How the Concept of FIRE Changed My Perspective About Money

November 1, 2020

When I first became interested in personal finance, I felt as though I was learning a new language. I started learning new terms related to budgeting, saving, paying off debt, and investing.I learned the difference between the snowball and avalanche methods for debt repayment, I became educated on the various complexities, terms, and abbreviations that come along with investing, and have at least two or three methods of budgeting under my belt (my favorite is the zero-sum budget, which gives every dollar a job).A few months after I started my unofficial education, I started seeing another foreign term being thrown around: FIRE.What is FIRE?FIRE is a term that refers to F inancial I ndependence and R etiring E arly. While both financial independence and early retirement have a lot of commonalities and some intersection, they aren't exactly the same.Financial independence has enough money in passive income that you can stop working. Essentially, the money you have invested and saved provides you enough of a return that you don't rely on a traditional income anymore, hence the term financial independence. People that pursue FI (which is a commonly used abbreviation) generally have plans to pursue their passions and other things in life.Early retirement, while similar, takes an ode to its traditional retirement counterpart. It generally means that you retire early and stop working. But instead of retiring at 65, or later, you may retire at 45 or 55. In general, people that want to retire early want to enjoy the traditional benefits of retirement, just at an earlier age.

How FIRE Changed My Perspective

The concept of FIRE was so intriguing to me because it was the first time I learned about people retiring early or becoming financially independent. I thought I'd been prescribed a life where I had to work until I was 65 or much much later, given my current debt situation and lack of retirement savings.Once I found out that people were challenging the status quo and living life on their own terms, I got extremely excited about my future. For me, the idea of financial independence is extremely appealing. I would love to have total freedom over the work I choose to do and never do things "just for the money."Even though I am years and years away from financial independence, the concept of FIRE changed my perspective. Once I become debt-free, I plan to aggressively put the $800-$1,000 per month that I'm putting towards debt, straight back into investments and savings. And that's exciting!

How Does FIRE Work?

The ideas behind financial independence and retiring early are nontraditional. As such, they require nontraditional modes of thinking and saving. While many financial experts may advocate saving 10-20% of your income, people that are looking to reach FI or early retirement, need to save substantially more. From what I've seen in the community, most people are saving between 40-75% of their incomes. Crazy right?Before you give up and say, "I can't do that!" take a look at your income and your expenses. It is possible to reach financial independence on a low salary, with a high savings rate, IF your expenses are low. My income isn't very high, but I have pretty low expenses that I plan to keep in check even after I'm debt-free. Of course, I also plan to increase my income and save more over time as well.If you can continue to grow your income and keep your expenses low, you can reach financial independence. But the key is your savings rate. Your savings rate will be in direct proportion to how early you can ditch working life and say hello to financial freedom.Based on average stock market returns, to achieve financial independence you will need to save up 25 times your annual expenses so that you can safely withdraw 4% each year.While it sounds like a daunting amount of money to save and invest, it's all about priorities. It's okay to work forever and retire at a traditional age. But if you are looking for something more, or something different, financial independence or early retirement might be for you.Written by Melanie Lockert for MoneyNing and legally licensed through the Matcha publisher network. Please direct all licensing questions to

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