The F.I.R.E. community is a really interesting phenomenon of people who live as minimalists and invest all the money they don’t need. People from this community can do incredible things thanks to this. Normal people. even if they don’t want to convert to the F.I.R.E. can learn a lot out of the behavior from these people. Therefore this article can help everyone who wants to know more about these people or who want to learn something about money management from them. to make this possible I will cover the general idea from this movement as well as how they live their lives. And in the end, I will explain to you what you can learn from these people for your everyday life.
What means F.I.R.E.
F.I.R.E. stands for financial independence retire early. You can already see what it is all about.
Those people want to reach their financial freedom to retire as early as possible. They don’t want to achieve this by taking really high risk for more interest or by becoming an entrepreneur by the age of 16. They just want to do their normal job, earn an average income, have a close look at their spendings and invest the money they don’t need.
You could say that these people are minimalist who invests in the stock market.
When they invest they don’t go crazy and buy single stocks from high-risk companies. They are probably most likely to invest their money either into huge and save companies, or in an index like the S&P 500 which has 500 companies in it.
The spirit of F.I.R.E.
The reason why these people are living their life as they do is pretty easy, they understand how money works. They want to invest as much as they can to have enough money to retire as early as possible.
They want to get an average return of about 6% per year from the stock market. Because they understand that their money grows exponentially. And they don’t want to get more return than that at a higher risk.
The last thing they have understood is that you can live from the money that you have invested without decreasing your net worth.
The combination of all this lets them follow their dream of investing as much as possible to become financially free as early as possible.
They don’t focus on their income or their investments, they only focus on their spendings. Because if you spend less you need less money that earns interest for you to be considered financially free. And you also have more money for your investments and therefore can reach this lower amount of money that is needed earlier. So they try to get their savings rate as high as possible.
This is really great if you don’t have any problem with living like a minimalist. If you want to read more about why you should care about your savings, feel free to check out this article I wrote about it.
F.I.R.E. everyday life
Most people of the F.I.R.E. community have savings rates beyond 50% while most normal people don’t even save 10% of their income.
So the question that comes up is clearly how they can reach these savings rates. And the answer is to this question is budgeting. Budgeting means that you calculate how much money you earn and how much spend.
If you do this you are likely to find unnecessary spendings, like an abonnement for an online service that you don’t use anymore, or insurance that you don’t need. You also are going to find spendings that are way higher than you want them to be. There are many people out there that are spending way more on eating out than they would with eating at home.
And if you budget your money and keep an eye on your spendings chances are that you cut them back because they don’t worth you as much as you spend. But if you don’t even look where your hard-earned money goes you can’t even adjust something.
Therefore if you have an eye on your spendings it isn’t as hard as you think to save some of your money. If you want to know more about why you should Budget, I would suggest you read this article about it:
To makes things more specific I want to give you an example of the spendings from a person who budgets his money.
Let’s say this person ears $3,000 per month. If you could either rent a huge apartment in the city center alone and pay $1,000 to $1,500 per month for the rent.
Or you could cut back on these spendings and share an apartment with your friend or your partner and just pay the half. You could also just rent an apartment which is a bit smaller or just not directly in the city center. That’s why the person in our example only pays $500 per month.
The second big spending is on groceries.
If you buy only brand stuff and probably even convenience foods together with vegetables and all other stuff. You would spend probably more than $300 per month here.
But if you don’t buy unplanned food that you have to throw away later on. If you buy store own brands and just have a look at what costs a bit less, it is easily possible to spend only $100 per month on food.
And if you are someone of the fire community, chances are that you don’t have more spendings.
You may be put away $100 for eating out, clubbing and other fun activities plus $100 for clothes that you have to buy every now and then. And you can also put away money every month for vacation.
But if you don’t have a look at your spendings you probably pay more. And you also have abonnements from multiple different streaming services and apps etc.
If you tweaked just a little bit you would have spent only $500 for rent + $100 for groceries + $100 for fun + $100 for stuff you need every now and then and let’s say $200 for insurances that you really need.
That would be a total of $1,000 which brings your savings rate to 67% vs. maybe 5-10% that you wouldn’t use to invest and rather spend on a new phone even though your old one still works fine.
The advantage that comes with this style of living is clearly that you can retire really early, sometimes before you get 30 years old. The only reason why these people can do this is that they know that investing their money is great. That’s why they spend only a bit of money and never too much. And that is reason that they can stop working that early.
The advantage that these people have is that they are using this system for them.
Because if you invest money for an average interest that you can get with the stock market, you can grow your money exponentially. This exponential growth then helps you to make more and more money, every year because of the compound interest.
If you are interested in profiting from earning compound interest too, you should read this article I wrote about why you should invest:
Know we come to the most important part of this article and therefore to the question. How can you learn from that?
The first big learning you should get is that can easily reduce your spendings by just have look at them and budget your money. This will really help you in terms of getting money that you can invest in the stock market.
Which is already the second thing to learn. If you have money that you don’t need for the next few years, longer is better, you can invest it in the stock market with an index. Because you will get an average return on your investment. When having the money invested longer, the return will be closer to the average.
These are already the two big steps that most people don’t make. I
you think about it, most people earn money, but almost no one keeps his money. And even fewer people invest their money to profit from their savings.
The last thing you should definitely learn from these people is, that your investments mean income forever.
The reason for this is that the stock market grows over time. And if you take apart from your initial investment every year your money won’t decrease. This growth in the stock market will cover the fact that you are taking money out of your investments. Therefore these people don’t see $100 as $100 anymore. The only thing these people see is the interest they can earn from these $100 every single year for the rest of their life. Everyone who just wants to work and retire with 60 can use this principle to get a better pension.
Thanks for reading!
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