Saving

4 Habits of Early Retirees That Can Set Anyone’s Finances on FIRE

John Schmidt

If you’ve heard of FIRE—the one that’s not the subject of two recent documentaries—you probably associate it with the kinds of savers who put extreme couponers to shame. After all, they’re working toward financial independence and hope to retire early. Hence the acronym: F.I.R.E.

But even if early retirement isn’t in your future, writing off this movement would be a mistake. “Financial independence means freedom,” says Kristy Shen, who blogs about achieving financial independence (meaning she no longer needs to work to pay basic expenses) at 31 and has a book coming out in July on guiding others through the process. “[It’s] the ability to choose how you spend your day, who you spend it with, and what you do with your time.” And who wouldn’t want that?

The reality is that habits necessary to achieve financial independence can help all of us improve our finances, no matter where we are today or what goals we’re working toward. Here are a few to adopt now.

1. Live within your means

Two-thirds of American families may not have a budget, but FIRE people definitely aren’t among them. Being able to afford retirement years before Social Security kicks in requires a good understanding of your basic expenses and what you can live without.

When evaluating his family’s spending, Jeremy Jacobson, who also reached financial independence in his 30s, started with the typical budget busters. “We sold a house and moved into a small apartment, sold the car and biked and walked everywhere and cut way back on restaurants,” he says, which allowed he and his wife to save and invest up to 70 percent of their income.

You don’t have to go to those extremes to live within your means. Setting up a budget that allows you to spend less than you earn—and save and invest some, too—is a great first step.

Related: Budget Better: How to Create a Budget That Actually Works for You

2. Scrutinize new purchases

Do I really need this? How long will I have to work in order to pay for it? Does it spark joy? FIRE chasers ask themselves questions like these in order to decide whether new purchases are really worth their cash or if they’d be better off saving it.

When they do make purchases, they research their options and invest in quality. “People think that becoming financially independent is about spending as little as possible, [but] sometimes spending more makes more sense [over the long run],” Shen says. For example, Shen and her husband recently bought pricey backpacks that maxed out airlines’ carry-on size limitations. “We've made back the amount we paid for each backpack easily in the checked-luggage fees we've saved,” she says.

Related: Frugal Fails: 6 Stories of Money-Saving Attempts Gone Wrong

3. Hack your housing payment

Early retirees almost never opt to live in expensive cities, choosing instead to live in smaller U.S. towns or abroad or even to travel full time. “You could be lying on a beach in Thailand, eating egg tarts in a cafe in Portugal, sitting in a sauna in Estonia and still be spending less than living in a high-cost city like Toronto or New York,” Shen says.

Those global moves may not be reasonable for most of us, but there’s a lot you can do to lower your housing costs, from opting to live with roommates and optimizing your utility bills to renting out an extra bedroom on Airbnb.

Related: How Much Should I Spend on Rent?

4. Invest wisely

Saving money alone typically isn’t enough to help anyone reach a big goal—especially an extra-long retirement. You have to invest.

One way to invest well is to select the right account. If your company offers a retirement plan, like a 401(k), invest as much as you can to reap tax benefits. Individual Retirement Accounts or IRAs may also offer tax advantages and are available to anyone with an earned income.

Because those accounts are designed to hold retirement cash, there are penalties for withdrawing money before age 59½. So for any money you want access to before then, a regular investment account is likely your best bet.

When it comes to specific investments, both Jacobson and Shen stick with a passive investing style, setting up automatic transfers to low-cost index funds (which come with lower fees and have historically outperformed actively managed mutual funds) and sticking with it—no matter what the stock market does on a given day. While stock prices may fluctuate in the short term, the market’s value has grown significantly over time and every market downturn in history has ended in an upturn.

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