Ramit Sethi: 3 Problems With the FIRE Movement — and What You Should Do Instead

The FIRE movement, short for “financial independence, retire early,” is a trend that has been gaining steam over the past couple years. Those embracing it prioritize aggressive savings and investment strategies to gain financial freedom and retire earlier than expected .

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While it sounds great, not everyone is a fan of the movement. Ramit Sethi , author of “I Will Teach You To Be Rich” and creator of the YouTube channel of the same name, is one of them. In a recent video , Sethi detailed some of his problems with the FIRE movement and what he believes you should do instead .

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FIRE Movement Explained

Sethi recalled a time when he was interviewed by TV hosts after his book came out. During a break, the anchors asked him if he still needed to work after the success of his book. It was a powerful moment for him as he realized the answer was “no.”

The reason that Sethi didn’t need to continue working wasn’t because the profits from his book would sustain him for the rest of his life. It was because when invested, those profits helped him reach the “crossover point.” This point is when the return on an individual’s investments make enough to cover their living expenses.

In essence, this is the goal of the FIRE movement. Individuals save and invest, sacrificing their early years to gain financial freedom later on. After reaching the crossover point, you can live off the passive income generated from your investments and retire early.

The FIRE movement breaks down into multiple categories. Lean FIRE is for those who have calculated that they can live off a small number of investments. Lean FIRE individuals aren’t materialistic and can live off $30,000 to $50,000 a year. Conversely, fat FIRE individuals hope to save up enough to live extravagantly with little concern about spending.

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Problems With FIRE

Financial independence combined with early retirement sounds very enticing. The FIRE movement highlights important financial concepts like a commitment to saving and investing, but Sethi notes there are issues that many overlook. Here they are, according to him.

Focusing on a Number

When FIRE movement followers come up with a goal for their savings and investment that represents their ability to retire, it can cause unneeded stress and anxiety. While setting financial goals is essential, choosing and reaching a number won’t result in happiness.

Sethi stresses that how you feel about money doesn’t correlate to what you have in the bank. Instead, living a rich life is being content with what you do daily and enjoying what you have. Finally hitting a specific number that you’ve been saving for isn’t going to change your life. It’s important to live a rich life throughout the process so you can continue it once you reach your goal of financial freedom.

Living Frugally Over the Long Term

The cost of the FIRE movement is living in a state of hyper-frugality for years and possibly decades. Any habit you commit to over a long period is difficult to break. Sethi points out that he’s interviewed guests from the FIRE community who have saved upwards of $4 million and are still highly economical in spending.

Once you hit your target number, there isn’t any transformation that changes your mindset and allows you to spend. FIRE members may find it challenging and uncomfortable to make purchases without worrying. Sethi explains that there is a skill to spending money, and if you don’t ever practice it, you won’t have it when it comes time to enjoy your wealth.

Admiring Those Who Spend the Least

Looking up to FIRE community members who spend the least can motivate some, but it can also become toxic. While reading through online FIRE forums, Sethi has found post after post in which people worry about spending even after having amassed enormous savings. Some posts express fear of what the community would think if the author made an expensive purchase.

Constantly worrying about what other people would say about your purchases can derail your relationship with your finances. However, Sethi points out that this particular point of contention in the community has become a topic of discussion. More and more FIRE community members are openly bringing up this issue of debate.

Sethi Suggests What You Should Do Instead

The FIRE movement is extremely challenging and requires a long-term commitment. While FIRE may be an excellent option for some, not everyone has the discipline to save between 40% to 70% of their income for an extended period.

Sethi explains that achieving financial independence is possible without joining the FIRE movement as long as you have a plan and make financial decisions with intention. For example, if your household income is $80,000 and your expenses are $6,000 per month, by saving and investing 10%, you’d reach the crossover point in 38 years. This model is a helpful reminder that making savings a small priority can pay off significantly.

To reach your crossover point even faster, Sethi provides three more useful tips. His first is to cut your monthly expenses by half. On its own, this may sound impossible to do. However, many in the lean FIRE community prove that it can be achieved. Implementing this changes the timeline from 38 years to 12 years.

A second way to speed up the time it takes to reach the crossover point is to raise your income. Using the example, if that person found a side hustle , worked a part-time job, or negotiated a raise and increased their income by 30%, they would reach the crossover point in 22 years.

Sethi’s final option is to combine both by cutting spending and increasing income. While this is a challenging option, it pays off. By implementing both techniques, the example would take only nine years to reach the crossover point. However, while nine years is much shorter than the original 38 years, it is still a very long time to make strict financial commitments.

Final Take

Saving for retirement doesn’t need to be as extreme as the FIRE movement. Most Americans save very little, spend decades working and have little to show for it in the end. Sethi says you have the power to control your future no matter which method you use.

The most important thing is to start somewhere and stay consistent to ensure a happy retirement and healthy finances.

This article originally appeared on GOBankingRates.com : Ramit Sethi: 3 Problems With the FIRE Movement — and What You Should Do Instead