Wednesday, September 19, 2018

What Does FIRE mean?

The hugely popular term FIRE stands for Financial Independence, Retire Early. There are countless articles and blogs devoted to the FIRE movement. But what does FIRE mean? The answer is different from what many would guess.

Financial Independence

Let’s start with the FI part of FIRE: are those who say they’ve FIREd financially independent? Here’s my definition:

You are financially independent if you have enough money or other assets to cover the costs of living the life you want for the rest of your life without having to earn more money along the way. You can be financially independent if you depend on truly passive income such as dividends, capital gains, interest, or a business you own but where you don’t work. However, there should be sufficient margin in your assets and passive income to cover possible market crashes or increased spending needs with reasonably high probability.

Based on this definition, few people who have FIREd are financially independent. Some still depend on a spouse who works. Other work part-time, or they work full-time at something they like much better than their former job. Others stripped down their spending drastically to make their spending match the income their assets produce. This doesn’t preclude being financially independent if their assets have some margin and their spending level is sustainable. Unfortunately, ultra-low spending that you can handle in your 30s may not be sustainable in your 60s or 70s, even after adjusting for inflation.

Retirement

Next, let’s look at retirement. People have many definition of retirement. Mine depends on how much of your time you spend earning income. So, if you’ve quit your full-time job and now spend a few hours a week making some money on the side, I’d say you’re “mostly retired.” Working full-time on a blog to earn income makes you “not retired.” There’s a whole continuum from not retired to fully retired. Based on this definition, few of those who have FIREd are fully retired. Most aren’t even half-retired because of how much they work.

So, what does FIRE actually mean?

The most broadly applicable definition of FIRE I can come up with is it has come to mean quitting the job you hate. I can relate to this. The older I get, the less interested I am in doing what other people want me to do. Those who have FIREd have found a way to get by without working at the soul-destroying job they came to hate.

If they’re not financially independent or retired, were they wrong to FIRE?

Not at all. It’s perfectly sensible to pursue happiness. Why work at a job you hate until you reach true financial independence if it’s possible to get along fine doing something else? If you do quit the job you hate at a young age, why is it important to be fully retired?

The main problem with FIRE is that it is completely misnamed. As long as FIRE enthusiasts call themselves financially independent and retired, critics won’t go away. I don’t have a better name, though. It’s hard to beat the marketing power of screaming FIRE, even if the words making up this acronym apply very poorly.

My case

I guess I FIREd a little over a year ago. I didn’t hate my job, and I did wait until I was solidly financially independent. I was tempted to leave earlier, but I knew I could never get a job at the same pay again if my skills got stale for 5 or 10 years. By age 70, I doubt I could get a job at one-quarter of what I used to make. So, I stayed with my job until I have a large safety margin of financial independence.

Whether or not I’m retired is debatable. I don’t blog for money; it’s a hobby I enjoy. My blog’s income is now solidly in the 3-figure range. I’ve discussed consulting work a few times in the past year, but haven’t done any work yet. I don’t see any point in deciding now whether I will ever work again. I’ll do what I want when the time comes.

I wish all those who have FIREd well. I worry about some who count on maintaining ultra-low spending for the rest of their lives. Expenses have a way of creeping up as you age. That said, I’m a supporter of finding a way to get away from work you don’t like.

10 comments:

  1. I like your definition, especially the often forgotten element of having a sufficient risk margin.

    I think both the FI and RE elements are actually a spectrum. There's a helpful 7 step gradation of the FI spectrum out there (for instance at https://radicalpersonalfinance.com/finance-topics/stages-of-financial-independence/ though I don't think that's where I first saw it; and it ignores the risk/margin element). I don't recall an explicit similar gradation for RE, but here's an attempt:

    0. Wage slave

    1. Can change jobs without worrying about compensation implications

    2. Reduce hours / part time / systematic consulting

    3. Incidental consulting, don't look for it

    4. Don't expect to work for money ever again

    5. Take steps (e.g. snowbirds) precluding working again, disengage deliberately from keeping "up to date"

    A lot of the arguments/namecalling about findependence, early retirement, FIRE, etc. come from people drawing the boundaries differently on these 2 spectra.

    ReplyDelete
    Replies
    1. @Martin: I tend to think of FI as just the final stage. All the other stages of financial strength are getting closer to FI, but are all not FI yet.

      I like your stages leading to retirement. They apply to my career path well, but I suspect other occupations look somewhat different. For example, most people will never have any meaningful opportunity to consult. Stages 0 to 3 for most types of business owners would be quite different as well.

      Delete
    2. Fair enough on your FI definition; the main thing is not which defn you/someone chooses but that they're clear about it and act accordingly.

      On RE, I agree. Taking aside business owners for a moment, but taking off the consulting/knowledge worker blinders, maybe something like

      0. and 1.; 4-5 as above.
      2. Consciously reduce hours or part-time; or freelancing (with active looking)
      3. Incidental freelancing when oppty knocks

      Delete
    3. @Martin: Your changes on the RE steps broaden it to apply more generally. On a different but related subject, I find some people have unrealistic expectations for their prospects of finding part-time work or doing freelancing. To quit a full-time job hoping to supplement income from savings with a side gig can work for some people, but is unrealistic for most.

      Delete
  2. Good for you Mark.

    Martin nailed the stages to retirement - that's the exact course my career took. I am now 59 and pretty much done at stage 4/5.

    ReplyDelete
  3. I worry about those without public sector jobs/union protection and without a defined pension plan to fall back on. FIRE is far from their lexicon.

    ReplyDelete
    Replies
    1. @Stockmarket Speculator: Actually, just about all the people I've read about who have successfully FIREd aren't in the public sector or a union. Typically, they work in high-tech as programmers or something close to that. Their high salaries and low spending allowed them to amass large savings in their 30s or 40s. It's true that the average federal government worker retires in his or her late 50s, but most people who talk about FIRE are thinking of quitting their day jobs much younger than that.

      Delete
  4. How can we help boost your blogging revenue? It is a matter of clicking on adverts on your site or is there something else we can do? I'd like you to keep it up as long as possible.

    Larry

    ReplyDelete
    Replies
    1. @Larry: No, it's best not to make false clicks. Among other reasons, the software to judge whether clicks are genuine is quite sophisticated. I suspect there are things I need to do to fix up software-related things on my blog to make it look better to Google. I just don't know much about these things and I time out quickly whenever I start to look into them. Whatever mistakes I've made in setting up the blog, if they were fixed, I'd likely get a better PageRank, more traffic, and other good things.

      Delete
  5. I'm no expert but Google likes to see you link to other content on your site. Use Headings, pictures and bullets at times.
    A picture header for your post. Just some simple stuff like that might help a lot. I don't know just spitballin' Good Luck!

    ReplyDelete