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Millennials on FIRE: The Frugality Movement That’s Gaining Steam

Dear Reader,

As the mother of two young men in their 20s, I too find it hard to ignore the disheartening stories about millennials’ money habits. We often hear tales of their overspending on conveniences like coffee and food-delivery services at the expense of monthly obligations and retirement savings. Indeed, according to Schwab’s 2017 Modern Wealth Index survey, 60% of millennials claim they’re willing to spend $4 a day on a cup of coffee—yet 67% report occasionally missing their mortgage and/or student-loan payments.

So I was pleasantly surprised when a reporter introduced me to a new frugality movement called FIRE (financially independent, retiring early) that is gaining momentum among young adults. When I asked my sons about it, they not only knew of it but also told me they have several friends who are adherents.

The concept isn’t entirely new—think The Millionaire Next Door, the seminal 1996 book that counseled, “Whatever your income, always live below your means”—but the perspective is fresh. In essence, the FIRE movement espouses a lifestyle guided by personal values rather than material possessions, with the ultimate goal of retiring at an early age so you can follow your  passions sooner rather than later.

This mindset is in stark contrast to the stereotypical free-spending, undersaving millennial (though those individuals do exist). And I find it heartening that a certain subset of young people are choosing a path very different from their peers—and to a large extent from their parents or other role models—to achieve a more meaningful, financially sound lifestyle.

Keep in mind, however, that the two principles of the FIRE ethos—financial independence and early retirement—both have their own benefits and drawbacks.

Financial independence

To me—and it seems FIRE proponents would agree—the value of money lies not in living an extravagant lifestyle but in the luxury of choice. Proponents may or may not actually retire in the strictest sense of the word but rather transcend the need for unfulfilling employment just to pay the bills.

Although financial independence will look different for everyone, three basic rules apply regardless of your age or goals:

  • Avoid unnecessary debt.
  • Prioritize savings.
  • Spend below your means.

Having the freedom to live the way you want takes discipline and planning. And FIRE followers are all in. Budgeting, goal setting, saving, prudent investing—these are at the very heart of what they do. They are willing to forgo current extras for a future free from money worries, all while living a full and satisfying life.

Early retirement

The FIRE population isn’t approaching what we would normally think of as retirement age. They might be in their 40s, 30s or even 20s. So how is it possible to retire that early, assuming you aren’t the lucky recipient of a healthy inheritance? It starts with mindful spending—or making sure that you get the maximum value from every dollar.

FIRE participants will scour their budgets to save on everything from big expenses like housing, transportation and travel down to smaller expenditures such as cable TV, cell phone service and groceries (to say nothing of overpriced coffee). The goal is to spend far less than they earn and stockpile the difference. In comparison to a common goal of saving between 10% and 20% of one’s income, for example, a FIRE advocate might aim to save as much as 50%.

A common retirement goal—and one I’ve seen FIRE advocates point to as a measure of financial independence—is to save roughly 25 times the amount you think you’ll need in your first year of retirement. For example, if you think you’ll need $40,000, you should save at least $1 million; if you’ll need $50,000, you should save $1.25 million. And, naturally, the numbers go up from there.

But this seemingly straightforward proposition belies one important detail: It’s based on a 30-year retirement—not one that could potentially stretch on for 40, 50 or even 60 years (in the case of 20-somethings).

So while I applaud the zeal with which FIRE followers pursue their goals, I encourage anyone considering a similar lifestyle to think long and hard about what it would take to get there.

A worthwhile ambition

Regardless of our age or goals, I think we can all learn something from the FIRE movement. Would you be willing to sacrifice current comforts for the hope of a financially independent future? It’s a thought well worth contemplating.

What You Can Do Next

  • Are you on the path to financial independence? We can help you get there. Call 800-355-2162 or stop by your local branch.
  • Read more insights from Carrie.
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