Today I’ll discuss everything that you need to know about FIRE, a financial independence movement that is gaining traction in Australia. I’ll cover what it is, why people are pursuing it, the different types of FIRE and explain how you can join the movement and become financially independent.
Financial Independence, Retire Early (FIRE) refers to a financial movement where people aim to become financially independent through a mixture of frugal living, saving money and investing in income-producing assets. By living below your means (spending less than you earn) and investing the surplus in income-producing assets such as real-estate, ETFs and cryptocurrencies, FIRE chasers can build up an investment portfolio that supplements their traditional income. This creates financial independence, a term that refers to someone who doesn’t rely on the government or a job/wage to survive. After being popularised in the US, this innovative movement is picking up traction among young Australians looking to escape the rat race.
While it is true that some Australians would like to retire early, the vast majority of Aussies pursuing FIRE are mainly doing so in order to achieve financial independence. Financial independence refers to a state in which someone has enough money through their investments to supplement their income/wage/pension.
Simply put, a person who is financially independent doesn’t rely on an external source of income such as a traditional salary or wage. Instead, they rely on a series of investments that provides a passive source of income that in turn, covers all of their living expenses.
There are numerous advantages to becoming financially independent, as these individuals have more freedom when it comes to their careers. For example, a financially independent person doesn’t have to worry about factors beyond their control, such as wage cuts, being fired from their work or the business they work for closing down. Similarly, they may be more resilient to economic volatility, as financially independent people usually have multiple revenue streams.
As such, by pursuing FI, people have a lot more freedom when it comes to what they devote their time to, as their ability to live isn’t dependent upon a particular job or factor beyond their control. This means that they can either choose to retire early, travel, pursue passion projects or engage in their hobbies full time. It is this flexibility of how we can devote our time and energy that attracts most people to the FIRE movement.
Everyone’s FIRE journey is different and there is no right or wrong answer when it comes to what someone’s end state in reaching FIRE should look like. As mentioned above, becoming financially independent brings with it a lot of flexibility. Some people who reach FI may choose to continue working full time, despite not needing the extra income.
Conversely, some people may stop working altogether and simply pursue their hobbies full time. Alternatively, many end up working part-time to fill in the time or to increase their FI. Whatever your goal may be, there will be a FIRE type for you.
Traditional FIRE or simply ‘FIRE’ is the original and most common form of FIRE. The aim of traditional FIRE is to be able to supplement income and salaries with passive investments, giving the person the ability to become financially independent and retire early. This is achieved by a mixture of living frugally (below your means) and investing in income-producing assets.
Typically, people pursuing FIRE aim to be able to maintain their current lifestyle and spending habits, without the need for a salary or paycheck. As such, people chasing FIRE tend to aggressively save and invest the majority of their salaries into assets that appreciate at a rate greater than inflation such as stocks, real estate, cryptocurrencies, ETFs and index funds among others. Over time, these assets begin to grow due to the power of compounding returns, until eventually, they reach a point where they produce enough income to replace someone’s salary indefinitely.
While this is the most common form of FIRE and the progenitor in many ways, it is not the only one, with numerous variants emerging in recent years.
People pursuing Coast FIRE typically tend to follow a 3-step process where they work relentlessly during their early years, living frugally and investing most of their disposable income towards income-producing assets. They then ease up in their 30s-50s, working reduced hours as, by this point, they only need to cover their living expenses. Lastly, they ‘coast’ into retirement, working less frequently until they are comfortably retired and living on the nest egg that they built from an early age. This is seen as a more gradual form of FIRE than the traditional method and is often chosen by people who want to continue working, but at a lesser capacity than their peers (semi-retiring).
Someone pursuing this strategy may decide to max their super contributions early on to ensure that their super balance is more than enough to live on once they reach retirement age. Alternatively, they might aggressively invest in income-producing assets outside of their super from an early age to let them compound until they reach a point in which they can live off of the income produced by these assets at a later age.
If you’d like to learn more about Coast FIRE, I recommend the ‘FIRE the Family’ website, as they outline their Coast FIRE journey in detail there:
Barista FIRE is a hybrid of Coast FIRE, where you save and invest enough money to be able to supplement part of your income. You then take up a part-time job, preferably one with benefits to supplement the remainder of your living expenses. This movement got its name from Starbucks, which offers its part-time employees in America access to healthcare insurance. By choosing this route, Americans, in particular, are able to save on health expenses, as they don’t have Medicare or a universal healthcare system.
This is perhaps the quickest and easiest form of FIRE to reach depending on your expenses, as particularly frugal people may be able to live off of a relatively small investment portfolio combined with part-time income. Barista FIRE is often chosen by people who want to live a relatively stress-free life as early as possible, by working an enjoyable part-time job and investing some money on the side.
Unlike the other forms of FIRE which typically emphasise a frugal lifestyle during the accumulation and retirement phase, FatFIRE is aimed at establishing a more lavish lifestyle during the RE phase. Typically, people who strive to reach FatFIRE aim to have an investment portfolio that provides $100,000 per year or more.
This type of FIRE is typically chosen by people with high paying professions who may be accustomed to a higher standard of living than your regular person. Alternatively, these individuals may plan on living it up once they retire and may have a much later expectation for when they retire early when compared to their peers.
As the name suggests, LeanFIRE is the polar opposite of Fat FIRE. People pursuing LeanFIRE generally aim to retire as quickly as possible and can often go to extreme measures to do so. The typical yearly target for someone pursuing lean FIRE is an investment portfolio that provides $40,000 per year or less.
This type of FIRE is generally chosen by people with low-income jobs, people who don’t want kids and people who would like to retire as fast as practicable. They are often relentless savers and are extremely frugal with their budgets. It is also common for minimalists to pursue this type of FIRE, as they typically have much lower spending habits.
GeoFIRE is a hybrid of traditional FIRE with geo arbitrage. Simply put, people pursuing GeoFIRE will follow the standard principles of FIRE (living frugally and investing aggressively). However, they differ from other FIRE chasers in their flexibility to retire to a different location with a lower cost of living.
This can be as simple as moving from Metro Sydney to Regional NSW to reduce expenses. However, it can be as extreme as changing continents in order to drastically reduce the cost of living. For example, an Australian family living in the city may be able to retire much earlier by moving into a more regional area where housing is more affordable. Alternatively, an Australian family may decide to move to a country with a much lower cost of living such as Portugal or Thailand in order to be able to achieve FIRE faster.
This type of FIRE is considered extreme to some, but a no-brainer to others. It can also be the difference between someone experiencing regular FIRE or FatFIRE depending on where they live, as the cost of living varies dramatically between regional and metropolitan areas as well as among countries.
NomadFIRE is a more extreme version of GeoFIRE where you don’t plan to live indefinitely in one particular area or country. Typically, NomadFIRE chasers aim to reach a state of financial independence where they are able to afford to travel indefinitely.
This can incorporate other forms of FIRE such as BaristaFIRE or FatFIRE where they rely on part-time or online jobs to supplement part of their income, or they simply factor in a much higher FIRE budget to be able to travel full time. Due to the volatile nature of NomadFIRE, it is often chosen by people without kids who have either a large investment portfolio or a method of earning income on the move such as an online business or marketable skill.
In summary, there are numerous forms of FIRE and many of them often overlap. For example, BaristaFIRE, CoastFIRE and NomadFIRE can all involve working part-time to supplement part of their income. Similarly, someone pursuing GeoFIRE might end up living like a FatFIRE chaser once they reach a low cost of living area in their RE phase.
At the end of the day, the whole point behind FIRE is to be able to have the financial autonomy to pursue whatever type of lifestyle you would like to live. It may be one of the ones listed above, a hybrid of several or a completely new variation. The point is to be able to live the life that you have always wanted without being stuck in a particular area or job, reliant on a salary.
I would also like to clarify that while I gave some generic advice on who may typically be associated with a particular FIRE movement, that anyone can pursue or change their FIRE ambitions at any time. A doctor may aspire for LeanFIRE for example if they decide that they would like to retire as early as possible. A low-income couple may aim for FatFIRE by living frugally and investing from their 20s into their 50s and so forth. The beauty is that anyone can pursue any type of FIRE depending on their goals.
After finding out about FIRE, it is common for people to want to begin their journeys as quickly as possible. However, it is important to decide on an appropriate goal to keep you on track. The FIRE journey is all about delayed gratification and making short-term sacrifices to benefit in the long term. As such, it’s important to have a clear and transparent goal to keep people motivated when making these sacrifices. However, with so many FIRE options available, it can be daunting deciding on which type of FIRE, if any to pursue.
As outlined above, each type of FIRE has distinct advantages and disadvantages which vary depending on personal circumstances. For example, a low-income earner may not be able to pursue FatFIRE, due to the large amount of initial capital that is required to generate the yearly revenue associated with FatFIRE. Similarly, a couple with kids may be unsuited for NomadFIRE, due to the volatility of moving around so frequently.
For these reasons, it is important to determine what your FI/FIRE will look like and begin working towards it. It’s also important to note that people change over time and that your initial goal may be unapplicable by the time you reach it. However, by getting started sooner rather than later, your investment portfolio can give you the flexibility and autonomy to deviate from your goals over the long run.
In order to have disposable income to invest, you need to be able to live below your means. This term simply refers to the ability to spend less than you make. For example, if you earn $50,000 per year and your annual expenses are $35,000, then you are living $15,000 below your means. This gives you $15,000 that you are then able to invest in a range of income-producing assets which have the ability to compound over time. It is this compounding that eventually leads to financial independence, as these assets may eventually be enough to supplement the $35,000 that you need each year to live.
Living below your means focuses on two key tenets, your income and your expenses. The greater your income and the lower your annual expenses, the more disposable income you have to invest. As such, the quicker you can increase your income and decrease your expenses, the faster you’ll be able to achieve financial independence.
For advice on how to save more and be able to live below your means, I have written the following guides:
Your annual income can be increased by a range of different metrics. These metrics include but aren’t limited to starting a side hustle, picking up a second job, upskilling yourself, job shuffling for higher-paying salaries, investing in income-producing assets and so on.
Simply put, the greater your yearly income, the easier it is to live below your means. For example, a person with a $100,000 yearly salary should theoretically find it easier to get by on that income than someone earning half of that. However, there is a phenomenon known as ‘lifestyle creep’ which occurs when people begin to increase their spending proportionate to their income increases. For this reason, it is important to place emphasis on the next principle, frugality.
Frugality refers to the ability to be economical with food and money. While the typical stereotype of frugality is someone using coupons to save on a can of soup, there are many more practical and beneficial attributes of being frugal. For example, a frugal person may decide to meal prep their lunches as opposed to buying them daily. If done correctly, this can result in better tasting food and huge savings. Similarly, they may buy non-perishable goods in bulk during half-price sales, as they are forecasting that they will use them at a later date. These aren’t sacrifices, they’re just more economical and thriftier methods of living their day to day lives.
In a different vein, frugal people may make more expensive purchases on things that provide a greater return on investment. For example, they may save up to pay for a car outright as opposed to using a loan, as even though it requires a much higher initial sum, it can save them money over the long run. They also might invest in high-quality clothing, furniture or equipment if they forecast that it’ll last longer and be cheaper than buying numerous pairs of cheaper variants. As such, being frugal is simply living your life in a more economical and financially sound way and should not necessarily be associated with missing out on the finer things in life.
Frugality is a key principle for people of all ages and incomes, as while a person in a particular field may be limited to an income ceiling, there are always ways to reduce spending habits. The more frugal the person is, the greater potential they have for living below their means. Additionally, a frugal person will be able to reach FIRE earlier, as their yearly income is much lower than a non-frugal person. For this reason, this is potentially the most important principle for someone genuinely pursuing FIRE (with the exception of FatFIRE perhaps).
Being able to consistently live below your means requires a lot of discipline and mental fortitude. While your friends may be out taking expensive holidays, leasing luxury cars and going out every weekend, it can feel like you’re missing out at times. With that being said, people with high spending habits are typically living paycheck to paycheck and won’t have the luxury of becoming financially independent or retiring before their super preservation age.
This is what separates FIRE chasers from the rest of the population, they delay gratification (short term pleasures) to reach a long-term goal. While it can be easy to fall off the bandwagon and indulge yourself every now and then, it’s important to remember why you decided on FIRE as a goal and whether or not that’s still important. Constantly reassessing your ‘why’, will help you to stay on track on your journey and ultimately reach your desired FIRE type and number.
To finish off the key tenets of FIRE, I wanted to add in balance. It can be easy to get carried away and even obsess over FIRE. I myself along with many others have become obsessive over FIRE, to the point of scrupulously analysing my every expense and worrying over trivial expenses. FIRE is a great goal, everyone fantasises about leaving the stress of their job and relaxing on a beach from time to time. However, life isn’t guaranteed and spending all of your time and energy in the now to pursue something that isn’t a certainty can be one way of wasting life.
Set goals, make budgets and stick to them, be frugal when you can, but don’t make the mistake of missing out on important events and experiences while you’re young because you’re obsessed with retiring as soon as possible. Like all things in life, balance is important and leaning too far in either direction with your spending and saving habits can be detrimental in the long run.
If you’re still reading by this point, it’s likely that you are at least entertaining the thought of pursuing FIRE. Here I’ll outline the essential steps that you can take to put a FIRE plan together and work towards reaching your FIRE number.
To begin working towards FIRE, it’s paramount that you live below your means. If you aren’t sticking to a budget, it’s impossible to accurately determine how much you can save on a frequent basis and more importantly, how much you can invest to build your FIRE portfolio. I have written a detailed guide here on how to set up a budget that can be changed to fit weekly, fortnightly, monthly and yearly metrics. So regardless of your pay frequency, you’ll be able to set up an accurate budget and track it accordingly.
Alternatively, Moneysmart has a budget planner tool that you can access for free here
After working out a budget, you’ll see exactly how much you’re making and spending. The quickest way to reach FIRE is to increase the amount you make and to decrease the amount you spend. While it may not always be feasible to find a higher paying job or pick up secondary work, it is always possible to live more frugally. As such, it is important to look at ways you can cut down on spending and additional ways of increasing your income.
While there is no blanket approach for increasing your income or decreasing your income, the following guides give options that I have used personally to help me live below my means and increase my disposable income.
For advice on how to save more, please refer to the following guides:
While some might argue that this should be step 1, I have put it in step 3 as budgeting and saving are things that all people should be on top of, regardless of whether they want to become financially independent. However, if you are actively pursuing FIRE, it’s important to decide on what type of FIRE you would like to reach and what your FIRE target will be.
To be able to become financially independent, you need to develop an investment portfolio that provides returns that can supplement your income. If you are looking to FatFIRE and live off of $250,000 per year, this will number will be drastically different from someone pursuing LeanFIRE with a $25,000 per year budget. As such, deciding on how much money you would like your portfolio to be worth and how much yearly income you’ll require from it is essential before progressing to the next step.
Investment portfolios can provide forms of passive income that can supplement your wage. Passive income can be derived through capital gains (selling part of your assets) or through ongoing yields which are distributed at different rates depending on the asset class. This can come in the form of dividend payments from stocks/ETFs, interest from lending platforms, staking on cryptocurrencies, yields on bonds or by collecting rent from investment real-estate if you are positively geared.
No asset class is inherently better than the other, as they all have different strengths and weaknesses.
Therefore, I encourage anyone who is genuinely serious about pursuing FIRE to do their own research and actively try to understand how these assets and others work. Things such as risk-tolerances, individual knowledge and the amount of time the person is willing to spend towards understanding a particular asset class will determine what one/s they decide on.
For example, a person working in real estate will most likely gravitate towards investment properties, as they understand the market. Similarly, a person working in finance may be more attracted to ETFs or max out their super contributions. Younger, more tech-savvy investors may gravitate towards cryptocurrencies if they have a fundamental understanding of blockchain technology and digital industries and so forth.
An additional consideration is a flexibility that comes with each asset class. For example, a person looking to retire in the place where they currently live may decide to invest in local real estate. The reason for doing this is that they are able to keep an eye on the area and potentially manage the property themselves, increasing their revenue and providing something to focus on with their spare time.
Conversely, a person looking to pursue NomadFIRE or GeoFIRE will likely be more suited to stocks or cryptocurrencies, as these assets are much more liquid and able to be accessed with a phone. For these reasons, some assets may be more suited to people than others, depending on their type of FIRE goal.
For these reasons, I recommend reading up on multiple asset classes to help decide on a portfolio that suits your risk tolerance, area of expertise and investment horizon. The following guides can be a good starting point.
FIRE is a long journey, It can take years or even decades depending on the person. During this journey, it is likely that you’ll experience various changes in your personal life that can impact your FIRE goal. You may find a job that you genuinely enjoy and may decide on a less aggressive FIRE such as Coast or BaristaFIRE. Alternatively, you might take the opposite route and pursue LeanFIRE or GeoFIRE to escape from your job faster. These occurrences happen all the time and can drastically change your outlook and plan to reach FIRE. However, they aren’t just limited to your individual circumstances, external factors may end up changing your FIRE plan.
A relative may become sick who you need to take care of, you may find a partner who wants a different lifestyle, you may have children and your yearly budget may change etc. For these reasons, it’s important to periodically reassess the other steps to ensure that you’re still being proactive and heading in the right direction. Even if your end-game doesn’t change, it can still be beneficial to be looking for ways to expand and improve upon things like your frugality, income and your investment portfolio, as these are also subject to change over time.
FIRE is a flexible financial movement that is gaining traction in Australia and the rest of the world. While the prospect of retiring early may not appeal to everyone, the concept of FI and the key tenets that encompass it are fundamental aspects for anyone, regardless of their life goals. These healthy financial habits such as frugality, saving, budgeting, increasing income and investing can be vital for anyone looking to reach a state of financial independence.
As such, FIRE and the various sub-types can be a great incentive for people to gain control of their financial habits and work toward reaching financial autonomy. Whether you want to retire early, devote all of your time towards hobbies, work abroad or simply increase your spare time while working less, FIRE can play a crucial role in reaching these goals and a plethora of others.
While the concept of FI or early retirement may seem out of reach to you depending on your circumstances, anyone is capable of pursuing it by living below your means and investing the surplus. Simple things like creating a budget and sticking to it, cutting back on unnecessary expenses, looking for additional income opportunities and learning about income-producing assets makes FIRE possible for everyone. For these reasons, I encourage anyone looking to make a genuine financial change in their life to read up on these concepts to help improve their future prospects and potentially reach financial independence.
The following are guides that I have written which cover some of the key concepts outlined in this article. They can be a great starting point for anyone looking to get started on their FIRE journey.
If you’re tired of reading my guides or simply want another perspective, here is a list of other bloggers who are documenting their FIRE journey.