My Thoughts About FIRE (Financial Independence Retire Early) – Forget Frugal, Be Savvy!
Retiring at age 30 with enough money to live off of forever? Why not, sounds great! This is the basis of the FIRE movement, which is an acronym for Financial Independence and Retire Early.
The New American Dream
It’s a movement and lifestyle that has been quickly sweeping across America and especially gaining traction with millennials and younger generations. It revolves around the idea of saving the majority of your income (often 70% or more), living very minimally, and generating secondary or passive methods of income when possible. By saving all this extra money and investing it towards retirement, it’s quite feasible someone could retire at a younger age with enough money to live comfortably thanks to their income-generating investments. For a lot of people, it has become the new American Dream.
While this movement only gained its fancy name (FIRE) and super popularity over the last couple of years, the philosophy behind the movement has existed for decades. I first learned about this philosophy about 10 years ago from a blogger called Mr. Money Mustache. Now a very successful blogger and considered a pioneer of the FIRE movement, back then, he was just a fairly average guy who just so happened to save most of his earnings and retire in his 30s. His blog was filled with the glories of how great life was when you could retire early and he shared his experiences and advice for how anyone could get there, too. What could there be not to love?
The Problem With Typical FIRE Advice
The premise of FIRE is lovely. I see lots of value in the principles of this philosophy. Even if you wanted to work forever, having financial independence early will be invaluable. But despite all the merit of this movement, I do disagree with one thing. It’s in the way someone is meant to reach financial independence.
Everyone is so damn focused on being frugal.
From the big guns like Mr. Money Mustache to the hordes of Personal Finance bloggers and gurus scattered across the Internet, 99% of the personal advice you’ll find anywhere is all about frugality. Sell your house, sell your car, eat potatoes and beans for every meal, not one penny can be spared!
I always get a massive kick out of Reddit’s Personal Finance subreddit where extreme frugality is often touted as the best advice to any situation. “You drive your car to work!? Sell your car now! Get a bike and pedal to work!”. “No, no, no!” shouts another, “FORGET THE BIKE, Get off your ass and walk – it’s only 3 miles!” Meanwhile in another post, “Oh, you have a pet? BIG MISTAKE, you’re just throwing $100s down the drain. Put them up for adoption.” “WHAT?! You have children, too! All that money for diapers and child care? Yep, you’re screwed…”
Reddit’s advice may be extreme, but the fact remains that frugality is seen as the main means to achieve the goals of FIRE.
That doesn’t work for me.
The Alternative to Frugality, No Extremes Needed!
Frugality to me is a whole lot of needless sacrifice. It’s often the sacrifice of a better quality of life now for the prospect of a better quality of life in the future. Life is too short to sacrifice so much at the present moment for the sake of the future and life is fragile as well. We never know when our days on this Earth can end. How bad would it be to penny-pinch your way to an early retirement at 40 only to be diagnosed with a terminal illness? Grim, I know, but this is real talk.
Thankfully, the good thing is that frugality IS NOT the only path to financial independence. I like to follow a different approach and while you may not get to retirement as quickly, you’ll have a heck of a better time on the way there while still reaching your financial goals.
I call it being financially savvy.
Let’s Be Savvy, Folks
Being financially savvy is simple when it comes down to it. It means being smart with your money. Go spend some money, enjoy life, travel, enjoy good food and drink, whatever your fancy, but don’t be a fool about things. It’s all about getting the best bang for your buck. It’s finding the strategy that allows you to get the most out of each and every dollar you earn and spend.
This could be anything from being vigilant about shopping only the sales, traveling during non-peak times of the year, or hitting up the food and drink specials at your favorite eateries and restaurants. For example, why spend the normal $8 for a mixed drink when you can wait till Thursday and get them during a special for $2? Why pay full price for an item when you can wait a month and get it for 50% off? Sometimes even altering travel plans a couple of weeks to avoid peak tourist times can save you $100s (or even $1000s!) without you losing much of the overall experience you were seeking. There are endless ways to save money with a good bit of financial savviness.
All this being said, it’s not always easy to be financially savvy. It does require a good bit of strategy, planning, and discipline, and you cannot be lazy with it. It does take work (and time), after all, to scour for the latest deals and sales or to do your research on a purchase to know how to make the smartest one. This is often tough to do in today’s world of instant gratification. We often pay more for the sake of time and convenience. It’s amazing, however, what a little leg work can do to save you some big bucks. Heck, even taking five minutes to search the Internet for coupon codes before buying something can lead to significant savings.
A Personal Example for How Well This Works
There is one personal experience I always like to share that highlights the benefits of doing some work to get the best value for your hard earned money. I was a poor college student and my car broke down. I went to a fairly reputable and highly reviewed auto shop and they wanted $1200 to fix the issue. That seemed high, so I went to another shop and they quoted me $900, a significant savings! But not yet satisfied (and still a poor college student), I wanted to try my luck a third time. I went to a third shop and they also quoted me $900. This time, however, I told them another shop quoted me $900 as well and they instantly dropped their price to $750.
But I was STILL not satisfied. I also kind of really wanted to get my car fixed at the first shop I went to (the one that initially quoted me $1200). They had better overall reviews and it was also closest to my apartment which made things easier for me. I decided to go back to that first shop and I let them know I checked out another shop and they quoted the job at $750. Without even having to haggle a sentence more, they told me they could do the job for $650. SOLD! I ended up saving a whopping $550 just by taking some time to shop around and also learned that car auto shops are notoriously shady in their pricing schemes. Win-win. 🙂
Being Financially Savvy is Worth It
Ultimately, it’s experiences like this that really prove the benefits of being financially savvy. And by no means is that the only story I have like that, I have saved tens of thousands of dollars over the years by taking the time and effort to be savvy with my hard earned cash. I have funded hobbies and ventures to the maximum by working to stretch my dollar. When you take the time and effort to get the most for your money, you’ll find you can have more for less while still pocketing some money for saving, too.
And let’s not forget to talk about saving money. Being financially savvy is NOT permission to go out and start blowing money left and right like it grows on trees A critical part of being financially savvy is spending responsibly, saving some money (how else will you retire?), and living within your means. Generally, you would still be aiming to save approximately 20% of your income (and more as able), but being savvy should allow for some money on the side to save or invest towards your preferred retirement plan.
Isn’t This Just Another Way to Say, “Be Frugal”?
Now some readers may start to say that my idea of “financial savviness” is not much different than being frugal, but I do beg to differ. There are some similarities in the sense of spending responsibly and saving money. But I find frugality to be a practice of extremes whereas being savvy is more a practice of moderation which allows us to live more comfortable and flexibly.
It’s always frustrating reading all the personal finance blogs and advice that just keep shouting to eliminate as many expenses as possible from my life and put every penny I earn in the bank. I don’t like the idea of living with the bare minimum for the CHANCE of early retirement. I don’t want to sacrifice the materialistic hobbies or activities that bring me true joy and sense of satisfaction with life. Being frugal is not the way for me.
But being financially savvy? That is my jam. It allows me to maximize the value of my money in the best way possible, which allows me the wonderful opportunity of both spending AND saving to reach financial independence. Of letting me have a high quality of life throughout all my life while also ensuring I’m putting some money away for the retirement years. And who knows, save enough and you may just be able to retire early anyway, no need for extremes to get there!