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The FIRE (Financial Independence, Retire Early) approach to saving and investing is catching on. Find out if living frugally now for a future of financial freedom is all it’s cracked up to be.

What is FIRE all about?

In a country with a tragic history of bushfires, you’d expect a website called Aussie Fire Bug to be banned immediately. But the FIRE this bug is blogging about stands for Financial Independence Retire Early and it’s a movement that’s starting to ‘catch on’ here in Australia. Popular US based bloggers Financial Samurai and Mr. Money Mustache have been preaching about their own FIRE practices for some years. The original spark for the whole phenomenon, Vicki Robin, started her own FIRE campaign back in 1992 with her book Your Money or Your Life.

So what is all the fuss about FIRE?  The name summarises the results you’re aiming for quite neatly. But it doesn’t tell you about the financial habits and lifestyle you can expect to adopt if you want to stop relying on a salary for your income and enjoy early ‘retirement’ instead. And when we say early, we don’t mean 59 instead of 65. Some FIRE devotees plan to become financially independent, living off their investment income, by the tender age of 40 or younger.

How you get to this point is very simple. You spend less than you earn and then invest that surplus. Low-cost investing is preferred by FIRE practitioners so that more of your savings are exposed to compounding returns over time. And when you’ve reached a point where your investment income matches, or even exceeds, what you can afford to live on, you’ve reached that point where you don’t need a job anymore. ChooseFI podcast co-host Jonathan Mendonsa reckons there’s a formula for your FIRE target based on annual living expenses. Once your total net worth (assets minus liabilities) is 25 times what you spend in a year, you’ve made it in the FIRE game.

How a FIRE mindset can help

“Earn more. Spend less. Enjoy the journey.” This tagline for Mendonsa’s podcast delivers a positive and enticing message for everyone who feels stuck in a rut in life, particularly when it comes to money. With household debt on the rise in Australia, finding a way to get spending under control is something many could benefit from. So if you can adopt the FIRE approach and make smarter budget choices as a result, it could well lead to less financial stress and a greater sense of control over your money and your future.

In the FIRE context, earning more doesn’t mean asking for a pay rise or starting a side hustle. At heart, FIRE demands that you limit your spending on possessions and experiences so you can prioritise ‘spending’ money on income-earning assets instead. Essentially, you’re putting investing before consuming. And if you already have the discipline to live with less, you’ll only need a modest income from your investments to make ends meet.

The ‘enjoy the journey’ part comes from the freedom you have to make lifestyle choices on your own terms. When earning money from a job isn’t in the equation, how you want to spend your time is a more open-ended question.