Extreme Saving with F.I.R.E

A contributed perspective by Stephan J. Hess, CFP

Editor’s Note: This is another installment of a monthly series of contributed pieces addressing financial matters.

We all yearn for some level of financial independence and the peace of mind that comes with it. For some it will take a lifetime of working and saving. For others it never happens. Imagine, however, attaining financial independence early in life, say, before you are even out of your 30’s, or earlier. This sounds crazy like a 1am get rich quick infomercial, but I can assure you it is a real thing and many millennials have adopted it. The concept is known as F.I.R.E and it stands for Financial Independence Retire Early. To do this it requires that you do one of the hardest things known to humans: changing your own behavior.

We tend to follow what we see and personally experience. Our friends and family members are a big influence on how we behave, what we believe in, and the things we identify as important in life. Unless those around you are into crime and destruction, it’s usually a good thing. We humans like consistent and predictable patterns. It feels safe, it is comfortable, and it serves a greater social purpose. It also tends to be the path of least resistance, and let’s face it, who doesn’t appreciate that.

I don’t know how or when it specifically happened, but we Americans have become addicted to stuff. It’s pretty much in our DNA. The list of things that we simply cannot live without is long and if we are being honest, probably not that necessary. The money required to fuel such a lifestyle is not insignificant. It’s the reason why the U.S. has one of the lowest savings rates compared to other countries. Society tells us that we need to buy a nice home and upgrade that over time. We need to have nice cars and the latest electronics. We need to have trendy clothes, go on amazing vacations, and eat out a few times a week. And of course, we need a $4 coffee every morning. I am not judging anyone here, but let’s face it, we are pretty pampered. F.I.R.E does not advocate complete elimination of these things. Nobody wants you to live in a tent and eat only Ramen noodles. F.I.R.E is an alternative financial management and wealth building strategy that goes well beyond the useful budgeting advice from people like Suze Orman and Dave Ramsey. But let me warn you upfront, it is extreme, and it requires frugality in every area of your life. In many ways it is a rejection of the behaviors that most of us grew up with and follow.

Get used to swimming against the current. If you do this people are going to think you are crazy and they will have strong opinions. They will also be irritated when you stop working 20 years before them. This is natural, but all you are doing really is taking an extremely disciplined approach to how you prioritize everything in your life. The new priority is to elevate savings over everything else.

We are often told to save 5-10% of our incomes over a typical 40-45 year work horizon. This usually allows us to build enough savings to maintain our lifestyles in retirement. What would happen if you saved 20% annually, or what about 50%-70%? It’s a simple math equation with the result being less time required for accumulation. Instead of 40-45 years, it might only be 15-20 years. Remember, the earlier in life that you accumulate meaningful funds, the more those funds can create new funds for the rest of your life. Compounding is a powerful thing.

By prioritizing early retirement and extreme saving you clearly must make different choices in consumption. Every new dollar saved is an increment of time that you no longer will need to work. Those increments of time add up to hours, days, and eventually years. Which is more important to you, retiring 5 years earlier or that $4 cup of coffee? Is early retirement more important than the convenience of going out to eat? These are fair questions and not designed to make anyone feel bad. Everything in life is a tradeoff of something and choices must be made. Most people are not going to go to the extreme of following the protocols of F.I.R.E and will instead find a balance that works for them. I salute anyone who is able to do this or some version of it. I myself could not live without British Baking shows and Dove chocolates so I guess I’m out.

Stephan J. Hess, CFP®, is a CERTIFIED FINANCIAL PLANNER Professional and is the owner of Hess Financial in Harrisonburg. Neither he nor his company has any financial relationship with The Citizen or its publishers.

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