The Problem with the “FIRE” Movement

Summary

The video script explores the concept of 'Financial Independence, Retire Early' (FIRE), highlighting its appeal and potential pitfalls. It breaks down FIRE into 'lean' and 'fat' lifestyles, emphasizing the importance of intentional living over accumulating wealth. The speaker critiques the movement's focus on a magic number and ultra-frugality, suggesting a balanced approach to saving, investing, and spending. The script concludes with strategies for achieving financial independence, such as cutting expenses, increasing income, or a combination of both, encouraging viewers to define their 'rich life' and pursue it thoughtfully.

Takeaways

• 🔥 The concept of FIRE (Financial Independence, Retire Early) is appealing but not without its challenges.
• 💡 FIRE involves reaching a 'Crossover Point' where investment income surpasses salary, providing the freedom to choose not to work.
• 🌱 There are different levels of FIRE, from 'Lean FIRE' which embraces minimalism and simplicity to 'Fat FIRE' which allows for a luxurious lifestyle.
• 📈 The FIRE movement promotes aggressive saving, often much higher than the average American savings rate.
• 🤔 The movement has been criticized for its focus on a specific financial number, which may not necessarily lead to happiness or fulfillment.
• 💰 A rich life is about living intentionally and abundantly, not just about achieving a certain financial figure.
• 🏡 Some individuals in the FIRE community struggle with the transition from extreme frugality to spending, indicating a need to learn the skill of spending money.
• 🚫 The demonization of spending within the FIRE community can create an unhealthy relationship with money.
• 🛍️ Recent developments in the FIRE community show a healthier approach to spending, with members discussing meaningful purchases and life experiences.
• 💼 Achieving financial independence is not easy and requires strategic thinking about both income and expenses.
• 💹 There are various strategies to reach the crossover point, including cutting expenses, increasing income, or a combination of both, with different trade-offs in terms of time and lifestyle.

Q & A

What does the acronym FIRE stand for in the context of personal finance?

FIRE stands for 'Financial Independence, Retire Early', which is a movement focused on saving and investing aggressively to achieve financial independence at an early age.

What is the 'Crossover Point' mentioned in the script?

The 'Crossover Point' is a concept where one's investments generate enough income to cover all their expenses, making it possible to stop working if they choose to.

What are the two main types of FIRE lifestyles described in the script?

The two main types of FIRE lifestyles are 'Lean FIRE', where individuals live on a minimal amount of money, and 'Fat FIRE', where individuals aim to live a luxurious lifestyle with high levels of spending.

How does the speaker describe the potential negative impact of an obsession with a specific financial number in the FIRE community?

The speaker suggests that an obsession with a specific financial number can lead to stress, anxiety, and depression, as individuals believe that reaching this number will bring happiness, which is not necessarily the case.

What is the issue with living in 'Ultra Frugality' for an extended period of time as described in the script?

Living in 'Ultra Frugality' for a long time can make it difficult for individuals to learn how to spend money wisely and enjoyably when they eventually have more financial freedom.

What is the speaker's view on the demonization of spending within the FIRE community?

The speaker criticizes the demonization of spending within the FIRE community, stating that it can create an unhealthy relationship with finances and prevent individuals from spending money on things they truly value.

What are some positive aspects of the FIRE movement mentioned by the speaker?

Positive aspects of the FIRE movement include encouraging higher savings rates, demonstrating how to take control of one's money, and enabling some individuals to create a meaningful life.

How does the speaker suggest achieving financial independence in a balanced way?

The speaker suggests achieving financial independence by strategically targeting both income and expenses, either by increasing income, reducing spending, or a combination of both.

What is the significance of the 'crossover point' in the context of the FIRE movement?

The 'crossover point' signifies the moment when one's investments are generating enough income to cover their living expenses, which is a key milestone in achieving FIRE.

What is the speaker's personal stance on the FIRE movement and early retirement?

The speaker aligns more with the 'Fat FIRE' approach, valuing the ability to spend extravagantly on things they love, and is not particularly focused on early retirement as a goal.

Outlines

00:00

🚀 Introduction to FIRE Philosophy

The video script introduces the concept of Financial Independence, Retire Early (FIRE), questioning its feasibility and allure. The narrator, a best-selling financial author, outlines the video into three parts: explaining FIRE, discussing its problems, and suggesting alternatives. FIRE is described as having enough investments to cover living expenses without working, exemplified by the 'Crossover point' where investment income exceeds salary. The script mentions different FIRE approaches, such as 'Lean FIRE' for minimal living and 'Fat FIRE' for luxurious lifestyles. The narrator also acknowledges the positive aspects of the FIRE movement, such as promoting high savings rates and financial control, before delving into its potential issues.

05:01

🤔 Critique of FIRE Movement's Focus on Numbers

This paragraph critiques the FIRE movement's fixation on reaching a specific financial number as a determinant of happiness and freedom. The narrator argues that life satisfaction is not linearly correlated with bank account figures and that a rich life is about living intentionally and enjoying the present, not just an end goal. The paragraph also addresses the issue of 'hyper frugality' among FIRE adherents, suggesting that extreme saving can lead to an inability to spend money meaningfully in the future. The narrator warns against the potential for anxiety and depression associated with an obsession over financial targets and emphasizes the importance of learning to spend money wisely throughout life.

10:02

💡 Achieving Financial Independence: Strategies and Personal Choices

The final paragraph presents strategies for achieving financial independence, discussing the importance of both increasing income and decreasing expenses. The narrator provides examples of how different approaches, such as cutting expenses in half or increasing income by 30%, can significantly reduce the time to reach the 'Crossover point.' The paragraph also touches on the personal choice aspect of financial independence, with the narrator sharing his preference for 'Fat FIRE' and a willingness to spend on things he values. The video concludes by encouraging viewers to consider whether FIRE aligns with their vision of a rich life and to decide on their path to financial independence.

Keywords

💡FIRE (Financial Independence, Retire Early)

FIRE stands for Financial Independence, Retire Early, a movement that advocates for saving and investing a substantial portion of one's income to achieve financial independence and retire much earlier than the traditional retirement age. The video explores both the allure and challenges of FIRE, illustrating how achieving financial independence allows individuals to choose whether to work or not.

💡Crossover Point

The crossover point is the moment when an individual's investments generate enough income to cover their living expenses, thus making them financially independent. In the video, the speaker describes this point as a powerful moment where one realizes they no longer need to work to support their lifestyle, exemplified by his own experience after the success of his book.

💡Lean FIRE

Lean FIRE refers to achieving financial independence with a minimalistic lifestyle, typically living on $30,000 to $50,000 per year. This concept involves extreme frugality and simplicity, as discussed in the video where Lean FIRE adherents are described as rejecting materialism and embracing simple, low-cost activities.

💡Fat FIRE

Fat FIRE describes a version of financial independence where one maintains a higher level of spending and luxury, such as flying first class and living extravagantly. The video contrasts Fat FIRE with Lean FIRE, highlighting how some people achieve financial independence but continue to enjoy a more lavish lifestyle.

💡Frugality

Frugality is the practice of being economical with money and avoiding waste. The video addresses the potential downsides of extreme frugality within the FIRE movement, suggesting that it can lead to an unhealthy relationship with money and difficulty in learning how to spend money meaningfully later in life.

💡Savings Rate

Savings rate refers to the percentage of one's income that is saved rather than spent. The video highlights how the FIRE movement promotes high savings rates, sometimes as high as 70%, compared to the more common savings rates of 10-15%. This emphasis on saving is seen as a critical component of achieving financial independence quickly.

💡Financial Independence

Financial independence means having sufficient wealth to cover one's living expenses without needing to work. The video delves into how achieving this state allows individuals to choose whether to continue working or not, emphasizing the freedom and control it offers over one's life and career.

💡Investing

Investing involves putting money into financial assets with the expectation of generating income or profit. The video discusses the importance of investing aggressively to achieve the crossover point, where investment income can sustain one's lifestyle, as illustrated by examples of people increasing their savings and investment rates.

💡Lifestyle Inflation

Lifestyle inflation occurs when people increase their spending as their income rises. The video warns against this tendency, suggesting that maintaining a controlled spending level while increasing income can significantly speed up the path to financial independence, as shown in the speaker's examples of balancing income and expenses.

💡Rich Life

A rich life, as described in the video, is one lived intentionally, abundantly, and proactively, enjoying what you do daily. The speaker argues that a rich life is not about reaching a specific financial number but about living meaningfully and enjoying one's financial resources responsibly, starting today and continuing into the future.

Highlights

The concept of FIRE (Financial Independence, Retire Early) is introduced as an appealing but potentially unrealistic goal.

The 'Crossover Point' is explained as the moment when investment earnings surpass salary, allowing for the choice to stop working.

Different types of FIRE are described, including 'Lean FIRE' for minimal living and 'Fat FIRE' for a luxurious lifestyle.

The importance of saving more and taking control of personal finances is acknowledged as a positive aspect of the FIRE movement.

The potential negative impacts of an obsession with a specific financial number for FIRE are discussed, including stress and anxiety.

The problem of ultra-frugality leading to an inability to enjoy wealth in the future is highlighted.

The FIRE community's tendency to valorize minimal spending and the potential toxicity of this mindset are critiqued.

A shift within the FIRE community towards more open discussions about meaningful spending is noted as a positive development.

The video offers practical advice on achieving financial independence through aggressive saving and investing.

Three strategies for reaching the crossover point are presented: cutting expenses, increasing income, and a combination of both.

The importance of strategic thinking about earnings and expenses is emphasized for achieving financial goals more efficiently.

Personal preferences and choices in lifestyle and financial planning are encouraged as integral to the FIRE philosophy.

The video concludes by encouraging viewers to consider if FIRE aligns with their vision of a rich life and to share their chosen strategy in the comments.

Transcripts

fire financial Independence retire early

those words sound great right well I

have some problems with the idea of fire

you see who doesn't love the idea of

retiring early with complete Financial

Freedom it sounds great but is it too

good to be true as a best-selling

Financial author who's helped millions

of people get their financial lives in

order here's my honest opinion on fire

I'm going to break this video down into

three parts I'm going to tell you what

fire is the problems with it and then

I'm going to recommend what you do

instead let's start with part one what

is Fire Imagine one day you woke up in

your 30s and you had enough money in

your accounts to never work again in

other words your Investments were

generating more money than your salary

was I remember years ago going on TV to

talk about my bestselling book I will

teach you to be rich before the camera

started the anchor and I were talking

and they leaned over they congratulated

me on my book said oh great job do you

have to work anymore and I sat back and

I realized I'd never really put it that

way but no I don't have to work anymore

and that was a powerful moment it's an

example of something called The

Crossover point where your Investments

earn enough to fund your expenses

automatically and this idea was first

described by Vicky Robin and Joe

Dominguez in their book your money or

your life it's an incredibly influential

idea in personal finance money makes

money and at a certain point your money

is just generating so much new money

that all of your expenses are covered

this is also known as being financially

independent and what can you do when you

hit the crossover Point well at a

minimum you can do nothing you can

choose to work or not cuz after all you

could spend the rest of your life

spending down your Investments a lot of

people call this retiring early together

that is financial Independence plus

retiring early or fire to break this

concept down even further there's lean

fire which is people who've decided they

can live on a lean amount of money often

$30 to $50,000 a year in perpetuity they

typically reject materialism they

Embrace Simplicity often in an extreme

way they're likely doing fun things like

going for walks in the park and bird

watching on the other end of the

spectrum there is fat fire which is for

people who want to live an extravagant

life at the highest levels of spending

think of flying first class staying at

the Four Seasons or am man Resorts

putting three kids through private

school you ever wonder for example how

celebrities can spend

$250,000 on a single party that's

because their money is earning so much

money that they actually have to work to

spend it all for example in 2018 Oprah

bought a house for $8 million seems

outrageously expensive right but keep

this in mind her net worth at the time

was over $4 billion and if she just

conservatively invested that money

generating 4% her Investments alone not

even counting her salary would generate

$160 million that year effectively

making the house free to her now that we

know what fire is let's break down the

problems part two the problems with the

fire movement now before we get into

some issues here I want to acknowledge

the positive things about the fire

movement first I got to say I love the

way that the fire Community has raised

the question of saving more money fire

is a total antidote to Americans

lackluster savings rate most Americans

stretched to save 10% fire absolutely

obliterates that by showing it's

possible to save 25 40 even 70% of your

income if you get clear about your goals

second fire demonstrates how you can

take control of your money and live the

life you want I love that a lot of

people shared that they were initially

attracted to fire by a blog post which

explained how they could retire decades

earlier than they thought possible

that's incredibly powerful and third

some fire members have created a really

meaningful life for themselves I want

everyone to be able to articulate your

unique rich life and then to use your

money to live it that's what money is

for but there are also some problems

with the fire movement and I see it a

lot the first problem I see is that the

fire movement is often obsessed with a

number and everything revolves around

that a lot of members of the fire

movement exhibit classic signs of stress

anxiety even depression thinking that

hitting some mythical number in their

Spreadsheet will suddenly make them

happy and as we know from the tons of

conversations I've had on my podcast

including all the conversations I've had

with people over the last 20

years it

won't the way you feel about money is

highly uncorrelated to the amount in

your bank account more importantly a

rich life is not about achieving a

number a rich life is one where you wake

up you enjoy what you're doing one that

has lived intentionally abundantly

proactively a rich life is not some

destination in a spreadsheet cell a rich

life starts today even if you have debt

and it's living a rich life today and an

even richer life to tomorrow another

problem is that people working towards

fire often spend years living in Ultra

frugality I'm talking hyper frugality so

that one day in this mythical future

they can enjoy their money but that's

not how people work I've seen this with

guests on my podcast Mindy and Carl for

example who are actually quite prominent

in the fire Community who in their early

50s built an over $4 million Fortune but

as members of the fire Community they

still struggle to spend their money

that's because when you set the goal of

accumulating a number it becomes very

difficult to learn how to spend it in

other words you can't be ultra Frugal

for years and years and then magically

flip a switch and suddenly you are

spending money that's like saying I want

to make friends later when I'm 50 or

that's like a lot of Indian parents who

tell their kids don't date okay you're

26 time to get married it's like what

I'm missing an entire skill set here you

end up not learning the skill of

spending money and that is a skill

something that has to be learned in your

20s your 30s your 40s of course you

should save of course you should invest

aggressively I talk about that all the

time but you've also got to exercise

that spending muscle now because if you

don't it deteriorates and in fact you

create new grooves that simply tell you

the only right thing to do with your

money is to accumulate it or even hoard

it and the third problem with fire is

that it's a movement that often

valorizes how little you can spend that

becomes toxic you can see it in fire

forums where people constantly worry

about money even when millions of

dollars in the bank they often worry

about what the community will say if

they were to buy a nice car I've had

people on my podcast who have millions

of of dollars in the bank they want to

buy something nice like a nice bag but

the question is what would my friend say

and that demonization of spending within

the fire Community creates an unhealthy

relationship with finances if you want

to buy something and you can afford to

do it I'm all for it now the good news

is that in recent years there are more

and more people in the fire Community

talking openly about spending money on

the things they value there are

prominent members of the fire Community

who have come out who have spoken about

their struggles in spending money and

their journey to be able to spend money

meaningfully there are other folks who

have shared some of the things they've

bought and how it has affected them in a

positive sometimes even negative way

there are conferences where fire

attendees are now talking about the

meaningful lives they want to create not

simply the amount of money they want to

save I love that that's a totally

healthy development and I'm a big fan of

it we don't want an unhealthy

relationship with food just as we don't

want an unhealthy Rel relationship with

money money is not meant to Simply Be

accumulated it's meant to be

thoughtfully respected saved and

invested and yes also spent before I get

to the third part of this video do me a

favor hit subscribe turn on

notifications it helps this channel grow

and it lets me keep sending you new ways

to think about money every single week

all right that brings me to part number

three how to achieve Financial

Independence the right way now fire is

not easy and often you'll hear people

who are not in the fire Community

instantly dismiss it they'll say things

like I'm too young to think about that

or 50% savings rate I can barely save 5%

it's interesting by the way the people

who say I'm too young to think about

saving and investing just a few years

later you'll notice that they change and

they'll say it's too late for me to

start isn't that interesting often

you'll hear people say this beautiful

Chestnut I'd rather spend my money now

than nickel and Dy myself for the next

30 Years

nobody told you you have to nickel and

dime yourself but what about being

thoughtful and intentional with your

saving and investing of course the real

answer is that you can choose whether

the crossover point is part of your rich

life and if you want to reach it you get

to choose how to achieve it so how do

you achieve Financial Independence like

I mentioned earlier in this video a lot

of people in the fire Community Focus on

saving a huge portion of their salary

forget about 10% or 15% a lot of them

are talking about 40 50 70% let me give

you an example let's say your household

income is $80,000 your monthly expenses

are 6,000 bucks theoretically you could

reach your crossover point in 38 years

if you follow the usual advice of saving

and investing 10% or you could reach it

a lot faster let me show you with some

real numbers option one you could cut

your monthly expenses in half now a lot

of people are like off REM you're

telling me to cut my money monthly

expenses in half do you know how much it

costs yes I get it it's expensive but

there are also a lot of examples of

people in the lean fire Community

actually doing it so let's just go

through the process following the

strategy for example you could reach

your crossover point in just over 12

years keep in mind the trade-off here 12

years is really fast for a crossover

point but you've targeted ongoing

spending of

$36,000 per year every year

and that's quite low for a lot of people

in fact according to the US Bureau of

Labor Statistics the average US

household spent

$72,000 in 2022 let's take another

option option two you could raise your

income let's say you follow the advice

in my book I will teach you to be rich

and on my website to negotiate a 30%

raise if you take all that extra money

and you invest it you'd hit your

crossover point in 22 years notice that

this takes longer than option one

actually a lot longer but in this

example you've targeted spending $72,000

per year that's much more in line with

what the average US household spends and

you could probably maintain it a lot

easier or option three you could do a

combination of both if you increase your

income by 30% and cut your spending by

30% you'd hit your crossover point in

just 9 years that is an extremely short

time to your crossover Point combined

with relatively High High spending and

that shows the power of targeting both

your income and your expenses now

remember a lot of people don't think

about their earnings and spending in

this strategic of a way and as a result

they do the same thing most other people

do they spend pretty much all they make

they save a tiny amount whatever's left

over they end up working for decades and

then they find themselves ranting about

taxes on Twitter without knowing what

the hell they're talking about or what a

marginal tax rate is do not be that

person please recognize you have the

power to dramatically change the way you

approach your working years you can earn

more learning how to increase your

salary is a skill you can spend less the

fire Community has shown us it's

possible or you can do both you decide

on your rich life let me tell you about

my personal choice I actually like the

idea of spending extravagantly on the

things I love what do I mean by that

that means that I'm much more more

aligned with fat fire than lean fire I'm

willing to work I've built the skills to

increase my income I invest aggressively

I want to live in cities that tend to be

pretty expensive that is the choice I

have made but I'm not particularly

interested in retiring early maybe I

will maybe not but it's not a goal of

mine it's not something that I work

really hard towards I put money aside

I've set up money rules for myself and I

know the type of lifestyle that my wife

and I would like to live with that said

retiring early doesn't always have to be

part of fire you can choose to Simply

become financially independent and then

decide what you want to do all right now

that you understand the different types

of fire and some of the problems that I

want you to be aware of use this video

to decide if going after fire is part of

your rich life if so let me know in the

comments which option you're going to

use to Achieve Financial Independence

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