Many younger working professionals desire to get out of the daily grind, break free from the traditional 9-to-5, and achieve a life of leisure before they become senior citizens. This has sparked the “FIRE” movement, which stands for “financial independence, retire early.” FIRE is a radical approach to retirement planning that involves living frugally and wisely investing in order to leave the workforce by around 40 years old instead of the conventional 65.

Core Principles of the FIRE Movement

The FIRE philosophy is about living better while buying less. By being strict with your money while you’re young, you can pursue passion projects, travel the world, or settle into a dream job by the time you hit middle age. You should also determine which retirement plan is right for you; from 401(k)s to IRAs, each one has their own contribution limits and tax benefits. Understanding which options are available to you and their pros and cons can help you ensure you are putting your money in the most effective account. There are several levels of FIRE intensity:

• Fat FIRE is an aggressive approach to saving and investing in order to retire early without making too many sacrifices today. It requires a high salary and a rigorous commitment.
• Coast FIRE is all about minimalist living — limiting your spending to about $25,000 per year or less and maximizing your investments.
• Barista FIRE gets you to that place where you can work the job you want, when you want. Once you have enough to quit your day job, part-time or gig work supplements your passive investment income.

Regardless of what type of FIRE you want to ignite for yourself, here are three guidelines that you’ll want to follow to make it work:

1. You Need Discipline to Succeed

In the FIRE movement, thrift is a gift, and budgets are your best friend. You have to be conscious about spending, and diligent about saving. Assess your income, expenses, and existing assets, and calculate your FIRE number — that is, the amount of money you need to be financially free.

Consider your savings rate — the proportion of your income you can put away, the retirement contributions you can make, and any contribution matching policies provided by your employer. Assess the amount of money you’ll require each year to meet your essential expenses, then multiply it by 25 to find out the total you have to aim for to make retirement possible.

Based on the amount of money you plan to save, the amount you’ll need to spend, and the projected returns on your investments, you can estimate how long it will take you to achieve the FIRE you desire.

2. To Save More, You Need to Make More

In general, members of the FIRE movement strive to save somewhere between 50 percent and 75 percent of their incomes, with many aiming for targets on the higher end of that spectrum — upwards of 70 percent. But saving is just the start.

Investments that generate passive income and appreciate over time, such as stocks, index funds, high-yield savings accounts, and certificates of deposit (CDs), can be useful tools for increasing your savings. Building a balanced, diversified investment portfolio that aligns with your risk tolerance can also be helpful.

Multiple income streams can also help you accelerate your journey toward financial independence — whether that’s a side hustle, freelance work, or consulting. And once you retire from full-time work, these smaller jobs may become labors of love that continue to sustain you financially and personally.

3. Stay Committed to Your Future — and to Yourself

Frugal living isn’t easy. You have to say “no” when you want to say “yes,” and you’ll be crunching numbers every week to stay on track. But it’s important to enjoy the journey, even if the entire purpose is the destination.

Focus on Your Goals, and Keep the FIRE Going

Fully embracing FIRE isn’t for everyone, but its core principles encourage good financial planning. Living within your means, growing your nest egg, and making informed, intentional decisions about your money and your future empowers you to live your life with greater freedom, flexibility, and fulfillment. Because of this, the FIRE movement holds lessons everyone can learn from.

Learn more at Citadel Credit Union.