Those pursuing FIRE — short for “financial independence, retire early” — aim to turn the traditional rules of personal finance on their head. Save and invest a large portion of your income now, the thinking goes, and you can retire in your 40s, 30s or even 20s.
There are plenty of competing philosophies on how to get there. Some people pump up their savings through extreme frugality. Others amass a web of lucrative income streams to supplement their portfolios.
But anyone pursuing FIRE should ask themselves one question, says Jim Crider, a certified financial planner who specializes in younger clients pursuing financial independence. “Why do I want to be financially independent?”
While the answer may seem straightforward (“Why wouldn’t I?”) people’s reasoning can vary widely, Crider points out.
“Some people want to spend more time with their family, or focus on health and wellness. Some want to pursue passion projects. Some want to be able to turn down promotions or start a business,” he says. “It’s not always about not working.”
Understanding your “why” is essential, says Crider, because it can help guide your decisions around money. Here’s the decision-making framework Crider suggests to help you maximize your financial life.
The four-part framework for FIRE decisions
Unless you hit the Powerball, amassing the savings needed to retire early will require sacrifice. It could mean not eating out at restaurants in the interest of saving money, or burning the candle at both ends in order to maximize your income.
“Everything comes with opportunity costs and tradeoffs,” says Crider. “If you can be articulate about what’s important to you, your vision is clear. You can spend money in the most efficient manner. You can make the things that are most important to you happen in a bigger, grander way.”
To maximize his clients’ financial efficiency, Crider established a four-part framework for decisions around money.
1. Values
This is your “why.” To get at this, Crider asks his clients questions like, “If your doctor told you you had five years to live, what would you change?” and “If you found out you had 24 hours to live, what would you regret not having done or not having become?”
Answers here might include wanting to use your money to maximize quality time with your family. Or maybe you’ve always wanted to be your own boss. Ideally, all of your money decisions flow from these core values, Crider says.
2. Goals
While your values tend to stay static, your goals are likely to shift over time, Crider says.
If spending time with family and being outdoors are among your values, maybe one of your goals is to take backpacking trips with your kids or buy a mountain home. “Goals don’t have to be financial,” Crider says.
3. Decisions
This is where you have to start making trade-offs. Examining your values and goals can help you be decisive about maximizing spending on and saving toward the things you care about and minimize spending on things you don’t.
Crider recommends a “pre-mortem,” in which you imagine your future self. If you’re living your perfect life, what are the things you did right? And conversely, if future you is still working well past 65 and not having accomplished your goals, what went wrong?
“The most common culprits are, ‘We kept spending on things that weren’t important,’ and ‘I was too afraid to take a risk and leave my comfort zone.'” Crider says.
4. Actions
The purpose of the first three levels is so you don’t have to hesitate to act when tricky decisions arise. If your future mountain house depends on you cutting out dining out for now, it’s theoretically easier to resist the drive-thru the next time those pangs arise.
“When those things come up — and they will — I’m not the one telling you to not eat Chick-fil-A,” Crider says. “You are.”
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