Since July 2009, I’ve been sharing my journey toward financial independence and early retirement (FIRE) on my blog, Financial Samurai. I believe I’m one of the few who started this early, who is still not working traditionally, and who has continued to write consistently about the process.
Back when I started, I was a 32-year-old equity investment banker, feeling burned out after 11 years. The financial crisis had taken its toll—many of my colleagues lost their jobs, and our clients became more demanding. Around the same time, I started suffering from chronic pain, which only added to my stress and desire to step away from it all.
In this post, I want to discuss several aspects of FIRE:
– The foundational rules of FIRE.
– The challenges I faced on my financial journey.
– The reluctance to include active income in my FIRE strategy.
– The enjoyment of the journey toward financial independence.
The Most Important Rule of FIRE
Achieving true financial independence meant setting a clear rule: your investments must generate enough passive income to cover your basic living expenses. I set this rule for myself in 2009 and reached my goal by March 2012, just before the last of my WARN Act pay came in. At the time of my retirement, excluding my home equity, my investments were worth about $2.4 million, bringing in roughly $80,000 a year. This was sufficient to cover my basic expenses in San Francisco, though the early years of retirement were still a bit uncomfortable financially.
The Second Rule of FIRE: Negotiate a Severance
While the first rule of FIRE caught on, the second rule—negotiating a severance—didn’t gain as much traction, possibly due to fears of confrontation or a lack of negotiation skills, exacerbated by our digital communication habits. Despite these challenges, I managed to negotiate a severance that equaled five years of living expenses, which was incredibly gratifying and financially beneficial.
Changing the Rules of FIRE
I understand the temptation to tweak the rules of FIRE because achieving financial independence is genuinely tough. It requires patience and resilience, qualities that are hard to maintain. Since my retirement, I’ve saved diligently, aiming for early retirement, which I achieved through a combination of savings and a strategic severance package. This allowed me to retire at 34 instead of my initial target of 40.
The Start of FIRE Subtypes
The year I retired marked the rise of variations like Barista FIRE, Lean FIRE, and Wife FIRE. These approaches cater to different lifestyles and financial strategies, like working part-time for benefits, living minimally to save costs, or relying on a spouse’s income to facilitate early retirement.
Hybrid FIRE
From 2012 to 2015, I lived what I call a ‘Hybrid FIRE’ lifestyle, incorporating elements of Barista, Lean, and Wife FIRE. My wife continued to work, which provided us with health benefits and additional income while I took on part-time consulting to supplement our income and keep myself engaged.
The Challenges of Dual No-Income Household
In 2015, my wife joined me in early retirement, which brought new financial challenges, especially after we had children. The need for healthcare and increased expenses made FIRE more complicated.
Sticking to the First Rule of FIRE
Despite suggestions to the contrary, I’ve resisted the idea of including active income as a part of my FIRE strategy. If active income is necessary to meet living expenses, then it’s not really FIRE.
Why You Shouldn’t Shortcut Your Financial Independence
Taking shortcuts on the journey to financial independence may seem appealing but often leads to unsatisfactory outcomes. True financial independence should come from having enough passive income to cover expenses, not from active income or relying on a spouse.
Feedback on Shortcuts
Some individuals who’ve taken shortcuts admit they feel unfulfilled. They may claim early retirement, but underlying financial dependencies can lead to feelings of inadequacy or lack of purpose.
As the creator of Financial Samurai and an early voice in the FIRE community, I advocate for a disciplined approach to achieving financial independence. While it’s challenging, the rewards of achieving FIRE through hard work and strategic planning are far greater than those obtained through shortcuts.
If You Plan to Retire Early, Negotiate a Severance
If you’re considering early retirement, try to negotiate a severance package. It’s like getting paid to leave a job you were planning to quit anyway and can provide a significant financial buffer.
In conclusion, FIRE isn’t just about reaching financial milestones but also about enjoying the journey and learning along the way. As we continue to discuss and share experiences, we all grow in our understanding and capabilities to achieve true financial independence.
