The FIRE movement is getting more popular these days. What is it? Is it for you? I’m going to explain.
FI vs RE
FIRE refers to ‘Financial Independence, Retire Early’. In my opinion, FIRE is not one word, but two words. The first part is FI: ‘Financial Independence’, this is a state where one’s passive income stream (the income he/she earns outside of employment) has exceeded his/her expenses. The income stream can be from the withdrawal of an investment portfolio, savings, rental incomes, dividends, part-time jobs, etc. In this case, the person financially doesn’t rely on his/her employment for a living. We call this state ‘financial independence’.
The second part is RE: ‘retirement early’. This is an option, once you achieve financial independence, you could choose to stay in your employment (if you enjoy it), but you are also having the option to leave if you have other interests to pursue. We see a lot of healthy people who are still working very hard even if they are financially independent a long time ago, staying active is the key to staying happy.
A popular rule of thumb on FI, if you plan to use your investment portfolio as the primary source of income stream, is the 4% rule. This means if you withdraw up to 4% of your investment portfolio each year (inflation-adjusted), your portfolio will not run out. So if you have a $1mil portfolio, and if you withdraw 4% per year, which is $1mil x 4% = $40k, or $3.3k per month, your portfolio will most likely not run out. You can work backward, taking your monthly expenses and using the 4% rule (or 3 to 3.5% if you want to be conservative) to estimate how much money is needed for your portfolio.
Variations of FIRE: LeanFIRE, FatFIRE, BaristaFIRE, CoastFIRE
There are a few variations of FIRE. Which one do you like? LeanFIRE focuses on minimizing expenses and having a very lean lifestyle. FatFIRE refers to retiring while maintaining a quality lifestyle. BaristaFIRE is in between Lean and Fat, and the early retiree also finds a part-time job (e.g. being a barista to make coffee) to make up for any shortfall. CoastFIRE refers to a strategy of saving and investing enough to guarantee a comfortable retirement at your planned retirement age, once you achieve your goal, you can stop saving and investing, and just wait for your investment to compound so you can coast. Which one works for you? Only you can decide.
FIRE的变体：LeanFIRE， FatFIRE， BaristaFIRE， CoastFIRE
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