The Ultimate Guide to the FIRE Movement

Retirement traditionally means working until your 60s or even later, then finally taking a break to enjoy your golden years. However, a growing number of self-directed investors are looking for alternative retirement strategies that promise more control and freedom over their financial future. Enter the FIRE movement—Financial Independence, Retire Early

In this article, we’re exploring:

• What is the FIRE movement?
• Calculating your FIRE number
• Building your FIRE portfolio
• Who is FIRE for?
• How Qtrade Direct Investing can help

What is the FIRE movement?

The FIRE movement is a lifestyle and financial strategy aimed at achieving financial independence and retiring significantly earlier than the conventional retirement age. FIRE enthusiasts advocate for aggressive saving and investing to reach a point where you can cover your living expenses through passive income alone.

Within the FIRE community, there are several subsets that cater to different financial goals and lifestyles. Understanding these different types can help you find a path that aligns with your objectives:

1. CoastFIRE

CoastFIRE focuses on accumulating enough savings and investments early in life so that you can 'coast' towards retirement without needing to save any extra money. The idea is to let your current investments grow over time, compounded by interest, until they reach a level where they can support your retirement.

2. BaristaFIRE

BaristaFIRE is for those who want financial independence but plan to continue working part-time or in lower-stress jobs. The term comes from the idea of working as a barista or another flexible job to cover minor expenses while your investments handle the bulk of your financial needs.

3. FatFIRE

FatFIRE is for individuals who aim to retire early but want to maintain their lifestyle. It requires a higher savings rate and investment portfolio to sustain a more luxurious and comfortable retirement.

4. LeanFIRE

LeanFIRE involves living a minimalist lifestyle both before and after achieving financial independence. By keeping living expenses low, you can retire earlier with a smaller nest egg.

Calculating Your FIRE Number

Your FIRE number is the amount of money you need to have invested to achieve financial independence. The most common way to calculate this number is by using the 4% rule, which suggests you can withdraw 4% of your investment portfolio annually without running out of money.

How to calculate your FIRE number:

1. Estimate your annual expenses: Calculate your annual living expenses. This should include housing, utilities, groceries, transportation, healthcare, and discretionary spending.
2. Apply the 4% Rule: Multiply your annual expenses by 25. This gives you the amount you need to have invested to withdraw 4% per year safely.

For example, if your annual expenses are $60,000, your FIRE number would be $60,000 x 25 = $1,500,000.

Building your investment portfolio

Achieving your FIRE number requires a well-diversified investment portfolio. This typically includes a mixture of stocks, bonds, real estate, and other assets that can generate passive income.

Stocks

Stocks are a popular choice for FIRE enthusiasts because of their potential for high returns. For a diversified yet balanced approach, consider investing in index funds or ETFs that track the performance of major stock market indices.

Bonds

Bonds offer more stability than stocks and can provide a steady income stream. A FIRE investment strategy commonly includes Canadian government bonds and high-quality corporate bonds to reduce risk and volatility.

Real Estate

Investing in real estate can provide additional passive income through rental properties. To maximize returns, it's essential to consider factors such as location, property management, and real estate market trends in Canada.

Other Assets

Other assets, such as REITs (Real Estate Investment Trusts), mutual funds, and even high-yield savings accounts, can also help diversify your portfolio. Including a broad range of asset classes can help mitigate risks and ensure a more resilient financial future.

Adjusting for Inflation

When planning for FIRE, adjusting your calculations for inflation is crucial. Prices for goods and services tend to rise over time, which means your money may buy less in the future than it does today. The average inflation rate in Canada has been around 2% per year over the past few decades. You can adjust your FIRE number by accounting for this expected increase.

For example, if you calculate that you need $1 million to retire today, you might need more if you plan to retire in the future.

Who can benefit from the FIRE movement?

The FIRE movement can be particularly beneficial for:

• Entrepreneurs: Owning a business can be unpredictable, but achieving financial independence can provide a safety net, allowing entrepreneurs to take risks.
• Freelancers and gig workers: These individuals often deal with irregular income. Achieving FIRE can offer financial stability and reduce stress.
• High-earners: People with high salaries can save aggressively to help reach financial independence faster.
• Minimalists: Those who already practice minimalism may find LeanFIRE particularly appealing.
• Young professionals: Starting the FIRE journey early in your career allows you to maximize the benefits of compound interest. By saving and investing even a modest portion of your income from a young age, you may achieve financial independence much sooner than your peers.
• Families with children: Parents who follow the FIRE principles can instill good financial habits in their children. Moreover, achieving financial independence can offer more flexibility and freedom to spend quality time with family, travel, or support children's educational pursuits without financial strain.
• Adventurers and travel enthusiasts: Financial independence affords flexibility for those who wish to spend their lives traveling or exploring new experiences. Adventurers can focus on their passions with a secure financial base without worrying about a steady paycheck.
• People seeking career changes: For those wanting to switch careers, sometimes to more fulfilling but less lucrative paths, FIRE provides the financial freedom to make such transitions easier. Instead of remaining in unfulfilling jobs due to monetary concerns, those with financial independence can pursue their true callings.
• Early retirees: Many individuals simply wish to retire early and enjoy a multitude of leisure activities, from pursuing hobbies to engaging in community service. The FIRE movement may make it possible to exit the traditional workforce years or decades earlier than usual.
• Community builders: Some individuals are passionate about contributing to their communities or starting nonprofits. Financial independence enables them to devote time and resources to these passions without the need to earn a living wage from these ventures.
• Environmentalists: Individuals focused on sustainability and reducing their ecological footprint may find LeanFIRE appealing. By adopting a minimalist lifestyle, they can more effectively lower their consumption and conservation.

With so many different approaches to FIRE, it’s clear it's more than just a financial strategy; it's a way to align your finances with your life goals and values, creating a fulfilling and secure future.

How self-directed investing can help you achieve FIRE

Opening a self-direct investing account through Qtrade Direct Investing allows you to take control of your investment choices, allowing you to tailor your portfolio to meet your FIRE goals. Here are some benefits:

• Customization: Choose investments that align with your risk tolerance and financial objectives.
• Cost efficiency: Save on fees by managing your investments yourself. Qtrade offers low fees to buy and sell securities, and over 100 free ETFs.
• Flexibility: Adjust your investment strategy as your financial situation and market conditions change.
• Informed decisions: Leverage our research and insights tools to help you make investment choices you believe in.

The FIRE movement offers a compelling alternative to traditional retirement strategies, providing a roadmap for achieving financial independence and the freedom to retire early. By understanding the different subsets of FIRE, calculating your FIRE number, and building a well-diversified investment portfolio, you can take steps toward helping you achieve financial independence and enjoying an early retirement on your terms.

Ready to start your journey towards financial independence? Begin planning today and explore self-directed investing options to help you achieve your FIRE goals!