The Problem with the “FIRE” Movement

Fire. Financial independence, retire early. Those words sound great, right? Well, I have some problems with the idea of fire. You see, who doesn't love the idea of retiring early with complete financial freedom? It sounds great, but is it too good to be true? As a best selling financial author who's helped millions of people get their financial lives in order, here's my honest opinion on fire. I'm going to break this video down into three parts, going to tell you what fire is, the problems with it, and then I'm going to recommend what you do instead. Let's start with part one. What is fire? Imagine one day you woke up in your 30s and you had enough money in your accounts to never work again. In other words, your investments were generating more money than your salary was. I remember years ago going on TV to talk about my best selling book, I Will Teach youh to Be Rich. Before the camera started, the anchor and I were talking and they leaned over, they congratulated me on my book, said, oh, great job. Do you have to work anymore? And I sat back and I realized I'd never really put it that way. But no, I don't have to work anymore. And that was a powerful moment. It's an example of something called the crossover point, where your investments earn enough to fund your expenses automatically. And this idea was first described by Vicki Robin and Joe Dominguez in their book your Money or your Life. It's an incredibly influential idea. In personal finance. Money makes money and at a certain point your money is generating so much new money that all of your expenses are covered. This is also known as being financially independent. And what can you do when you hit the crossover point? Well, at a minimum, you can do nothing. You can choose to work or not, because after all, you could spend the rest of your life spending, spending down your investments. A lot of people call this retiring early together, that is financial independence plus retiring early or fire. To break this concept down even further, there's lean fire, which is people who've decided they can live on a lean amount of money, often 30 to $50,000 a year in perpetuity. They typically reject materialism. They embrace simplicity, often in an extreme way. They're likely doing fun things like going for walks in the park and bird watching. On the other end of the spectrum, there is fat fire, which is for people who want to live an extravagant life at the highest levels of spending. Think of flying first class, staying at the Four Seasons or Amman resorts, putting three kids through private school. You ever wonder, for example, how celebrities can spend $250,000 on a single party. That's because their money is earning so much money that they actually have to work work to spend it all. For example, in 2018, Oprah bought a house for $8 million. Seems outrageously expensive, right? But keep this in mind. Her net worth at the time was over $4 billion. And if she just conservatively invested that money, generating 4%, her investments alone, not even counting her salary, would generate $160 million that that year, effectively making the house free to her. Now that we know what fire is, let's break down the problems. Part 2 the problems with the Fire Movement now, before we get into some issues here, I want to acknowledge the positive things about the Fire Movement. First, I got to say I love the way that the fire community has raised the question of saving more money. Fire is a total antidote to Americans lackluster savings rate. Most Americans stretch to save 10%. Fire absolutely obliterates that by showing it's possible to save 25, 40, even 70% of your income if you get clear about your goals. Second, fire demonstrates how you can take control of your money and live the life you want. I love that a lot of people shared that they were initially attracted to fire by a blog post which explained how they could retire decades earlier than they thought possible. That's incredibly powerful. And third, some fire members have created a really meaningful life for themselves. I want everyone to be able to articulate your unique rich life and then to use your money to live it. That's what money is for. But there are also some problems with the fire movement, and I see it a lot. The the first problem I see is that the Fire movement is often obsessed with a number, and everything revolves around that. A lot of members of the Fire movement exhibit classic signs of stress, anxiety, even depression, thinking that hitting some mythical number in their spreadsheet will suddenly make them happy. And as we know from the tons of conversations I've had on my podcast, including all the conversations I've had with people over the last 20 years, it won't. The way you feel about money is highly uncorrelated to the amount in your bank account. More importantly, a rich life is not about achieving a number. A rich life is one where you wake up, you enjoy what you're doing. One that is lived intentionally, abundantly, proactively. A rich life is not some destination in a spreadsheet cell. A rich life starts today, even if you have debt. And it's living a rich life today and an even richer life tomorrow. Another problem Is that people working towards fire often spend years living in ultra frugality. I'm talking hyper frugality, so that one day in this mythical future, they can enjoy their money. But that's not how people work. I've seen this with guests on my podcast, Mindy and Carl, for example, who are actually quite prominent in the fire community, who, in their early 50s, built an over $4 million fortune. But as members of the fire community, they still struggle to spend their money. That's because when you set the goal of accumulating a number, it becomes very difficult to learn how to spend it. In other words, you can't be ultra frugal for years and years and then magically flip a switch and suddenly you are spending money. That's like saying, I want to make friends later when I'm 50. Or that's like a lot of Indian parents who tell their kids, don't date. Okay, you're 26. Time to get married. It's like, what? I'm missing an entire skill set here. You end up not learning the skill of spending money. And that is a skill, something that has to be learned in your twenties, your thirties, your forties. Of course you should save. Of course you should invest aggressively. I talk about that all the time. But you've also got to exercise that spending muscle now, because if you don't, it deteriorates. And in fact, you create new grooves that simply tell you the only right thing to do with your money is to accumulate it or even hoard it. And the third problem with fire is that it's a movement that often valorizes how little you can spend that becomes toxic. You can see it in fire forums, where people constantly worry about about money. Even with millions of dollars in the bank, they often worry about what the community will say if they were to buy a nice car. I've had people on my podcast who have millions of dollars in the bank. They want to buy something nice, like a nice bag. But the question is, what would my friends say? And that demonization of spending within the fire community creates an unhealthy relationship with finances. If you want to buy something and you can afford to do it, I'm all for it. Now, the good news is that in recent years, there are more and more people in the fire community talking openly about spending money on the things they value. There are prominent members of the fire community who have come out who have spoken about their struggles in spending money and their journey to be able to spend money meaningfully. There are other folks who have shared some of the things they've bought and how it has affected them in a positive, sometimes even negative way. There are conferences where. Where fire attendees are now talking about the meaningful lives they want to create, not simply the amount of money they want to save. I love that. That's a totally healthy development, and I'm a big fan of it. We don't want an unhealthy relationship with food, just as we don't want an unhealthy relationship with money. Money is not meant to simply be accumulated. It's meant to be thoughtfully respected, saved and invested, and, yes, also spent. Before I get to the third part of this video, do me a favor. Hit subscribe, turn on notifications. It helps this channel grow, and it lets me keep sending you new ways to think about money every single week. All right, that brings me to part number three. How to achieve financial independence the right way. Now, fire is not easy, and often you'll hear people who are not in the FIRE community instantly dismiss it. They'll say things like, I'm too young to think about that, or 50% savings rate. I can barely save 5%. It's interesting, by the way, the people who say I'm too young to think about saving and investing, just a few years later, you'll notice that they change and they'll say, it's too late for me to start. Isn't that interesting? Often you'll hear people say this beautiful chestnut, I'd rather spend my money now than nickel and dime myself for the next 30 years. Nobody told you you have to nickel and dime yourself. But what about being thoughtful and intentional with your saving and investing? Of course, the real answer is that you can choose whether the crossover point is part of your rich life. And if you want to reach it, you get to choose how to achieve it. So how do you achieve financial independence? Like I mentioned earlier in this video, a lot of people in the FIRE community focus on saving a huge portion of their salary. Forget about 10% or 15%. A lot of them are talking about 40, 50, 70%. Let me give you an example. Let's say your household income is $80,000. Your monthly expenses are 6,000 bucks. Theoretically, you could reach your crossover point in 38 years if you follow the usual advice of saving and investing. 10%. Or you could reach it a lot faster. Let me show you with some real numbers. Option one, you could cut your monthly expenses in half. Now, a lot of people are like, off ramit you. You're telling me to cut my monthly expenses in half? Do you know how much it costs? Yes, I get it. It's expensive. But there are also a lot of examples of people in the Lean Fire community actually doing it. So let's just go through the process following this strategy. For example, you could reach your crossover point in just over 12 years. Keep in mind the trade off here. 12 years is really fast for a crossover point. But you've targeted ongoing spending of $36,000 per year every year. And that's quite low for a lot of people. In fact, According to the U.S. bureau of Labor Statistics, the average U.S. household spent $72,000 in 2022. Let's take another option. Option 2. You could raise your income. Let's say you follow the advice in my book I Will Teach youh to Be Rich and on my website to negotiate a 30% raise. If you take all that extra money and you invest it, you'd hit your crossover point in 22 years. Notice that this takes longer than option one. Actually, a lot longer. But in this example, you've targeted spending $72,000 per year. That's much more in line with what the average US Household spends, and you could probably maintain it a lot easier. Or option three, you could do a combination of both. If you increase your income by 30% and cut your spending by 30%, you'd hit your crossover point in just nine years. That is an extremely short time to your crossover point combined with relatively high spending. And that shows the power of targeting both your income and your expenses. Now remember, a lot of people don't think about their earnings and spending in this strategic of a way. And as a result, they do the same thing most other people do. They spend pretty much all they make. They save a tiny amount, whatever's left over. They end up working for decades. And then they find themselves ranting about taxes on Twitter without knowing what the hell they're talking about or what a marginal tax rate is. Do not be that person. Please recognize you have the power to dramatically change the way you approach your working years. You can earn more. Learning how to increase your salary is a skill. You can spend less. The Fire community has shown us it's possible. Or you can do both. You decide on your rich life. Let me tell you about my personal choice. I actually like the idea of spending extravagantly on the things I love. What do I mean by that? That means that I'm much more aligned with Fat Fire than Lean Fire. I'm willing to work. I've built the skills to increase my income. I invest aggressively. I want to live in cities that tend to be pretty expensive. I that is the choice I have made but I'm not particularly interested in retiring early. Maybe I will, maybe not but it's not a goal of mine. It's not something that I work really hard towards. I put money aside. I've set up money rules for myself and I know the type of lifestyle that my wife and I would like to live with. That said retiring early doesn't always have to be part of fire. You you can choose to simply become financially independent and then decide what you want to do. All right, now that you understand the different types of fire and some of the problems that I want you to be aware of, use this video to decide if going after fire is part of your rich life. If so, let me know in the comments which option you're going to use to achieve financial independence. Now check out this video popping up on screen to watch more.