Over the past decade, the so-called FIRE movement has begun gaining popularity. FIRE is a clumsy acronym for Financial Independence/Retire Early. Early retirement and financial independence are two closely-related concepts, both of which involve making unconventional choices in order to amass wealth quickly.
At first, these ideas seem extreme to most people. In fact, they might seem impossible. But they’re not impossible. They simply require discarding long-held beliefs about money and adopting a new set of ideas instead.
In a way, it’s like that scene in The Matrix where Neo has to choose between swallowing the Blue Pill or the Red Pill.
If you choose the Blue Pill, you continue life as normal and you never retire early. But if you opt for the Red Pill, a whole new world opens up to you — a world you might never have believed was possible. (If The Matrix isn’t your thing, another analogy to consider is Plato’s allegory of the cave. It’s the exact same thing.)
To begin, let’s talk a bit about what it means to be retired. This question might seem silly, but it’s important. You see, retirement is a relatively recent concept. Because of that, our definition of retirement is continuing to evolve.
In 1857, New York City created the first public pension. In 1875, the American Express company created the first private pension. And in 1883, the German chancellor announced that workers over age 65 would be forced to retire.
This highlights an important point. In the beginning, retirement was controversial. It wasn’t viewed as something desirable. People wanted to work. Popular opinion was against the idea. Here’s a melodramatic 1911 film that highlights the reasons people were opposed to retirement.
In time, however, public opinion changed. People began to view retirement in a positive light. Laws requiring “mandatory retirement” were accepted and most Americans looked forward to relaxing in their Golden Years. (Eventually, however “mandatory retirement” laws were deemed age discrimination and they were revoked.)
Ultimately, “retirement” is a loaded word that can lead to arguments. To avoid those arguments, many people choose instead to talk about “financial independence”.
Defining Financial Independence
When most people in the FIRE movement talk about financial independence, they’re using the term in a general sense. In most cases, financial independence means you’ve saved enough to support your current spending habits for the rest of your life without the need to earn more money. You might choose to work for other reasons, such as purpose or passion, but you no longer need a job to fund your lifestyle.
There are other ways to look at financial independence, but this is the general definition.
Just as there’s a general definition for the term, there’s a generally accepted path to financial independence and early retirement. That path is:
- When you’re young, work to achieve a high saving rate. According to the U.S. government, your personal saving rate is the percentage of your income that’s left over after you pay taxes and spend money. It’s how much you save after taxes and expenses. (Many people choose to calculate saving rate based on pre-tax income, and that’s the methodology I’ve used for this course.)
- The first step to a high saving rate is to spend less. Yes, that means being thrifty and frugal. But it especially means being careful to spend less on the Big Stuff like housing and transportation.
- The second step to a high saving rate is to earn more. Boost your income through saving salary negotiation, ongoing education, and the willingness to work more and better than your peers.
- Once you have a high saving rate, use that money wisely. Make smart investments so that the money will grow with time.
- Eventually, you’ll have saved enough that your Wealth Snowball is so large that it can sustain your current spending for the rest of your life. At this point, you’ll have achieved financial independence. You can retire, if you’d like. Or you can choose to find work that’s more fulfilling.
This is the standard roadmap to financial independence. But, as we’ll learn later in the course, financial independence isn’t just one thing. In reality, it’s a series of milestones, a gradual increase in your range of financial freedom.
Each of us possesses “invisible money scripts” that influence our relationships and behavior with money. These money blueprints define what we think about money and how we handle it.
We inherit most of these attitudes from our parents, but we also pick them up from friends and colleagues and, especially, from the mass media.
Some of these scripts are great. They work. They’re effective. They produce positive results. But nearly everyone has errors in their mental maps. They have counter-productive invisible scripts that make success difficult to achieve. This is especially true with our money scripts.
This is the fundamental premise of financial independence: We, as a society, have faulty mental maps. We’ve acquired a collection of invisible money scripts that generally produce poor results. We can do better. The FIRE movement is all about re-writing our internal money scripts to produce better results.
In The Matrix, after Neo swallows the Red Pill, Morpheus explains how the Matrix works.
While I wouldn’t characterize the general population as “the enemy”, it’s true that most people are not ready to be “unplugged”. They’re not ready for the FIRE movement. Like boiling frogs, they’re complacent, comfortable with their roles as consumers. They’re hopelessly dependent on the system and will fight to protect it. They’re trapped by their money scripts.
If you’re ready to re-write your money blueprint, this course will help you do that.
Finally, here’s a list of additional resources if you’d like to learn more about the concepts in this lecture. First up, here are some books on this topic:
- The Experience of Retirement by Robert S. Weiss
- Your Money or Your Life by Joe Dominguez and Vicki Robin
- Cashing In on the American Dream by Paul Terhorst
- Work Less, Live More by Bob Clyatt
- The 4-Hour Workweek by Tim Ferriss
- A History of Retirement by William Graebner
- The Evolution of Retirement by Dora L. Costa
- The Road Less Traveled by M. Scott Peck
If you’d rather read material on the web, here are some related articles:
- The History of the FIRE Movement at Early Retirement Dude
- What is Retirement? at Get Rich Slowly
- The Evolution of Retirement at Get Rich Slowly
- The Five Types of Retirement at Get Rich Slowly
- The Invisible Money Scripts that Guide Our Lives at I Will Teach You to Be Rich
And don’t forget: If you’d like some general resources for financial independence and early retirement, I’ve created a page here at Money Toolbox that links to useful FIRE apps and tools.