Toward Financial Liberation - What is the FIRE Movement?

Toward Financial Liberation - What is the FIRE Movement?

I think it would surprise nobody to hear that I'm a left-libertarian. I believe there are a lot of things about our economy that are inherently oppressive and incredibly damaging to our freedom and autonomy. I am also a market libertarian, meaning that I don't believe in the abolishment of markets and I think that they have an incredibly important place in a pre- and post-libertarian society. This basically means that I have a lot of critiques of our market system, but I don't necessarily believe in throwing out the baby with the bathwater. There are some market activities, structures and approaches that I agree with.

I also believe in a form of gradualism in transitioning to a market-libertarian society. I think that we can transition cleanly into a post-liberation society without the turmoil, fighting and bloodshed that a lot of Twitter revolutionaries like to fantasize about. One of the methods of gradual liberation is the idea that we can just... drop out of the market entirely. This gradualist approach is what brought me to the FIRE movement, an economic movement and approach that I'd read about but am only now beginning to apply to my own life.

I'll be documenting my thoughts on the FIRE Movement, as well as my own journey toward financial liberation, on my channel HackingFIRE.

The FIRE Movement

The FIRE Movement is a social movement and economic philosophy all in one. FIRE stands for Financial Independence, Retire Early, which is an apt and succinct description of the goals of the movement, even if not entirely descriptive of the methodology.

There are several kinds of FIRE methodologies, but in general, they all follow a similar approach to obtaining financial independence: create a discrepancy between spending and income, invest or save the difference, increase the discrepancy through frugality, income investing or increasing cash flow, "retire" as early as possible.

Spending to Income Discrepancy

Depending on what specific FIRE methodology you follow (more on that later) there are various approaches here, but the main objective is to maximize the delta between your income and your spending. Traditional FIRE approaches usually do this by decreasing your monthly spending: renegotiating car payments, minimizing or eliminating debts that build up interest and in general living a frugal lifestyle as far below one's means as possible.

The purpose of this delta isn't just to see a number go up, however...

Invest the Difference

The key to all FIRE methodologies is utilizing free cash flow in investments to increase one's net worth, monthly income or both.

Now, this doesn't necessarily have to be traditional investing. This could be investing in one's education by purchasing classes that teach an income generating skill, paying off loans to decrease interest or putting cash in an interest-generating savings account. A fairly large part of mainstream FIRE methodology is in dividend investing, which is investing in stable companies that pay high dividends, or cash rewards to stock holders, in order to increase monthly income.

Positive feedback Loop

The rest is really about repetition: increasing investments, increasing monthly income, decreasing spending and overall increasing the Spending to Income Discrepancy as much as possible. This can come in the form of paying off debts to eliminate monthly payments, purchasing a car with better fuel efficiency, purchasing a revenue generating company or starting a side gig. What matters here is creating a positive feedback loop that leads to exponential growth, so that you eventually can...

"Retire" as Early as Possible

The latter half of FIRE is the ultimate goal: "retire" as early as possible. The FIRE Movement is all about destroying the idea that you have to work until you're half-dead to make a solid living. Retirement doesn't have to wait to 65. The goal here is to build up passive and fairly inactive income streams to the point that you can either retire or work as little as humanly possible. By now, you should have a fairly large amount of financial independence. You could choose to stop working for a bit if you wanted to.

For me, though, it's less about actually retiring, and more about choosing the work that I do based on what I really want to do, instead of needing to base it upon what keeps my family fed. I'm more focused on the general idea of Financial Independence than I am the specific goal of Retire Early. Breaking the shackles that tie us to our work is a valuable action in and of itself, and if enough people really get behind this, the liberatory effects it could have on society could be substantial.