What the FIRE Movement Gets Wrong about Money, Time and Happiness
What the FIRE Movement Gets Wrong about Money, Time and Happiness
Here's a common sense alternative to endless penny-pinching
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I thought I needed to be “Financially Independent” by 35, but what I really needed was to go to therapy.
That pretty well sums up my experience with Financial Independence, Retire Early (FIRE) movement. For those unfamiliar, here’s my one-sentence description of what the FIRE bloggers preach: “Spend as little money as humanly possible today, invest the rest and wait until you have 25 times your cost of living saved up, at which point you are “financially independent” and can choose to retire early.”
FIRE is a seductive proposition for two groups of people.
Those who hate their job and see no viable path to happiness while working.
People who have suffered financial trauma and seek Financial Independence to feel safe.
I was very firmly in the second group when I stumbled across the FIRE movement, I had unresolved financial trauma, and rather than dealing with those issues, I decided to work multiple side hustles on top of a full-time job, deny myself of spending money on anything deemed non-essential and become a super-saver.
The Reality of FIRE
Two rules of thumb hold up the “math” of the FIRE movement.
The 25 times rule: Once you save 25 times your income, you are said to be financially independent.
The 4% rule: The maximum amount you can withdraw from a portfolio to cover your living expense for 30 years is 4% of the balance adjusted for inflation.
Here’s how that would work if your annual living expenses were $40,000.
According to the 25 times rule, you would need to save $1 million to achieve FIRE.
Using the 4% rule, you could withdraw up to $40,000 in your first year of retirement.
In year two of retirement, you would withdraw $40,000 + the rate of inflation.
If inflation was 2%, you could withdraw $40,800 from your retirement savings in your second year of retirement.
You continue increasing your annual withdrawal by the rate of inflation.
First, we need to acknowledge that the 4% rule and 25-times rules are rules of thumb and are too flawed to be used in real life.
Second, and this is the critical piece; designing your whole life around saving $1 million as soon as humanly possible is kind of insane. I know that’s rich from a guy who runs a website called “Making of a Millionaire.” But, notice I didn’t name it “Become a millionaire or die trying,”— which is how it feels when you're in year five of hyper-frugality.
I spent 8 years in hyperfugality, where I prided myself on not spending money—even on things that would have made me happier. I did get what I wanted, which was financial security, and a seven-figure net worth. But once I hit that goal through years of penny-pinching and hustling—all I wanted was to take a long nap.
Buying back time does not require you to save 25 times your living expenses
COVID-19 put my pursuit of FIRE into hyperdrive.
In 2020-2021 I was stuck inside. Since my day job and side hustle only require an internet connection, I could continue working. In fact, I worked more than I ever had in my life because I never left the house. Not leaving the house also meant I wasn’t spending any money on anything non-essential.
Increased income + barebone spending allowed me to save 70%-80% of my income and ride a wave in the stock and real estate markets to millionaire status.
It also left me in a perpetual state of burnout.
Despite having so quickly increased my net worth, the idea of “retiring” and living off my wealth as a new dad in my early 30s was so absurd I never entertained the idea as a realistic option.
This was when I decided to chuck the FIRE movement into the trash bin.
The FIRE movement promises that once you save enough money, you can use money to buy back your time. The reality is that by putting your life on hold during your years or decades of super saving, you are really just trading in your prime years in your 20s and 30s to have more time in your 40s and 50s.
The kernel of truth in the FIRE movement is that trading money for time can be a fantastic trade-off that can lead to an amazing life. They just never thought through the best way to actually do that.
What the FIRE movement misses is that trading in “time for money” is not an all-or-nothing proposition. You don’t need to retire early; what you need is to start making strategic trade-offs between time and money that don’t require you to save 25 times your living expenses.
“Would I be happier if I retired at 35 or if I had less stress and more fun while working?”
The irony of the FIRE movement is that most influential people in the movement aren’t retired; they do work they enjoy on a timeframe they control. Once I realized that I created came up with The Financial Freedom Equation.
Financial Freedom = income from work you love + investment income > living expenses.
Achieving that definition of “freedom” is much faster and more enjoyable than the path to early retirement. I wrote an entire book about it here.
The Financial Freedom Equation is for the first group of people who only seek early retirement because they dislike their current job.
While the Financial Freedom Equation is a good start to managing your time to maximize happiness, there are even more ways you can trade money for time that I did not cover in the book, but I will briefly touch on now—think of this as the epilogue of The Financial Freedom Equation.
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