The Dangers of FIRE

Be careful what you wish for you may get it

The Dangers of #FIRE

The following is to critique the goals of a popular wealth-building method but not the methods themselves.

The FIRE movement [ Financial Independence Retire Early ] is not new but has become a trendy topic on social media and a draw to people seeking some financial security in a chaotic time.

I’m not an advocate of FIRE but I am also not a total critic of its root thesis. The basic ideas are a bit far-flung but coalesce around a small group of simple concepts that are sound but misleading without understanding the intent. That means that pursuing wealth is always good, but assuming it solves all your issues cause more problems than solutions.

FIRE isn’t a cult, but it has some of the earmarks of sect-like behaviors that draw in people desperate to belong and take advantage of those needs. It also resembles cults in that leadership is always after two goals: money and subservience, or another way to look at it increasing their power.

 The basic premise is the same as any good wealth coach, myself included,  gives you. The following are the basics in no particular order. There are orders, but that order depends on the individual or family’s issues and goals.

·         Paying Off Debt

·         Create Savings

·         Stop Living Paycheck to Paycheck

·         Investing for Retirement*

·         Do not live on Borrowed Money

·         Avoid Never-Ending Payments

·         Curb Excessive Spending

·         Create an Emergency Fund

·         Have a Plan

Note that investing for Retirement has an asterisk; this is because most FIRE advocates would say the whole point is to retire early, well before retirement age, so contributing to qualified retirement accounts is not worthwhile or should stop, and you start taking distributions later.  Some would say it is OK  to keep working but shouldn’t be the highest priority; the risk lies therein.  Wealth Building isn’t a lifelong process that you do for x years and then climb in a hammock with an umbrella cocktail for the rest of your life. Wealth doesn’t work that way, wealth encompasses every part of your life even after you consider yourself retired, and it requires work to maintain.   

Here is where the significant danger resides.  The majority of people have issues with money and no fundamental understanding of what wealth is.  The general sense is wealth = riches or a large amount of money and possessions, but in truth, everyone has a wealth factor known as net worth. Regardless of how poor one might be, everyone is worth something. Increasing net worth does not mean it generates income sufficient to last a lifetime. Many who attempt to succeed at FIRE may find themselves back in a similar situation in a decade or two when going back to work is difficult.

 Many FIRE proponents push popular schemes like affiliate marketing and sell subscriptions to their businesses.  There is nothing wrong with this. I also sell my services, but the end product and intent differ.  Selling products online and the gig economy is not that new; they are just today’s variation, but the risk has always been the promise of “riches” rather than the security of wealth.

Throughout modern history, “pyramid schemes” where people at the top promoted selling people rather than products have been prevalent ways to make the people at the top money. The idea is to have a product or product like soap or trinkets, and each person in the chain “recruits” others to sell for them, making money through having as many people sell as possible. The catch is that those down the chain must buy their products and keep a monthly sales level to get paid. In the past, people hosted “parties” to promote the scheme and get sellers under them; these days, bringing thousands of “virtual followers” to sign up is the new method.

Again, the products may be legitimate and even reasonable, but the chances of getting paid much are lower than people think this is simply selling the dream.

FIRE is also a version of selling the dream because while the concept is relatively simple, most people can’t follow it and gain enough wealth in the short term to meet the “Financially Independent.” Authentic financial independence takes decades. That’s why Retirement is later in life.  Few are Warren Buffet, even fewer than Bill Gates. Most are capable of earning yet not managing their wealth.

That’s the real issue. Wealth is not a matter of having money but managing that money and the places you put it to go to work for you. Wealth takes discipline, patience, and time, three commodities most people do not own. They can be acquired, and as I stated above, much of the wisdom in FIRE works, but the goals need to be rational and doable.

So if you see posts on FIRE and get enthralled in the idea of early Retirement, think twice many people are promoting it that work very hard at selling the dream if they had accomplished it they probably wouldn’t work so hard and charge so much.

To be clear, FIRE IS possible but not probable; the better choice is wealth-building, which ignores the RE and concentrates on the FSN or Financial Safety Net concept.