Why The FIRE Method Doesn't Work For Most People

Do you live in a commune? Plan on never having children? Like living in a van or tiny home?

Then the FI/RE movement (Financial Independence/Retire Early) may be great for you!

But if you're like 99% of other people that don't fit that demographic and you're chasing FIRE, you will probably find yourself disappointed with the math.

How Did FIRE Start?

The mother of the FIRE movement was a woman named Vicki Robin who wrote the book Your Money Or Your Life.

In the book, she brings up some great perspectives.

The 8 main points of the book can be summarized as follows:

1. Rethinking Money: The book encourages readers to reevaluate their attitudes toward money and to understand the true cost of work in terms of time and life energy.

2. Calculating the Real Hourly Wage: The concept of the "real hourly wage" is introduced, which takes into account all the time and energy spent on earning and managing money. This helps readers better understand the actual value of their work.

3. Tracking Spending: The importance of tracking every expense is emphasized. By keeping a detailed record of where money is going, individuals can gain insights into their spending habits and make informed decisions about their financial priorities.

4. Creating a Spending Plan: The book guides readers in creating a spending plan based on their values. It encourages people to allocate money to areas that bring them the most fulfillment and satisfaction.

5. Saving and Investing: "Your Money or Your Life" advocates for the importance of saving and investing in assets that generate passive income. The goal is to achieve financial independence, where your investments can cover your living expenses.

6. Reducing Debt: The book addresses the issue of debt and emphasizes the importance of paying it off as quickly as possible. It suggests strategies for getting out of debt and staying out of it.

7. Simplifying Life: Simplifying one's lifestyle is promoted as a means of reducing the need for excessive income. The book encourages readers to question consumer culture and find fulfillment in non-materialistic pursuits.

8. Achieving Financial Independence: The ultimate goal of the book is to help readers achieve financial independence, where they have enough passive income to cover their basic living expenses. This allows individuals to have greater control over their time and pursue activities that bring them joy and purpose.

All of these perspectives are solid, but when you dive into the details, some things just don't add up...or they add up too high.

For its time, the perspectives she shared really caused a lot of people to think.

But surprisingly, FIRE didn't really get popular until almost two decades later with the rise of remote work, Reddit and other social media platforms.

Why The Math Doesn't Math Well

The criticisms with FIRE usually come from those who tried it and burnt out. 

A lot of this has to do with the ever-changing, unachievable, gigantic number that most people need in order to live off the calculated 4% returns.

But there's more to it than that. Other reasons people quit FIRE is due to:

  1. Overemphasis on extreme frugality
  2. Assumptions of investment returns
  3. Rising healthcare costs
  4. Lack of contingency planning (emergencies)
  5. Not realistic
  6. Lack of work-life balance

Unfortunately, I'd have to agree with most of these and add one...

     7. Having children changes the number drastically

Kids are the greatest thing ever to ruin your life.

They ruin the one you had and then you get a new one that's even better.

But with FIRE, you have to calculate the cost of each kid x 18 years (minimum) and add that lump sum to your number vs dealing with it on an annual basis.

That makes your target move exponentially and tends to make it mathematically impossible for most people to achieve in a reasonable amount of time without living in a cardboard box.

This stat may be the most telling about FIRE: of the self-reported people who have achieved FIRE, 95% of them are single men.

What can I say...without women, I have no doubt men would ever bother with nice houses and probably still live in caves with cool cars, nice TVs and beds without headboards or decorative pillows.

So What Should You Do?

The basic tenants of FIRE are still good and I agree with most of them. 

But focusing on a life of leisure indefinitely at a young age has another problem.

Meaningful work.

Sure, if you're retired early, you can work at whatever you want.

But you can also do that now!

So instead of focusing on this crazy multi-million dollar number that you need to achieve in the next few years, I tell people to focus on increasing their net worth.

  • Get increases in your primary source of income through promotions or job switching
  • Increase your skill level and learn new skills to make your earning potential go up
  • Invest in your financial foundation (6-12 months expenses)
  • Buy assets and skip the liabilities as much as possible
  • Keep expenses the same for 5 years while doing this

If you do this, you'll see your net worth climb and new options will open up to you.

And it won't take saving $6 million dollars and eating ramen noodles for 10 years to do it.

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