FIRE stands for Financial Independence/Retire Early. It’s a term that was coined in the United States by personal finance bloggers who started to blog about their journeys of achieving financial independence with the aim of escaping the rat race and retiring earlier than the standard 60-65 age bracket.
Obviously this is a hugely attractive proposition for pretty much any person around the world, so the concept and the FIRE bloggers themselves have become immensely popular.
I’d like to share my thoughts on the concept itself and the FIRE community, as there are some things I like and others I don’t like so much.
The most positive aspect of the FIRE concept and the blogger community is that it serves as an inspiration to normal people who can see others go through their journey and learn from their wins and mistakes.
It can thus be the beacon that shows that the rat race is not the only option, whatever your current financial situation and educational/class background.
These blogs can also offer practical advice on how one can go about thinking in a different way and start saving and investing. Unfortunately, most educational systems in the world do not prepare kids for adult life by providing them with a solid framework of how money works and how to generate personal wealth. In my opinion, this is one of the biggest downfalls of our current educational system.
Here’s how things eventually play out for these kids.
If you live in a society like the USA, you might end up going in the direction of one or two extremes.
The USA is a very strong capitalist society where consumerism reigns; there is an “American dream” mentality where everyone believes they can make it big. This is a positive thing, and if you end up having some good mentors or somehow inspire yourself from successful entrepreneurs, you can become hugely wealthy.
On the other hand, because it is such a consumerist society where people are constantly encouraged to buy more stuff, you can very easily go to the other extreme and spend more money than you earn on a monthly basis, driving yourself and your family deeper and deeper into debt.
In Europe, on the other hand, I don’t see these two stark extremes. It is much more likely that young adults will join the rat race and make a good living if they work hard and smart. Living beyond your means is not as common in Europe, so we don’t see extreme poverty but neither do we see the extreme riches because we are not accustomed to thinking as audaciously as our American counterparts.
I think it’s important to make this distinction between Europe and the United States before I continue.
This is because one of my biggest criticisms of the FIRE movement is that it focuses too much on saving. I would concede that this makes sense in the United States where mismanagement of personal finance and living beyond one’s means is rampant, but it is a mistake for European FIRE bloggers and seekers to adopt the same mentality.
In my opinion, the focus to achieve FIRE in Europe is to concentrate on thinking more like an entrepreneur and focus on generating more money for your family. Most people have a good grasp on their saving habits, and yes, you can learn how to keep a budget and other basic personal finance skills, but it shouldn’t be your main focus if you want to FIRE.
I see so many blogs advocating extreme frugality, like saving on your daily coffee habit, cutting your hair/beard yourself instead of going to the barber, etc etc. In my opinion, this is quite silly and does not lead to serious long-term wealth.
Let’s keep in mind that by reducing our spending we are also shrinking the economy, and your local coffee barista and barber are also trying to make some money and perhaps achieve FIRE themselves. The solution is not to turn off those small taps, but to be creative and industrious and create businesses that contribute to grow the economy and thus your personal wealth.
The second and related aspect I don’t like is that of generating a big sum of money that one can then live off for the rest of their lives. So many FIRE bloggers focus on working their ass off until say they are 45, while living an extremely frugal life, so that at that age they have a good sum saved and can then retire and live off that money by investing it in passive investments like index funds and real estate.
The big downside? In my opinion, they are losing out on the best years of their lives and possibly compromising their health, relationships and education by focusing on saving obsessively and working long hours in this period.
The alternative? I’ll discuss that in the next section.
My approach to FIRE
I never had a specific moment where I decided to FIRE. Rather, I had always adopted a freedom-focused mentality in life that naturally leads to financial freedom. My dad spent his whole career as an accountant working long hours and climbing up the corporate ladder. He made decent money but never owned any income-producing assets, so ultimately he just traded more and more of his time and energy for more money.
The result was that he had almost no time for his family and his many interests.
As a teenager, seeing the very restricted amount of quality time with him, I vowed that I wouldn’t follow the same path and that there had to be a better way of living. At the same time, the internet revolution was taking place and I was devouring early blogs and books from the US about building websites and online businesses, and I quickly figured that that would be my ticket to freedom.
I defined freedom as primarily a concept related to time. I wanted to be free to work at the times I wanted to and ideally as much as I wanted to, so I would be able to spend as much time on my passions and family as possible. In order to achieve this time freedom, I would need to generate good income streams that did not depend on me actively trading my hours for money.
The solution was to build an online business, which is exactly what I did. My thoughts were that if I built online products that would have a worldwide market and could be sold 24/7, then I would eventually be able to build a business machine that would work without me being present.
Fast forward several years, that dream was achieved, and that brings me to my alternative thinking about the saving + lump sum generation favored by many FIRE bloggers.
My idea is that it is better to build a machine or system that can generate a nice sum every month which allows you to live a comfortable life plus have some money left over to invest. If you manage to build that and be diligent for a decade, you should be in a very nice position where you will be able to work whenever you want and focus on your passions. You will have a good amount of extra money that you can invest and obtain good returns on, but it is key that your most important major income stream is a real business.
In this way, you can invest with limited pressure. This has the potential to help you invest in a much better way than you would otherwise do. In my experience, investing is all about learning as much as you can about a certain topic, and then managing your emotions as you go through the market’s rollercoaster ride. If the fear of loss or the pressure to make money is present, it can make you buy or sell at the wrong times. On the other hand, if your living expenses are covered by your regular business, you don’t have this pressure and can keep a zen-like investment focus.
With this framework, if you start building in your twenties, by the time you’re in your thirties you can be in a very nice position in life, but more importantly, you would have enjoyed the journey all along the way. This is not only my story; countless others have gone down the same route and ended up in similar positions, so I know it’s a repeatable system.
FIRE Bloggers in Europe
The FIRE concept has been established in the United States for a very long time, and there are some very successful bloggers there who make millions from their blogs. Europe is heating up as well and there are now many bloggers writing in several languages about their FIRE experiences. You will find many of these bloggers and their latest articles on Euro Finance Blogs, which is an aggregator of European finance blogs.
Perhaps the first big FIRE blog income earner and famous FIRE blogger in Europe was Jørgen Wolf, who started off his journey as an employee in Denmark and later moved to Portugal after leaving his job and achieving FIRE.
I had him join me on an episode of my podcast Mastermind.fm, and recommend that you check this episode out if you’re interested in financial freedom, retiring early or investing in P2P platforms.
In our chat, we talk about the FIRE movement and differences between the European movement and the US movement, how he evaluates P2P platforms, living in Denmark, how to raise a financially intelligent kid, real estate investments and much more.
At the time of our conversation, Jørgen was averaging more than 10% returns per year on his investments, with his favorite platform being Mintos, so it’s well worth listening to his approach.
Over to You
What do you think of my thoughts on FIRE? Let me know in the comments section below.