Welcome back, fellow parent

Today’s newsletter will focus on one of my personal favorite financial topics, the FIRE Movement.

In case you haven’t heard of it, FIRE stands for Financially Independent, Retire Early. It became popular in the early 2000s, especially once the Great Recession hit in 2008.

It’s truly a millennial rebrand though, as we were tired of hearing how long we were going to have to work.

All kidding aside, the ideologies aren’t anything new. It’s all about becoming financially independent so that you can live a life you desire unhinged by money.

Many credit its roots stem from a book titled “Your Money or Your Life” by Vicki Robin and Joe Dominguez. You can find it on Amazon for ~$10 or check it out for free at your local library.

What is the FIRE Movement?

Financial Independence, Retire Early (aka FIRE) is a way of life to get you to retirement as quickly as possible.

It’s what will get you off the hamster wheel, leading to that beautiful moment where you can finally stop trading every moment of your day for money.

Retirement in FIRE means different things to different people.

We tend to imagine retirement as never working again and sitting for years by the beach doing nothing productive.

In reality, retirement simply means you no longer need to punch a clock to make ends meet, but that you can choose to work and on your terms.

Especially for families with two working parents, you know what I mean.

Between kids, chores, and the non-stop time commitment that the modern workplace requires (if you didn't know, the 40-hour workweek died a long time ago), there's zero time for downtime.

Below is a quick message from today’s sponsor, Value Investor Daily. Check out their newsletter for some great tips on investing.

Learn from investing legends

Warren Buffett reads for 8 hours a day. What if you only have 5 minutes a day? Then, read Value Investor Daily. We scour the portfolios of top value investors and bring you all their best ideas.

Subscribe with one click.

How does the FIRE Movement Work?

Put simply, focus all of your efforts on:

• Making more money

• Spending less money

That's it - that's the secret.

Those that are highly successful tend to retire in their 30s and 40s and focus on the two principles above.

If you can beat the Social Security early retirement age of 62 you're doing great.

Determine Your FIRE Target Number

The first step to early retirement is to determine how much you’ll need.

I’d recommend using the Rule of 25 when figuring out your FIRE target number.

Here’s How It Works:

Step 1: Take your annual expenses and multiply them by 25, that's how much you need to retire.

This includes ALL of your expenses in a year.

If you don't know off the top of your head, I would recommend taking a look at the past few months of expenses and estimating for the year to get your initial number.

Step 2: Take the time to jot down your expenses for a year.

I track all of our expenses into categories in a spreadsheet, but there are apps that can help as well.

Teasing out expenses for you and your life partner can be a bit tedious with children in the mix, so do your best.

A Quick Example:

Let's say that you spend $4,000 per month in expenses. This equals $48,000 per year.

Multiply that by 25 and your FIRE number is $1.2 million.

If you want to live larger in retirement and spend $10,000 per month, your FIRE number jumps to $3 million.

That's a big difference and is why most who are successful in FIRE focus on living frugally.

How Much to Spend Annually:

Now that you have your retirement number, it's good to know how much you can take out.

This brings us to the 4% rule.

The 4% rule simply states that you should live off 4% of your savings each year. This will help preserve your nest egg.

Less is better of course - remember this is supposed to be your source of income for decades.

The 4% brings us back to $48,000 per year from the above example.

The Four Main Approaches to the FIRE Movement

While FIRE looks different for everyone, there are four lifestyle variations that have gained popularity recently. These include:

• Lean FIRE: For the minimalist, followers of Lean FIRE will live on as little as possible to invest as much as possible, even through retirement.

• Fat FIRE: The opposite of Lean FIRE, Fat FIRE is for individuals who plan to live it up in retirement.

• Barista FIRE: Barista FIRE are for individuals that plan to work part time once they save enough money to retire, typically to keep some money coming in and for the retirement benefits.

• Coast FIRE: Coast FIRE is where you essentially invest as much as possible, usually into your 30s and early 40s, and then stop investing and let the magic of compound interest work for you. Once you stop investing, you’ll “coast” until you hit your determined retirement age.

Is FIRE Possible With Kids?

You may be thinking "this is great, but I have kids to feed. Is this possible for me?"

Of course it is!

But it's going to be a bit more difficult.

You'll notice that most people who get featured in articles about the FIRE movement retired without having children - because as we all know that kids are super expensive.

But there are many out there that do it - so don't give up! Plan ahead and invest as early as possible.

My wife and I have been part of the FIRE movement for a few years now, and are still a work in progress.

Our desire to set our daughter up for success outweighs our needs so we'll likely work for longer than originally planned, but again, getting out early is still our goal.

Our financial journey falls into the Barista FIRE category.

I personally enjoy working, but would love more time to spend with my wife and daughter.

It’ll also allow me to provide a few things for my daughter (and future grandchildren) that I didn’t have growing up, including organic food and international experiences.

While we never plan to live extravagantly, we refuse to cut corners to the detriment of our health and happiness.

Here are the steps that we use in our pursuit of becoming financially independent:

Step 1: Draw a line in the sand. Write down the age that you want to be done. Make sure it works for your family unit, you're no longer working on an island.

Step 2: Visualize the end goal. Jotted down the age you want to retire? Now visualize what life looks like. Are you spending your time volunteering? Spending more time with family and friends? This can change but visualizing the end goal will help with motivation. Trust me, it'll help when you get busy and want to spend $40 on eating out versus cooking dinner for $10.

Step 3: Where are you today? Take a hard look at your current budget and investments. Where can you cut corners? We focused on two key areas, entertainment and eating out. We cut the cord on cable and cook most of our meals at home - it added up to thousands of dollars in savings per year.

Step 4: Set a plan. Create a budget and invest as early and as much as possible. Remember it's not just you though, so don't toss out all of your food and just live off Ramen noodles. Figure out what works for you and your family and start making changes today.

Step 5: Check-in regularly. This path isn't easy - check in with your partner as often as you need. Find others around you to join in on the journey.

Which FIRE Movement approach resonates the most with you?

Any tips you can share with the rest of the community?

Reply and let me know. I’d love to hear more.

Thank You for Reading

Thanks again for reading. Drop me a note with what’s on your mind, I’m here to help.

Talk soon,

The Dollar Dad

P.S. If you’re considering starting a newsletter or blog this year, I’d highly recommend Beehiiv (use my link for 20% off any paid plan for 3 months). Drop me a note if you need help getting started or growing your business.

P.S.S. As a heads up, the above link for Beehiiv is an affiliate link. If you make a purchase using the above link, I’ll receive a commission at no extra cost to you.