FIRE: Financial Independence Is The Ultimate Freedom

As I’ve mentioned in the “About me/Mission” pages of Engineered Journey, one of my interests is Finance, specifically the concept of FIRE. What is FIRE you ask? Although there is a million ways to achieve FIRE, the base tenants of FIRE remain the same across the movement. FIRE is an acronym for “Financial Independence/Retire Early”, which is a movement dedicated to the concept of higher savings, aggressive investing , and frugality early on in life in order to be able to retire before the age of 65, the conventional age. Most FIRE enthusiasts aim to be at least financially independent from any job by the age of 30-40 and be able to retire fully by 40-50. Financial independence is the ability to be free from any obligation to work a regular job and be able to survive purely off investment returns.

How does FIRE work?

FIRE usually requires you to save up to 70% of your earned income and invest aggressively. Once your investments + savings is between 25-30 times your yearly expense you are able to quit your day job. For example, if your yearly expenses add up to $50,000, then you will need somewhere between $1.25 – $1.50 Million to retire. This is a quick rule of thumb and more intricate math goes into this depending on market conditions (bull market vs bear market), inflation, cost of living increases, etc.

“To be successful, you must be willing to do the things today others won’t do in order to have the things tomorrow others won’t have” – Les Brown

Why do it? Why live frugally and save as much as possible? Everyone can live frugally and save for their future, but many choose the instant gratification of today over being patient for the long-term gain. The overarching theme of FIRE is freedom. Freedom from the 9-5 job that holds you down 40+ hours a week through your wallet. Freedom from the rat race which rewards you with 2-3 weeks of vacation per year for the next 40+ years. To me and many others, life is not meant to be structured like this. We are here for a good time and not a long time, so why not spend it with our loved ones, spend it creating art, or cultivating hobbies, or even adventure into your own entrepreneurial endeavors?

This is why I participate in this movement by saving and investing while lowering my spending.

What actionable steps do I take that I would recommend to other prospective FIRE starters?

I can go into further detail of each step it in future posts if you would like. However, to summarize for now below are the steps I take to achieve my FIRE goal:

1. I currently live at home. Housing is the biggest expense in the average American’s life (roughly 35% of total expenses). Many engineers my age chose to immediately move out once they got their first big boy/girl job. I live in an HCOL (high cost of living) area where rent for a 1 bedroom apartment is roughly $2,000. This rent adds up quickly to over $24,000 per year. I understand many don’t have this privilege. However, If you have to move out I suggest getting roommates to reduce the rent burden.
2. I have a strict budget for every category I spend on and I make sure I adhere to it. This way I make sure I don’t frivolously spend my hard earned dollar.
3. I maximize all tax-advantaged accounts through my employer (401k and HSA accounts). I also have my own Traditional IRA account to further leverage retirement investment accounts. These reduce my tax burden now while compounding savings via investment returns. I make sure my retirement accounts are invested into broad market index funds and not mutual funds with high fees. These funds are mostly Vanguard funds with extremely low fees. When it comes to retirement accounts, I highly advise all my friends and readers to stick to simple 3-fund portfolios as these reduce volatility and outpace any active fund manager returns over the long term.
4. After maximizing tax-advantaged accounts, I put whatever remaining money I have into a personal investment account where I buy single stocks in companies I believe in such as Apple, Palantir, Tesla or into funds that target specific sectors such as ARKK or ARKF. I only do this step because a majority of my investments are in safe index funds so I allow myself to take on higher risk for higher returns with a small portfolio value.
5. Rinse and repeat every pay period. These steps are simple but staying the course for days, months, years, and decades is difficult.

In short, reduce expenses, increase savings, invest the difference, and wait about 20-30 years. With this easy yet difficult to implement formula, you will be a current future millionaire thanks to FIRE.

How did I learn all this about the FIRE movement? My first exposure to this concept was due to Scott Trench’s book “Set For Life” which I have discussed on a previous post. I expanded into reading forums about this topic on websites such as Reddit (r/financialindependence or r/investing). I then read John Bogle’s “The Little Book of Common Sense Investing” which further increased my investing knowledge and my desire to achieve FIRE. This shortlist of books is just the tip of the FIRE movement. We can explore this further in future posts if you would like (leave a comment below!).

Why is Financial Independence the ultimate form of freedom?

Everyone gets the same 24 hours in the day. The average person sleeps 8 hours and works another 8 hours in a day, which leaves 8 hours for life. But who am I kidding? It never works out like this. How it really breaks down is 8 hours of sleep, 10 hours of work with a 2 hour commute (maybe even each way). This leaves you with just 4 hours for life. I don’t know about you, but this sounds awful. Humans aren’t living to work, but rather should be working to live. What I mean by this is that work shouldn’t be an all-consuming part of your life. It should be a small part which provides you a standard of living you are able to enjoy. Here is where financial independence comes in.

Money provides degrees of freedom between you and your job. The less money you have the more tied down you are to your job and vice versa. I understand FIRE comes from a privileged perspective because I do have a good job that is well compensated. Not everyone is in this situation, society isn’t structured in a way to incentivize you to work towards FIRE. It is structured in a way to keep you in indentured servitude to a job for as long as possible. I guess this post isn’t necessarily even about FIRE, but rather commentary about society as a whole. However, one of the ways I am fighting against this norm is through working towards Financial Independence and hoping one day to achieve true freedom in life.

FIRE allows you to break free from the cycle of living weekend to weekend and paycheck to paycheck and ultimately chip away at the accepted societal norm of grinding it out at a 9-5 for 40 years to gain the right to waste away in a retirement home the last 15 years of your life.

Things got a little too philosophical there at the end I must admit. Thank you for being here and reading this far. I know I keep a lot of things vague and more general because I don’t know what my readers want to see. Please comment on any post about things you would like to see me discuss in more detail. The blog is in it’s nescient years and there is a lot of ground to cover. I am hoping to go over as many topics in general as possible and once I do this I will start having much more detailed posts.

Sincerely,

– E J