What the FIRE Movement Means for Women of Color

FIRE stands for financial independence, retire early. The idea behind the movement is to save aggressively in your early working years (around 50%-80% of your income) so that you can amass a large sum of money and then retire early. The truth is, most people in the FIRE movement don’t fully retire. They usually move on to lower paid, less stressful work or self-employment. The key words in FIRE have always been “financial independence”.

So, what does this mean for women of color? A lot. It’s no secret that women historically have earned less than men. Although there is some research that the tide in pay may be shifting, women of color have historically seen significantly lower pay than other groups. Black, Native American and Latina women earn 58 cents, 50 cents and 49 cents for every dollar a white, non-Hispanic man earns, respectively. So, gaining financial independence is not only harder for women of color, it is also essential.

Many people wonder how the FIRE movement works. It sounds out of reach, however, it is important to note that financial independence has many faces. Let’s look at the ways average women can reach financial independence.

1. Define it for yourself.

Your financial independence doesn’t have to look the same as the broader segment. For some, financial independence may be enough to walk away from work altogether. For others, it may just mean the ability to supplement their income through passive investments. Within the FIRE movement, there are several variations:

• Fat FIRE- This type of FIRE represents the ability to retire early and live off of your investments. The term “fat” indicates that you have amassed enough to live a luxurious lifestyle from your investments. This lifestyle normally includes plenty of travel and no need for work.
• Lean FIRE- This type of FIRE represents the ability to retire early and live off your investments as well. The difference is that “lean” indicates that you are living off a small amount each year. Typically, those who choose this type of FIRE are content with living a minimalist lifestyle.
• Coast FIRE- This type of FIRE represents financial independence. When someone has reached “coast FIRE”, they have amassed enough money to never have to save again. They are not living off of their investments (as you would with lean or fat FIRE). Instead, they are no longer saving towards retirement because they enough that compound interest and growth should get them to their retirement goals without making any new contributions. Coast FIRE gives a certain level of financial independence because without the need to save for retirement or other life emergencies people can typically take on less demanding work.

These are not the only types of FIRE. The important principle to note here is that obtaining financial independence doesn’t have to be all or nothing.

What this means for women of color: You don’t have to focus on what financial independence means to the broader population. In most cases, as a woman of color, your finances are different from others. Financial independence, for you, will also look different than others.

2. Understand how the math works

When it comes to FIRE, people often get caught up in the end number. If women of color already earn less than their peers, how can they possibly save 50-80% of their income? For many, this certainly won’t be easy and for some 50-80% is downright impossible. However, saving 15-20% of their income may be possible and there is still opportunities if someone can save that amount. Here is the general math behind the movement.

• Figure out how much your monthly expenses are. This number should include everything you MUST cover and some room for incidentals. Remember that there are different types of financial independence, so for some people they may just want to cover their basic needs which can be lower than their desired monthly expenses. For this example, let’s just say that amount is $2,500 a month.
• Multiply your monthly expenses by 12. This will give you a yearly amount of money that you need. For our example, that amount is $30,000.
• Finally, multiply the annual amount by 25. This will give you your FIRE number. The reason you multiply it by 25 is to assume that you will withdraw a safe 4% of your investments to live on. For our example, that FIRE number is $750,000. (30,000 x 25)

What this means for women of color: Understand the math and make adjustments if you need to. For example, maybe you just want enough to cover a few years or enough to cover half of your monthly expenses. Half of your monthly expenses still gives you flexibility.

3. Make lifestyle changes.

Saving half of your income would require serious lifestyle changes for most people. For many people who live paycheck to paycheck, it would be outright impossible. However, before you completely write yourself out of financial independence, consider what you can do. Sit down with your budget and decide what you are spending your money on. Does it align with your goals? Can you make any adjustments? Being able to save just $100 a month can make a difference in the long run.

What this means for women of color: For many women of color, lifestyle changes can be tough due to the pay and wealth gap. Women, in general, are also often tasked with caring for children and elderly parents. When you sit down to determine where you can find the extra money for yourself, remember, you can only help others when you are well taken care of.

4. Invest and build passive income streams

If lifestyle changes just aren’t possible for you, it may be time to consider other avenues. FIRE isn’t just about sacrificing and going without daily pleasures. At the core, the FIRE movement is about freedom. Learn to invest your money so that your money can work for you. Another avenue is to monetize your talents. If you can build digital products and sell them online for passive income, that can help as well. Consider asking for a raise or getting a new position to earn more. They key is to make the moves necessary for financial freedom.

What this means for women of color: Many women of color aren’t investing at the same levels as our peers. To gain parity and financial independence, investing is required. Take the time to learn and then apply.

Reaching financial independence as a woman of color isn’t easy, but it is also isn’t impossible. Sign up for our free course on FIRE here.

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Anna Paul, CFP® currently serves as Money Coach at Snowball Wealth, Inc. Before joining Snowball Wealth, she worked as a financial planner as well as a financial education project manager delivering financial education sessions to Fortune 500 companies. She specializes in helping individuals identify financial goals and take actionable steps towards achieving them. When she isn’t giving financial education presentations, she can be found hiking, couponing, or trying new recipes.