5 things I misunderstood about the FIRE movement
Here at PIMD we are celebrating everything that has to do with FEUER this week, especially our WCI network partner. The doctor on FIRE, WHO left medicine over a year ago at the age of 43.
What does FIRE stand for?
It’s actually an acronym that stands for F.financially IIndependence, R.etire E.arly. I was introduced to the concept when I came across a blog post by years ago Mr. Money Mustache, The shockingly simple math behind early retirement. In it, he talked about how you can use your current savings rate, current expenses, and what is known as the 4% payout rate to figure out when to retire.
Once your portfolio reaches a certain size, you can retire early and pull 4% out of the portfolio annually to make a living.
The idea sounded intriguing, but when I looked at his numbers, I saw that his annual spending was $ 30,000.
I thought about my life as a doctor, paid student loans, lived in California, had kids, wanted to travel and decided, no, it’s not for me. At the same time, I was learning how to get positive cash flow from real estate and decided that the FIRE movement wasn’t a good fit for me.
Then I came across a blog called Physician on Fire and over the years it helped me realize that some of my findings about the FIRE movement were not entirely accurate.
Here are the top 5 misconceptions:
1) It does not apply to doctors
While I was reading some of these other FIRE blogs and how people were replacing their incomes and quitting their jobs, it didn’t seem like doctors were doing this.
Doctors have worked too hard to get where they are to even think about the idea of retiring. However, as I heard more and more about doctors on fire and met other doctors who left medicine to pursue other endeavors, the idea no longer seemed so crazy.
As I began to understand more about the FIRE movement, I realized that it was more about choices and options. If finance were not an issue for many doctors, many would still stay in medicine but practice differently. Many others would leave medicine and find another way to influence others.
I didn’t know a single doctor who built a portfolio and simply retired … until I met the doctor on fire. He expanded his portfolio, gained financial freedom, worked part-time for a while, and then retired at the ripe old age of 43.
What is he doing now? I’ll talk more about this later in this post …
2) You have to be extremely frugal for FIRE to work.
Reading about $ 30,000 a year in expenses not only sounded frugal, but almost like deprivation. Many of us pay so much with loan payments alone. Then add in a car, a mortgage, a nice dinner, and the occasional trip … no way would that work.
Using the FIRE methods it seemed that everyone was more focused on lowering expenses like the daily latte as you would live on a fixed “income” from your portfolio.
I can understand the benefit of a frugal and even minimalist life. I’ve seen the shows and documentaries and it makes sense. I have no problem with someone who chooses to live this way.
However, I like to live a little. Okay, in some areas I like to live MORE than a little.
I like to call myself “selectively economical”. I will save on certain things (like clothes, clocks and fancy furniture), but I will easily look forward to a nice experience like a family trip, a concert or the superbowl. These memories stay with you and will pay off for as long as you can remember them.
However, it turns out there is one Movement called fatFIRE, which I only found out about through Physician on Fire. There are no set criteria, but the point is simply to have a lot more spending leeway in order to lead a somewhat relaxed lifestyle.
So yes, you can go on trips, gain experience, but just be aware of what to selectively spend money on.
It turns out he’s not the only one living the fatFire lifestyle. In fact, he has over 16,000 people on his Facebook group talking about such a life. It turns out that you can be part of the FIRE movement and live a little.
3) Difficult to do with kids
Well, what about kids? They’re placeholders when it comes to spending. It is one thing to predict your own expenses, but what about children and then additional children? What about summer camps and the big dreaded college?
How could you explain these retirees with relatively stable incomes?
Can it be like dynamite for your retirement savings? Sure it can if you plan to spend all of your money on your kids. However, with deliberate budgeting, many have figured out how to balance these expenses and still give their children a great life.
It also turns out that during your peak earnings years, you can save on college and future expenses as you pursue FIRE. You can put money in 529 accounts and if you do it early enough, with a decent amount of compounding, it can build up quite a bit by the time your kids are 18 years old.
In the worst case, the children take out loans. Would that be that bad? I took out loans and somehow life worked out fine.
Given a choice, would your children prefer to spend more time with them when they are younger or would you work more to have money to help them pay for college? I would say they would rather take your presence.
4) The FIRE movement is all about the stock market
Well, it turns out that this is not true at all. FIRE is more of a concept, but there are several vehicles to achieve the same thing.
The aim is that your expenses are covered by the cash flow from investments and not by your daily work.
This could be achieved through your portfolio of stocks and index funds. Or it could be achieved through your cash flow rental properties or passive real estate investments.
The key is that this source of income continues regardless of what happens in your day job. It turned out that I was part of the FIRE movement and was committed to it all the time, but I came to it from a different angle.
I’ve always tried to get passive income from investing and the FIRE movement is about the same.
5) You’d get bored retiring early
FIRE is all about choice and freedom.
What is the difference between a job and a hobby? You could do exactly the same thing, but one thing you feel compelled to do and the other is passionate about doing it. Again, it could be the same as a doctor, for example, but it sure feels different when you practice because you want to.
It seemed like many doctors didn’t know what to do with their time when they retire early.
However, as I’ve met more doctors who have become financially independent, many have chosen to stay in medicine. Many others have found other ventures to retreat into.
Boredom seems to be the last thing people think.
Ask Leif – he travels, he builds houses, he spends time with his kids, he does medical missions, he gives vaccinations, he runs a business, and he is an investor. Sounds like he found a way to withdraw into something.
As I think about the FIRE movement now
I really believe now that I am part of the FIRE movement. I haven’t retired yet, but that’s because I’m retiring gradually. As my passive income increased, I slowly bought back my time. It started with giving up weekends, then nights, then a few days.
I have found a pace that is sustainable and enables me to live what I consider to be an ideal life.
Focusing on the concept of financial independence has allowed me to create options and my view of work and life has fundamentally changed.
Personally, I think everyone should see how they can fit into the FIRE movement and what could work for them. At the very least, they will investigate how to live a more deliberate life – by spending time and money on their own terms.
So, a quick cheer to my friend and partner Leif Dahleen, the Physician on Fire, who completely changed my attitude towards the FIRE movement.