The concept of FIRE is gaining popularity these days. People want independence and structure their days according to their own taste.
FIRE = Financial Independence / Retire Early
Making the best out of your time on earth and not trade it in for a job in the corporate world is a dream many people want to make a reality. Earning passive income that fills your bank account while your living expenses are lower sounds like a great idea. Just imagine not needing to check your bank account and only focus on what you want to do with your time. In order to become FIRE people mainly focus on hard factors (numbers, saving rate) while ignoring the soft factors, which is problematic.
Here are 5 pitfalls of the FIRE Movement and why you should consider them while working towards your dream.
1. Your personal situation might change
One of the most obvious mistakes is that you think the life you are living now equals how it will be in 20 years. While you know you are getting older, anticipating what the effect of this has on you and your psychology/mindset is difficult. This is particularly relevant for people who start out early. What questions could you be asking yourself:
- What will I do once my parents are gone?
- How will my values change over the next decades? (ask older friends of yours about this)
- How will life look like once I am married and have kids?
- Is personal freedom > financial freedom (stable job) even when I grow older?
- Is living a lifestyle most people don’t have going to be a problem (not fitting in)?
2. You can get seriously ill or worse
It is a scary thought and as pleasant as thinking about your testament but it is something worth considering. Think about your family and if there is any history of illnesses. Also think about how this would affect your FIRE life if you should get cancer. If you plan on running a small business on your own do you have a contingency plan? Doctor appointments and medicals bills can quickly become a financial burden even when you are slaving away in a corporate job. This can become a serious problem when you are on your own and all the income depends on you. Think also what might happen if you die, especially relevant if you have kids.
3. Loosing purpose and structure
You probably think something like this: “Loosing my purpose or structure my balls, this will never happen to me. Once I am free I do whatever I want and it will be legendary!”
Having a routine, even if you don’t like it, is for most people the basis for a good life I believe. I know it sounds ridiculous at first but look at people who retire. They are the best example of this. Have you noticed how people often complain about their day jobs? However, as soon as the job is gone, they complain about not knowing what to do with their time. Day job routines give a sense of structure and keep you busy, something most people miss once they can freely choose what to do with their time.
If you worked for 10 + years in a corporate environment you get part of that DNA. Shaking that of and suddenly having no deadlines can lead to procrastination. Avoid this trap by actively pursuing hobbies and side jobs to keep yourselves busy and engaged.
4. How will your community react to your new lifestyle?
You know the saying you are the sum of the five closest people to you. You also remember the schoolfriends you had and got along so well? Most of them disappeared the day school was over. What about the colleague at work, with whom you had so much in common. What happened to that relationship after one of you changed jobs? Why is that you ask? It is because the minute you loose the common theme in your life, your relationship looses its value and in most cases is not worth pursuing anymore.
Be prepared to be alienated from your close circle of friends after you take a drastic lifestyle change for good. Living a FI describes this challenge in a recent post (after being retired for four years):
At the same time, I have a growing sense of disconnect from some of my old friends. Especially peers — people my age that are still working that I’ve been friends with for decades. That situation is another matter entirely. I find this year that I am losing a sense of intimacy with some of them. They work a lot — I do not. We are starting to lose some common interests and activities that helped to create our friendships in the first place. Some of the threads that bound us together for 20 plus years were perhaps unravelling.
5. Can I stomach a black swan event
Since the financial crisis in 2008 the stock market has been booming thanks to the monetary policies around the world. Cash is cheap and negative interest rates draw a lot of money into stocks away from savings accounts. There is a bull marathon going on with no ending in sight. And that is exactly the problem. Many investors never dealt with real uncertainty where the stock market goes down for several months. Therefore it is important to consider that scenario and be prepared. Ask yourself the following:
- How will I be affected if the economy is tanking and a financial crisis happening like in 2008?
- Can I stomach a temporary stock market decline of 50%?
- Do I have enough savings if a recession is on the horizon?
Don’t get too negative on the whole FIRE topic but don’t live only in the spreadsheet while counting your monthly dividends towards X amount in your bank account. Try to look at the big picture and factor in community, purpose and mental well being. It is not all about money, it is about living a life according to your wishes and dreams. While reading books and blogs on the topic I realised that besides a few FIRE celebrities like Mr. Money Mustache or Chris Mamula no one talks about the life after reaching FIRE.
Reaching FI and RE is not difficult in my opinion. With a plan and the right mindset everybody can do it. But living a life where money is not the main motivator for your daily structure is difficult. The above mentioned 5 pitfalls of the FIRE movement are the ones most challenging for me. Disclaimer, I did not reach FIRE yet but I will be in a couple of years so I spend time thinking about life 2.0. During that process my focus shifted on reaching a certain goal to enjoy the process and the here and now. Remember that Rome was not built in one day.