FIRE Doesn't Have To Be Frugal

I stumbled across an article the other day on Vice where someone new to the FIRE (Financial Independence, Retire Early) movement, was giving it a try as a new years resolution.

The journalist who had written the article had gone from zero to 50% savings rate pretty much overnight which I think is pretty impressive in anyone’s book and I have huge respect for him for giving it a try in the first place, let alone doing so to such extremes.

The problem with this ‘nuclear’ approach is that it probably won’t be sustainable (and in this case it wasn’t). Just like crash diets and any other habit taken to extreme, when you go ‘all in’ on something having previously not done anything at all, you tend to end up back where you started.

Some people in the FIRE community seem to think that in order to achieve the fabled 50% savings rate (where you save 50% of your total income), you need to be ultra frugal and basically stop spending money on anything so that you can save more and more of your income and that's certainly one way to do it.

Although I am against unnecessary, wasteful or unconscious spending, I don’t buy into the whole frugality argument whole heartedly.

Now at this stage some hardcore FIRE enthusiasts will tell me that I don’t belong in the FIRE movement because I am not scrimping on every penny and cutting my spending to the bone, depriving my life of fun, experiences, convenience and comfort in the process.

Perhaps it was my near death experience that changed my mindset, but I believe that life is for living.

If that latte at Starbucks will bring you a little moment of joy and happiness, then go ahead and grab it. Note though how I said “bring you a little moment of joy and happiness”, not just ‘grab it because you get a coffee every day and you have been doing this on auto-pilot for the past 5 years without even thinking about it’.

I believe in spending money on things that bring me joy, happiness, time and (in some cases) comfort.

For example, I recently paid $250 to upgrade a flight to the US to premium economy (I can hear the collective FIRE internet gasp from here!).

Why on earth did I indulge in such an apparently wasteful spending splurge?

Well, for starters, on my airline of choice, premium economy comes with free Wi-Fi (otherwise around $5 an hour for say 5 hours of my flight = $25). It also means I get more comfort and space on the plane, making it just marginally more likely that I will get some reasonable sleep. You get better food, unlimited drinks and free checked bags, all of which saves me a further $50 or so. 

So let’s assume the net cost of the upgrade is $175. What on earth would lead me to indulge in such an unnecessary extravagance?

The simple answer is time. The premium economy seats are right next to the plane exit which means that I can be first to passport control, preventing at least a 2 hour wait at US border security.

That time is hugely valuable to me.

It means that I will get 2 hours more sleep when I arrive at my hotel which A. is good for my health and B. means that I will be fresher for the conference I am attending the following day which is the reason for the trip in the first place. 

Not everything is black and white!

I think we have a bit of a problem in the FIRE movement in that it is becoming a bit elitist. People who decide not to save 50% of their income (or who can’t) are scorned and looked down on and I don’t think that is very helpful because it prevents people engaging in the journey to Financial Freedom and Independence in the first place.

I think that’s a real shame.

Is it not better that people save something to begin with? If someone can achieve a 10% savings rate where previously it was zero, is that not a mini-victory?

Deep down I think we all crave Financial Independence, but in some cases the FIRE community is making the barrier to entry too high.

You don’t have to go from a 0% to 50% savings rate overnight. You can take baby steps to get there and that brings me to my first point…

There is more than one way to skin a cat (or achieve Financial Independence)

For the moment, let’s assume that we would like to achieve a savings rate of 50%. This is important because a savings rate of half your income will see you able to achieve Financial Independence in around 17 years, so we will stick with that as the baseline.

Most people assume that they therefore have to cut out half of their spending in order to save 50% of their income (and indeed that is one way to do it). 

But, this overlooks the other weapon we have in our armoury. This one is much more powerful and has far more ammo. That weapon is your income.

Income Unlimited

You see, if you are currently earning $50,000 a year (this figure has been used just to keep the maths simple), one option to achieve the fabled 50% savings rate is to cut your spending by $25,000 and add all of that money to savings.

The other option is to increase your income to $100,000 a year, meaning you can continue living your $50,000 lifestyle AND reach the magic 50% savings rate.

Now of course this is much easier said than done, but it’s not impossible.

What I love about increasing your income is that it has unlimited potential. You can only cut your expenses by so much, where as your income is totally unlimited. Although this will be hard to get your head around at first, it really is true.

There are a ton of ways that you can increase your income both at work and outside work.

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The Third Way – Do Both

Of course as with many things, the best solution can sometimes be to use a combination of strategies to reach your goal. If we are aiming for a 50% savings rate, could it not be better to try and reduce some of our expenditure AND increase our income at the same time? 

Going back to our $50,000 example, we now know that in order to achieve a 50% savings rate, you would need to cut your expenses by $25,000 or alternatively, increase your income to $100,000 a year. Both doable, but both quite extreme! 

On the other hand, you could think about cutting your expenses to $40,000 a year (a $10,000 reduction) and increasing your income to $80,000 or you could cut expenses to $35,000 and increase your income to $70,000. Now that looks a little more doable (no one said it was going to be easy, but it is just about doable).

Change Takes Time

I think it is also important to know that it is ok if it takes you some time to get to your goal. 

From the day I committed to Financial Freedom following my near-death experience, it took me around 4 ½ years to reach a 50% savings rate. I reduced my expenses by around 20% and the rest has come from increased income.

You have to be patient with yourself and give the process time. If your savings rate is currently 0%, why not try to make it 1% next month?

The following month aim for 2% etc. If you add just 1% to your savings rate each month, then after 4 years you would have a savings rate of 48%!

Now adding 1% a month can still be a little tricky, but it is definitely achievable and sustainable, where as going from zero to 50% is probably not achievable for most people and even if it is for a short while, it probably won’t be sustainable.

And this is the key to almost all meaningful progress towards almost all meaningful goals – breaking things down into smaller steps.

Rome wasn’t built in a day and Financial Freedom can’t be either. It takes time, energy, commitment and resilience – just like anything else worth achieving in life!

But, if you can achieve Financial Independence, I think we can all agree that this is a pretty amazing place to be.

Financial Independence means no more worrying about bills and debts and making ends meet. It means that you can travel where you want, whenever you want. It means that you do the work you want to do, when you want to do it with the people you want to do it with.

And that brings me nicely to point number 2…

The RE in FIRE

The second part of FIRE is about ‘retiring’ early. Now I think we can all agree that we want to be Financially Independent – I have never met anyone who doesn’t!

The early retirement thing though - that's a different story.

The concept of early retirement seems to begin with the assumption that you must hate what you do for a living and therefore want to stop as soon as possible. I know for a fact that for many people, this is not the case.

I speak to people all the time who are doing work that they love and if that’s the case, why would they stop?

If you hate what you do, then I would of course suggest you ‘get out’ asap, but perhaps it is worth considering if there is another career path that you should be following.

For starters, a LOT of people in the FIRE movement write a blog, write books, deliver financial coaching, create courses or run some sort of business (myself included).

Now that sounds a lot like ‘work’ and not a lot like ‘retirement’ to me.

The difference here is that it is work that people WANT to do. These are passion projects and businesses that make people feel alive and give them a sense of meaning and purpose and contribution and I totally get that.

Why would you want to stop doing something that you love and that gives your life meaning?

There are some in the FIRE community who feel that in order to truly belong to the ‘FIRE club’ you have to have properly retired (meaning you do no income producing activity at all).

But, what does that leave? Are we supposed to watch daytime TV all day or tend the garden 24/7?

I think we need to redefine the ‘early retirement’ part of FIRE.

For a start, the word ‘retirement’ has lost almost all meaning in this modern world of flexible working and freelancing. Even for people reaching ‘retirement age’ now, they often don’t want to actually retire.

They might quit their old 9-5 jobs and live a more flexible life. But almost all of the people I work with in the Financial Planning business go onto do something else. They might do some consulting work, write a book or pursue charitable endeavours.

And that is just as it should be. There is now a ton of research showing that doing ‘nothing’ is really bad for our health. Not just our physical health, but our mental health too.

When people lose their purpose and meaning in life, the chance of them developing dementia or depression goes up significantly and the evidence to support this is stacking up.

As such, perhaps we need to change the FIRE acronym to FIDWYWWYL.

In case you were wondering that stands for “Financial Independence – Do What You Want With Your Life”.

Definitely not as catchy – but perhaps more in line with what we should be aiming for?

As someone who has faced their own mortality, I can only agree with the author of the Vice article in saying it is not worth deferring all enjoyment, fun and joy today in the hope of an ‘early retirement’ tomorrow.

At the same time, I want my tomorrows to be at least as good (preferably better) than my today’s, so, perhaps as always, a balanced approach has to win the day.

If you want to begin your own journey to FIRE or FIDWYWWYL then sign up for my FREE 7-Day Fast Track Financial Freedom Course below - you won't regret it!