actual fires are involved.
FIRE stands for Financial Independence, Retire Early. It is a movement of individuals who aggressively save and invest their money as early as possible so that they will eventually have enough money in their portfolio to stop working and retire early, while living off their investments.
Sign Me Up! How Much Do I Need?
The idea of not having to work, to not be chained to a desk at a 9-5 job until you’re 65, sounds incredible. Imagine being retired while your kids are still young, being able to spend your time pursuing your hobbies, traveling, and enjoying each day without relying on a paycheck.
How much you need to have in savings and investments to retire early will depend on your situation, cost of living, whether you’re single or married, or have kids. There are some “rules” that help you come up with your “FIRE number” to be able to retire early. The most common one is the 4% rule which states that if you withdraw 4% a year from your portfolio, your portfolio should never be depleted. Put another way, your portfolio should be at least 25 times your annual cost of living. If you want to live on $50K a year, you need a portfolio of at least $1.25m.
The Devil Is In The Details
Just because you can live on $20K a year in your 20s does not mean you can (or want to!) live on $20K in your 40s or in your 60s. You might get married and have kids. You might have health problems as you get older. Or you may want to travel and see the world without sleeping in youth hostels. These things cost money.
Determining your FIRE number takes a lot of honest reflection on who you are now and what your future might look like. You need to account for uncertainty. It’s one thing to plan for retirement at 65 when you might live for another 30 years, another to plan for a retirement that starts when you’re 40 and might live another 50 years.
Investing Your Money
Understanding FIRE is the first step. Knowing how much money you need to accumulate is just as important as learning how to invest your money so that your portfolio grows over time, both while you are working towards early retirement, and beyond when you’re supposed to live off your portfolio.
Investing for FIRE means going beyond a traditional 401K or hoping to get Social Security one day. These only pay out when you’re older, which won’t allow you to retire early. You will need to learn about more active investing.
Investing is about allocating your resources in the hope that those resources will generate more money in the form of an income, a profit, or gains. Putting money into an interest-bearing savings account, buying stocks and bonds, buying real estate, and generating an income by renting it out, or by eventually selling it for more than you paid for it, all count as investing.
Investing in Real Estate
As you learn more about investing, you’ll find there are countless ways to invest your money. Real estate investing is just one of them. Honestly, a lot of people stick to stocks and bonds because investing in real estate has a reputation of being expensive and only for the rich.
Most of us hope to be able to buy a home one day to live in. The idea of being able to accumulate enough money to buy multiple properties, houses, warehouses, land, or office buildings seems unachievable for ordinary people.
Don’t turn away from investing in real estate for this reason. You can include real estate in a diversified investment portfolio without actually having to buy any properties. Real Estate Investment Trusts (REITs) are companies that invest in real estate. You can buy units in a REIT, they use your investment to buy, manage, and make money from real estate, all the while paying you regular returns. It’s like being a landlord and collecting rent checks, but without having to fix leaky taps or deal with tenants. Read more about the basics of investing in REITs on our website.
Are You Going To Pursue FIRE?
It’s a captivating idea, and many people are doing it. To achieve FIRE, you will have to adjust your lifestyle now for future rewards later. It means doing something different from most other people, which is taking accountability for your money, spending, and financial planning.
If investing in real estate is going to be a part of your journey, Reiturn has a new fund launching soon that you could be a part of. Register here, and we’ll send more information as we get closer to our launch date.
