Ultimate guide to FIRE: Financial Independence, Retire Early

Hey y’all.

Let’s talk about FIRE.

No, not the exothermic process of combustion.

And not the Fyre Festival, certainly.

(About the fiery ache in your loins, dear reader, when you dream at night of your favorite expat blogger? Perhaps in another article…)

No, today we’re talking about the “FIRE” movement – the one that’s an acronym for Financial Independence, Retire Early.

I’m not sure where I first heard of FIRE.

But I think it was from Mr Money Mustache, a very popular blogger who retired in his 30s and now spends his time biking around Longmont, Colorado.

What is FIRE?

Well, the full name sort of explains it: financial independence, retire early.

The idea being that by increasing income and decreasing expenses, one can invest a significant amount every month and be free of the need to work much earlier than age 65.

Free, in other words, to live life on your own terms.

I still remember the first moment I truly contemplated what the adults where I grew up called, and I quote, “life”.

I was about 12, and…

It went something like this

Here’s the plan, kid: study hard in middle school and high school, and stay out of trouble so you can get into a good college.

Then study even harder and stay out of trouble in college, so you can get a good job.

That’s when “real life” starts. And it sucks. We all admit it.

But now that you’re here, you’ve gotta do that shitty job for 40 years, even though you hate it, because you need the money to maintain the lifestyle (mortgage, car payments, trips to Safeway, occasional one-week vacations) that you also hate.

Don’t bother having your own personality at any time… having a personality is frowned upon in the “world of work”.

Also, don’t hold any unpopular opinions.

Because out in the world of work, your position is very fragile: at any moment and for any reason, you can be fired, excluded from polite society and spend the rest of your days living in a van down by the river.

And listen… flawed though this system may be, it truly is the only acceptable thing to do.

There are no other options.

So keep your head down. Work at your shitty job. Don’t do anything fun or interesting. And in about 40 years you can retire, and enjoy the twilight of your joyless, grey, saggy-boobed-or-moobed life in Florida.

But wait, I thought…

Is that really all we can hope for in life?

Obviously not.

Although I didn’t know it at the time. I actually believed those buttholes when they told me not to dream of anything better.

The strongest social pressure in our lives is the pressure to be mediocre, and back home I was getting the full masterclass in mediocrity, day by day, for years on end.

Maybe parents and teachers still young people things like that, or maybe we’ve moved on. (Or maybe, the adults I grew up with just sucked.)

But I was depressed for years contemplating this life path I’d (apparently) been born into.

And after a while I started planning my escape.

I tried being a freegan, I contemplated getting rid of capitalism through holding signs at protests, I moved to Spain, I worked shitty jobs on both sides of the Atlantic. I became a minimalist way before it was cool.

(Lookin’ at you, Marie Kondo.)

I did a lot of non-standard things in my quest to escape from standard miserable lifestyles.

In any case, at the time of this writing, I’m 37 years old, and it struck me recently that I’ve never actually had a full-time job.

I’ve worked more than full-time hours, sure. And I’ve had multiple jobs at the same time. But when you’re working for yourself, it feels different.

I’ve also never worked in an office, I’ve barely had a hands-on boss, and “meetings” are something I only read about on Business Insider.

These days, I’m fairly close to financial independence.

At the very least, I’m living the Four Hour Work Week. I’ve got an online business that I’ve designed for minimum effort, and I spend most of my time wandering around Barcelona, reading a book or chilling at the beach.

True story: a couple of weeks ago I had a meeting with my lawyer at 9AM.

Walking down one of the better streets in Barcelona, and unaccustomed to being out so early, I was puzzled by all the well-dressed people striding around purposefully at 8:55.

Who were these people? What were they doing out, and dressed like that, before 9 AM?

Then, it occurred to me: they’re “going to work”.

Ha! What a concept!

All this brings us back fo FIRE.

Those who have read this blog before (or who just got through that long introduction) know that I’m not a big fan of doing things the “normal” way. So when I first heard of retiring in one’s 30s, my ears perked up.

Total financial independence? Never having to work again?

Yes please!

So what’s this FIRE thing about?

Read on to find out.

But first…

What does financial independence mean, anyway?

I once had a conversation with a woman who’d recently started a business. A coaching business, if I remember correctly.

She told me her (wildly optimistic) 10-year plan, which involved scaling up to become some huge multinational concern, investing profits, selling out to an even bigger company, and setting herself up so that her passive income from investments would be $10 million a year.

At which point she would retire at the beach to drink piña coladas and (finally) relax.

I have to admit, I was a bit puzzled by this plan.

I pointed out that if all she wanted to do was go to the beach, she didn’t need $10 million. That in fact, the world is full of people who live in beach towns on much much less.

My idea was: rent a house in Málaga for $800, buy a towel, and just go to the goddamn beach!

But she wasn’t hearing me. She really needed millions of dollars before she could even contemplate going to the beach. I guess in this (purely hypothetical) situation she just wouldn’t feel safe unless she had a ton of money coming in.

Just goes to show you that different people have different ideas of what “financial independence” means.

Mine involves having a level of passive income which covers my living expenses, so I don’t have to do work I don’t want to do.

I already live at the beach, and have a lifestyle that doesn’t cost a huge amount of money. So for me, financial independence seems achievable.

But some people’s dreams are bigger, and some people’s are smaller. If you need a billion dollars just to feel good about yourself, then good luck.

On the other hand, if you really just want to live in a camper van and go hiking every day, you can do that on very little money. I have some friends who’ve designed their life to do just that, and it’s awesome… because they’re actually out there living their dream, rather than accepting a lifestyle that’s been handed to them.

And the larger point is, by living below your means (what a shocking concept) you can improve your life right now, even if you don’t plan on retiring.

The psychological difference between living paycheck to paycheck and having 6 months of living expenses saved is huge. I’ve done both, and I know.

So what is financial independence?

It depends…

Mr Money Mustache gives this (somewhat new-agey) definition in his article responding to some criticisms of FIRE. For him, financial independence is:

“Complete freedom to be the best, most powerful, energetic, happiest and most generous version of You that you can possibly be.

I don’t love that definition. But hey, it’s his movement (mostly). So let’s go with it, and move on…

Different ways of doing FIRE – join the movement!

In any case, there are lots of ways to achieve Financial Independence.

The very same Mr Money Mustache proposes a radical plan for achieving financial independence: invest 50% of your yearly earnings in index funds, and when you’ve reached a certain net worth, just walk away.

Simple enough, on paper. But to get to a 50% savings rate, you probably need to cut a lot of costs. Go everywhere by bike, cook at home, and learn to fix your own plumbing when something breaks.

Mr Money Mustache loves doing all these things, and he has a horde of followers (the noble Mustachians) who aspire to the same lifestyle.

But, obviously, that’s not for everyone.

My case is different, and (perhaps) so is yours.

Good thing there are different ways of doing FIRE. Let’s take a look…

Achieving FIRE with index funds (or stocks)

Most proponents of the FIRE movement talk about achieving financial independence by buying index funds.

The basic plan here is pretty simple:

1. Select a Vanguard index fund (or two or three) with close to zero fees.
2. Put money into it every time you get paid.
3. Repeat until “rich”.

From there, you can make it more complicated if you’d like. You can try picking stocks, for example. But be sure to do your research first.

Whatever you do, stay away from fees. Paying fees to a financial advisor (or even transaction fees on your trades) is one of the easiest ways to knock a few percent off your capital gains.

And while the difference between earning 6% and earning 8% might not seem huge next year, due to compounding, it will definitely seem huge in a decade or two.

In any case, make sure you know what you’re getting into. This goes for any investment: if you can’t explain it in a sentence or two to a friend, YOU SHOULDN’T PUT YOUR MONEY IN IT.

(I secretly suspect that at least 80% of the people who say things like “Oh no! The stock market is down!” have no idea what the stock market even is. So again: If you can’t explain it simply, to a friend, don’t buy it. Do your research first.)

Anyway, how do you decide when you’re rich?

Generally, you have a walk-away number. Once you reach a certain amount in your investment accounts, you’re done.

You can calculate what this number looks like using the 4% rule: basically, if you’re spending 4% or less of your balance every year, it should last indefinitely. That’s taking into account US stock market conditions over the last 100 years: a 4% withdrawal per year will keep your principal safe under any economic conditions.

In other words, calculate your yearly spending, multiply it by 25, and that’s your walk-away number. (More details here: how much do I need for retirement?)

Start saving now… Every 10 bucks you save is a brick in your financial independence palace.

However, in the meantime, you need to be careful with lifestyle creep. More on that later.

While you wait, you can also…

Become Independently Wealthy through Real Estate Investment

I’m sure there are others doing this, but my go-to guru for real estate financial independence is Paula Pant of Afford Anything.

Her tagline, by the way, is great: “You can afford anything, but you can’t afford everything.”

She’s also into frugality: living with roommates even though she’s (I assume) hella rich, eating sandwiches in an AirBnB when she travels – even though she could probably afford to stay in 4-star hotels.

In any case, her model is about buying, improving and renting real estate.

You know how real estate is the best investment? It’s one of those persistent cultural myths I wrote about it in my article on stupid fucking advice.

And in that article, I also wrote about Paula Pant and how to do the actual math: can you make money renting this place? If so, then go ahead.

Just like most people who talk about the stock market have no idea what it is, most people who claim that real estate is the best investment have never looked at a chart or an equation about whether it’s better to rent or buy.

If you do a long weekend’s worth of research, you’ll already be way ahead of those people.

Anyway, owning rental properties will certainly bring in money every month. If you want to be hands-off about it, you can hire an apartment manager so you don’t have to deal with tenants (and repairs, etc) yourself.

It sounds good, and it definitely works for some…

But it seems a bit too complex, bureaucratic and labor-intensive for my purposes. (I have enough contact with Spanish lawyers as it is, and I’d rather not spend my days remodelling kitchens in rental units.)

That’s why I focus on…

Earning financial independence through royalties

I haven’t found many people talking about this one, but it’s the one I’m doing – at least partly.

From what I’ve seen, most of the FIRE bloggers are people working pretty good corporate jobs (of the “keep your head down and hope not to be fired” variety).

And their fastest route to escaping the system is through investing a substantial portion of their (generally high) salaries in income-earning assets.

That was not my case.

I still get a good giggle out of those ads that pop up on social media. “I was earning six figures in my corporate job, but felt vaguely unsatisfied. Then I discovered dropshipping!”

Yeah. I feel your pain, bruh. Your six-figure pain.

Here, at the start of my journey towards financial independence, I was earning something in the (very) low five figures as an “illegal” immigrant in a country that was in the middle of an economic crisis 8 times worse than what they had in the US.

So “investing half of my six figure corporate salary” wasn’t really on the table as an option.

Royalties were. I wrote ebooks. I published them on Amazon. I earned (and still earn) real money every month from the first book I wrote, back in 2011. And other books I’ve written since have been even more successful.

And of course, royalties aren’t just for authors.

There have to be thousands of actors out there who are still cashing checks from some TV show they recorded in the 80s, Bojack Horseman style.

And they’re definitely not blogging about it, but every time Angie plays on the radio in South Korea, the Rolling Stones make money.

Royalties are a brilliant example of the concept of leverage: work once, get paid for years.

That’s an idea I can excited about. Because the fact is, I never had a boss call me up and say “You remember that one Wednesday you stayed late, seven years ago? Well, here’s some more money for that.”

However, if you’re able to inject some royalty-generating work into your side hustle, you can potentially earn money off it for a long time.

So get to work.

Now, let’s look at some…

Typical criticisms of the FIRE movement

I guess the first criticism most people would have is that if you’re not earning a lot of money, you can’t do it.

And even I will admit that financial independence sounds a whole lot more achievable if you’re already earning $120,000 a year at your cushy corporate job.

But that’s missing the point…

The point is: you start by living below your means and saving a percentage of the income you have now.

Ideally, you’ll increase your income over time. But the fact is, if you’re not spending much now, and you save 10 or 20 or 30 per cent, that’s still a significant sum of money for you.

If you continue saving the same percentage of your income for a while, you’ll eventually have several months to a year of living expenses saved, which is more financial independence than most people ever get.

(The number of people in the US who are one unexpected expense away from losing the house is terrifying to think about.)

Anyway, I started investing at the bottom of the economic crisis, when I was earning about $1200 a month. I also had pretty limited expenses, living in Madrid. And I managed to put away between 10 and 30 percent for several consecutive years.

If I can do it, almost anybody can do it.

Also, a criticism I saw on Twitter not long ago (and I’m really, really paraphrasing) was this…

The stock market’s been going up for 10 straight years. Let’s see what all these FIRE bloggers do the first time they see their portfolios go down.

I don’t have a great answer for that one. But hopefully, when that time comes, I’ll be ready to buy more stocks.

Because the general trend of the stock market (in the long term) is up, up, up.

You just have to wait, sometimes.

Update, 2023: Looks like the long upward trend in the stock market ended at the beginning of 2022… at least temporarily. I’m still holding all my stocks. What about you?

A final criticism is something like, “Well, when the zombie apocalypse comes, your index funds aren’t going to be worth anything anyway… so really FIRE is a waste of time.”

To which I respond: In the unlikely event that zombies take over, we’ll all have bigger worries than the fact that our index funds have lost value. Have fun hoarding shotgun shells, though.

Anyway, here’s…

My beef with the FIRE movement

I really like most things about FIRE.

But one thing I can’t stand is the whole focus on frugality that some bloggers are advocating.

All the stuff about “Make your own soap and save 70 cents a month”, or whatever.

My personal opinion: start a side hustle.

If you’ve got time to make soap, split 2-ply toilet paper into 1-ply, and patch your socks to get a few more months’ wear out of them, then guess what…

You’ve also got time to figure out a side hustle which will pay you much more.

A lot of people are convinced that (because the world is unfair or something) they’ve already reached their maximum earning potential – and they feel a bit insulted by the idea of “just earn more money”.

But let’s do a thought experiment.

Think about it…

• Are you 100% certain that you’ve maxed out every possible avenue of generating income?
• Is there anyone with similar skills to your own who’s earning 10 or 20 percent more per month than you are? What’s stopping you from being that person?
• If you had a gun to your head and had to figure out how to make an extra couple hundred bucks by the end of the month (legally, and – I hope – without prostituting yourself) could you do it?

My guess is that most people realize that earning more money would require them to get out of their comfort zones, perhaps enter into face-to-face negotiation or selling situations…

And they panic.

And I get it. The comfort zone is a nice place to be. But if your comfort zone is waking up at 5 in the morning to make your own bread (saving 40 cents in the process), you gotta think about what’s going to happen when you’re 78 years old and have arthritis in every one of your limbs.

Are you going to jump out of bed with the same sourdough-making enthusiasm you do now?

Or are you going to secretly be kicking yourself for not just earning and investing more money while you could?

In any case, I’m sort of a hypocrite when it comes to frugality. Guess I should tell you about…

My minimalist lifestyle in Spain

Here’s the thing, though…

I’ve gotta admit this: apart from not going into huge debt for college, and apart from starting my own online business, my best financial decision is just living in Spain.

My lifestyle here in Barcelona has certain minimalist aspects, which help me save money by default.

I don’t own a car, and get to most of where I need to go on foot. I can take public transport for less than two bucks… and if I need to, I can take a taxi almost anywhere in the city for 10 or 12.

(I’ve done the math, actually, and even taking a taxi twice a day would be a lot cheaper than owning a car and paying for insurance, parking, maintenance, etc. But I suppose that depends a bit on the prices where you live, and the size of your city.)

Spanish food is pretty unpretentious, and I can eat good food and drink good wine without breaking the bank – especially if I’m cooking at home.

I do spend a lot of money in restaurants, but I figure “time is money” and that way I save a lot on shopping, cooking and cleanup.

Also, my healthcare costs are basically zero. I mean, I have the government health plan (which I pay taxes for) and a private insurance policy which costs – get this – 12 euros a month.

(Life hack: move to Europe and your healthcare costs will go way down.)

In any case, as many people point out, free healthcare isn’t actually free.

But you’re going to be paying taxes as a part of (almost) any lifestyle you choose. So you might as well get healthcare as part of the bargain.

One more thing: I’m not sure if this is a me thing, or an expat thing, or what…

But I don’t seem to be a part of any social circle where people are playing the typical status games: look at my car, check out my new Armani shirt… whatever the fuck people do.

So I suspect I spend less money just because nobody I know is particularly interested in conspicuous consumption.

But like I said, maybe that’s just me and my friends.

Your mileage may vary.

(And also, Spanish salaries are generally low. So if I did have college loan debt from the US, or a regular job rather than my online business, I’d be in a much worse situation. In any case, moving to a place with a lower cost of living could make your life a lot better.)

Finally, let’s talk about…

The financial dangers of lifestyle creep

It’s real, man.

In another article, I talked about it as the hedonic treadmill.

You reach one level of wealth, status or accomplishment, and immediately start thinking: I wonder what’s going on up there at the NEXT level.

It’s super easy to let lifestyle creep make you broke at any level of income.

(And if you think the “rich” are any further from losing their houses than you are, you’re wrong. People earn a million bucks a year and still manage to be financially insecure. Google it.)

So you’ve got to be careful: don’t let your lifestyle expectations grow every time you start earning more money.

I’m only half-good at this.

I’ve let myself get carried away when I travel, and also here in Barcelona: I go to restaurants and don’t look at prices on the menu, I don’t really do a ton of price comparison when I shop, and I sometimes go out for 10 euro cocktails.

It’s hard to resist throwing a bit of money around when you’ve got a bit of money.

But generally, you should resist the temptation.

I wish I was more Mustachian, and happy to eat a homemade sandwich out of my backpack after a long bike ride – a total non-consumerist day.

And technically, sometimes I am.

Sometimes I have lentils for dinner, and think: this is just as good as anything I could pay 30€ for at a fine restaurant.

Other days, though, I just go to the fine restaurant.

So be careful.

A final note on “Living your rich life”

I can’t finish this up without talking about my dogg Ramit’s take on all this.

Ramit Sethi, a blogger, CEO and sweater enthusiast who lives in New York has a different approach to financial independence.

He calls it “Living your rich life”.

And basically, it means you should have your cash cushion (six months of expenses in the bank, I believe) and be investing 10% a month in index funds. After that, you can spend the rest, guilt-free.

He explains it, more or less, as “spending extravagantly on things you love, and ruthlessly cutting expenses on the things you don’t”.

Honestly, I find Ramit’s approach to be more realistic than FIRE for a lot of people.

More than frugality, he actually focuses on increasing your income, whether that means negotiating a sizeable raise (his website will teach you how) or starting an online business.

‘Cause let’s face it: we all have a couple of things we love spending money on. Mine are food and travel. Ramit’s are convenience and sweaters.

Yours could be anything: sneakers, manicures, limited-edition Japanese whisky, you name it. Maybe you have an expensive hobby like photography or scuba diving, and you like to get good equipment.

I suspect Mr Money Mustache would discourage people from taking up scuba diving at all, explaining that for the $900 you spend on a top-of-the-line wet suit, you could buy a 4-ton bulk barrel of rolled oats and feed your family for generations.

Ramit would say it’s all fair game, though. Cancel your cable bill, pay off your credit cards, and then go nuts on the wet suits, playa.

In any case, Ramit isn’t actually suggesting early retirement and living off the dividends. It’s not the same financial independence the others are talking about.

But let’s face it: having no credit card debt, an investment account and a cash cushion is a MUCH better financial position than most people are in.

Different strokes for different folks, I guess…

Anyway, you should read Ramit’s book, I Will Teach You to Be Rich. It’s definitely worth it – especially if you’re stuck with a lot of credit card debt or haven’t yet started investing.

Parting advice: be your own guru

I guess this article is a bit “all over the place”.

At the beginning I’m doing the Four-Hour Work Week, then I’m talking about frugality, and then I’m saying I prefer “living my rich life”.

But that’s natural, I think, because here’s the thing…

I’m not Tim Ferriss. I’m not Mr Money Mustache. And I’m not Ramit Sethi.

(For one thing, they’re all WAY richer than me.)

But the point is, we all have our own ideal lifestyle.

So my parting advice to you, today, is to be your own lifestyle guru. Read a bit from everywhere, see what resonates with you. Do what seems most exciting for you, according to your circumstances.

And don’t forget to have fun!

Anyway, I hope this Ultimate Guide to the Financial Independence and Early Retirement has been useful for you.

If you have any comments, I’d love to hear ’em.

Gratefully yours,

Mr Chorizo (AKA Mr Daniel).

P.S. Looking back, this might be the first article on financial independence which uses the word “butthole”. And actually, I was thinking of other options. But I felt like “chode” was too obscure, and “twat” wasn’t quite gender-neutral enough. So I chose the big b-hole. What do you think?