For the novice, FIRE stands for Financial Independence Retire Early. Followers of this movement often save 50%-80% of their income to accumulate enough invested capital to be able to retire early (sometimes as early as in their 30s) and live entirely on passive income. If you hang out in the FIRE circles, you will hear about the 4% rule, which says that you can safely withdraw 4% per year of your investments and, assuming the market doesn’t do anything crazy, your money should last forever. If you don’t like percentages, this means that you need to have 25 times your annual spending in investment accounts to be able to quit your job and never need to earn money again.
There are, of course, variations on this theme. Some people go to great lengths to cut their budget to be able to retire as early as possible (lean Fire), some work longer in exchange for higher spending ability (fat FIRE), and some retire from stressful jobs but still work at some low-stress job they enjoy to supplement their investment income (barista FIRE).
I am totally not interested in the RE (retire early) part of FIRE. I love my job and expect to continue working for many years, regardless of our net worth. I am, however, very interested in the FI (financial independence) part of FIRE.
Sometimes I wonder why to me, FI is such an important goal. My wife thinks FI is a good idea, but she certainly doesn’t obsess about our FI number and how close we are to it. And people around me seem perfectly happy buying stuff they don’t need, so I am pretty sure they don’t even know there is such a thing as an FI number.
I am an immigrant from a relatively poor country. I came to the US for College with $500 and my tuition for the first semester covered. From there, I needed to figure it out on my own. Without even the ability to borrow money (foreigners can’t take out student loans), I was in a pretty tight spot.
At some point in College, maybe in my sophomore year, I got a terrible toothache. I didn’t have dental insurance, so I did the only thing I could – I took lots and lots of painkillers. It lasted for weeks. Much of the time, I was so drowsy from the pills I could barely function. I got a permanent case of an upset stomach. Eventually, I saved about $100 and went to the dentist. For me, at that time, $100 was a huge amount of money. The dentist looked at my tooth, took a couple of X-rays, gave me a proposed plan for how he can fix it, and charged me $100 for the consult and the X-rays. I still had a terrible toothache and no money.
Eventually, I learned about a free dental clinic. I found someone with a car who drove me there. They fixed that tooth and all the other teeth that were rotting in my mouth (I used to have a lot of tooth problems, probably due to very poor dental care in my home country), and I could get off the pain pills.
This is the sort of experience I never want to have again. And so when I have a choice between getting the newest iPhone or increasing our money stash, I opt to add to the stash. The stash is what keeps my family and me safe from at least some of the bad things that can happen in life. The iPhone can’t do that.
Take a minute and figure out your FI number. Imagine having that amount of money and the freedom that would give you. Now, look at the latest gadget you bought. What optimizes your happiness profits?