Want To Retire Early Without Financials Stress? Join The FIRE Movement

Naseema McElroy found herself nearly 1 million dollars in debt just a few years removed from college. What is more remarkable though, is that she was able to pay it all off in just over two years. Bonnie Truax, similarly, found herself thousands of dollars in credit card debt thanks to her free-spending ex-husband. At the age of thirty, she left that husband in the literal dark of night and in fear for her safety. Her situation was so dire that she had to sleep in her office as she waited for payday. By the age of 43 though, Bonnie had achieved Financial Independence or “FI” as it is most popularly known by proponents. Reaching FI meant that she no longer needed to work to pay for her living expenses. Her savings were enough to live off in perpetuity.

Bonnie and Naseema are a part of the FIRE movement (Financial Independence, Retire Early). Proponents of FIRE believe in achieving financial independence by reducing expenses, maximizing savings and increasing income. In this respect, some take more drastic steps than others. Some start by eliminating their cable television subscriptions, making fewer visits to bars and restaurants, and prioritizing repayment of credit card debt. On the more extreme side, some have been known to sell their 4-bedroom homes in exchange for tiny 320 square feet container homes. Moving back in with parents to save money is not uncommon of with this group. In general, the most common pillars of FIRE are low cost investing, saving, low-cost housing, reducing groceries cost, buying used cars, tax optimization and finding alternative income streams usually by starting a side hustle.

 To calculate one’s “FI Number,” you take your total annual living expenses and divide by 4% (or multiply by 25). The result is the pile of money one needs to accumulate to fund their “retirement” indefinitely. That 4% is considered the “Safe Withdrawal Rate.” Meaning that a retiree can spend 4% of their savings annually and not run out of money. Four percent is derived from assuming a 7% annual rate of return in the stock market less a 3% annual rate of inflation. The 7% rate of return is based on long term returns in the US Stock Market for a well-balanced portfolio.

 So how does one accumulate a million dollars in debt soon after college? As told to Brad Garrett and Jonathan Mendonsa, hosts of the fast-growing ChooseFI Podcast, Naseema went to college at the University of Southern California. She graduated with an undergraduate and graduate degree in Healthcare Administration. After working in an office environment for a short time, she found that she didn’t enjoy the work. She went back to school to study nursing. Those three degrees left her 200 thousand dollars in debt. Fortunately, Naseema was able to earn more than 150 thousand dollars annually working as a nurse in the San Francisco Bay Area. That high income quickly turned into a crutch. She bought a 4,000 square foot home in the notoriously expensive Bay Area residential market. Adding a Los Angeles condo to the mix resulted in a combined 750 thousand dollars in additional debt.

So how did Naseema and Bonnie turn things around? In Naseema’s case, it was the birth of her daughter. She realized that not only was she distressed by all the debt, she also had no assets to pass on to her daughter. Many Google searches later, Naseema discovered the world of financial blogs and podcasts. First among them was Dave Ramsey’s popular radio show and best-selling books. She soon implemented zero-based budgeting to her finances and through that alone she was able to find 6 thousand dollars a month to dedicate to debt repayment. Next came the sales of both the condo and 4,000 square foot home. The replacement? A 1,000 square foot rental apartment. While the real estate sales wiped out the largest share of her debt, she was quick to point out that she had already paid nearly 300 thousand dollars off before that happened. Today she is debt free and a notable blogger and podcaster in her own right.

Bonnie, who also appeared on the same podcast, started by moving into a trailer after the earlier mentioned escape in the night. She cut out as many expenses as she could, taught herself computer programming and turned her $25 thousand per year administrative job into a six-figure Information Technology director role by the time she left the company. While she worked her way up, she continued her singular focus on savings. All raises went straight to savings. At one point she was saving 75% of her income. She and her second equally frugal husband used their savings to buy foreclosed homes, remodeled them and leased them out to tenants. Today, having achieved FI, she and her husband are traveling the world for “a few years” and plan to retire abroad eventually.

The FIRE movement is not without its detractors. The most common criticism is that it is challenging for people to save on a low income. Hank Coleman of Yahoo Finance says that the FIRE movement assumes that all people hate their jobs and would like to escape them as quickly as possible. He also points out that most FIRE “retirees” do not end their working life but instead turn their hobbies or passion projects into income streams via blogs, podcasts, or publishing books. To him, the focus should be on finding a job you love instead. FIRE aficionados counter that early retirement does not mean sitting around and doing nothing. The goal is to keep accomplishing meaningful things without being beholden to a job.

Nonetheless, the movement continues to “Catch FIRE” as they like to say. For example, the ChooseFI podcast was launched in December 2016 but only three years later has local FIRE community groups all over the world. Perhaps the biggest name in the FIRE community is the mrmoneymustache.com blog with its estimated 1.5M visitors per month. Notably, the community includes a diverse range of demographics. Old, young, rich, and broke. If you haven’t already heard about FIRE from your Uber driver, I suspect you soon will.