Buzz
My fascination with the financial independence movement, also known as FIRE (Financial Independence, Retire Early), started quite a while ago—probably in 2004 when I came across an old copy of Vicki Robin and Joe Dominguez’s Your Money or Your Life at the local library. As I’ve shared many times, YMOYL was the catalyst that encouraged me to track every penny I earned, spent, and saved—a practice I’ve maintained for over fifteen years.
A few years ago, I began seriously considering early retirement. My freelance income was steadily increasing, and I had recently moved to an affordable Midwestern city. Why not challenge myself to save as much money as possible, build a solid investment portfolio, and grow my net worth at a rapid pace?
This year, I’ve been discovering just how quickly my investment portfolio can diminish. While I understand that stock losses are only realized once I sell, and that the market will likely recover eventually, it’s made me question whether I need to adjust my financial strategy to achieve and sustain financial independence during a market downturn—or even a recession.
At this point, the main question on my mind is whether I should expand my cash reserves beyond my current six-month emergency fund, or maintain my emergency fund as it is and allocate more of my future earnings to investments. (I welcome any suggestions.)
That said, my fundamental approach to financial independence remains unchanged. In many respects, it has stayed the same since 2004. Here's what I follow, and what I recommend:
Prioritize FI, not RE
For me, the financial independence part of FIRE always held more appeal than retiring early. I don’t think I’m someone who will ever stop writing, and I’d like to believe I’ll continue writing professionally. Achieving financial independence, however, would give me the freedom to go longer stretches without needing new income (for any grammar enthusiasts, this would mean my income stream would be continual instead of continuous), allowing me to take on larger projects.
This aligns my FIRE philosophy with that of Vicki Robin, whom I had the honor of interviewing for The Billfold in 2018, and Tanja Hester, author of Work Optional: Retire Early the Non-Penny-Pinching Way. Both Robin and Hester advocate for FIRE aspirants to place more emphasis on the independence aspect rather than retirement, and to recognize that financial independence differs from simply 'having enough money to never work again.'
As Hester recently wrote for MarketWatch:
At its core, those pursuing FIRE are after one thing: to break free from the need to rely on a job. While many people debate whether those who retire early still earn income in some form, that misses the point entirely. The goal is not to need money from work, not to avoid all income-generating activities. My book is titled
Work Optional
because it clearly defines this idea: it's about having the option to choose work, not being forced into it. The notion that a recession, with massive layoffs and furloughs, will make people more dependent on their jobs is simply misguided.
If anything, we should anticipate an increase in people looking to secure permanent financial stability, especially among younger workers who weren’t directly affected by the Great Recession of 2008-2009. That event certainly motivated many of us who are already retired or striving for FIRE to take control of our financial futures.
Or, as Vicki Robin shared on Mytour’s podcast The Upgrade:
What really resonated with Joe, and continues to resonate with me, is the question of
what is freedom for?
[...] Achieving a level of freedom means you now have to create meaning for yourself over the span of four or five decades, without anyone else dictating the agenda.
You don’t have to retire early to create a life where you control your own agenda. All you need is enough financial stability to free yourself from the never-ending chase for money.
Keep following the two-step approach to financial security
The real question is: can you build and/or maintain true financial security during a recession? I believe it’s possible. It may be more challenging (and take a bit longer) if you're starting your financial independence journey in the middle of a recession, rather than entering it with both an investment portfolio and cash reserves already established.
But I recall what I did back in 2004, when I was a telemarketer; what I did in 2008, when I was an executive assistant; and what I did in 2019, when I had my first six-figure year as a freelancer. Despite the significant differences in my income, my financial independence strategy remained the same: track every penny I earn, track every penny I spend, and save as much as possible.
And yes, there was that phase in 2012 when I invested a lot of money into a business that went nowhere and ended up in debt. But I never stopped tracking, which meant that when it was time to pay off my debt and start saving again, I was prepared.
So, here's my advice if you're wondering whether FIRE is possible during a recession: Keep following the two-step journey to financial independence:
Track your net worth
Find ways to grow your net worth
For some, that might mean finding ways to boost their income. For others, the focus might be on cutting expenses. You could buy or sell a home, sell a second car, or move to a more affordable area. You might even consider investing more money while the market is down, hoping to profit when it rebounds—though I wouldn’t suggest this unless you have a solid emergency fund already in place. (Keep in mind, stock losses don’t count until you sell, so you’ll want to have enough cash reserves to support yourself during a recession without being forced to sell stocks.)
There are plenty of options—and even if you don’t manage to grow your net worth enough to retire early, you'll still be that much closer to the financial security that so many of us are striving for.
Don’t retire too early
It’s time to bring up Tanja Hester once again. Hester and her husband successfully retired at ages 38 and 41, respectively, and recently published a blog post about the future of FIRE:
I've always been concerned about people retiring with high-risk elements in their plan: saving less than a million dollars, having no contingency plans, sticking to an unrealistic budget with no room for cuts when things get tough (like right now), retiring before reaching their target number, relying on a 'safe' 4% withdrawal rate or more, expecting historical returns, not having two to three years' worth of expenses in cash savings, and not accounting for real health insurance (as opposed to health care sharing ministries, which aren't true health insurance), and the list goes on.
I sympathize with those who find themselves in a tough spot after following advice that was overly risky or simply bad. I truly hope that many of you reading this still have time to adjust your plans before making any irreversible decisions.
There are many FIRE calculators—and FIRE bloggers—who suggest it's just about simple math: once you reach a certain net worth and have a specific investment portfolio, you can live off a 4% withdrawal rate indefinitely.
The math might not be as straightforward as it seems, which is why I encourage focusing more on the financial independence aspect of FIRE than the early retirement part. That type of financial independence becomes even more crucial during a recession, when some of us may find ourselves temporarily 'retired,' whether we like it or not.
Keep in mind that you control your actions, not the outcomes.
Here’s my final piece of advice: remember that you are only responsible for your own actions. You can't control things like getting laid off or a market crash, but you can control actions like updating your resume today or resisting an unnecessary impulse purchase.
You can’t control whether your emergency fund lasts for the next 30 years or gets wiped out this year by an unforeseen expense, but you can control whether you're consistently adding to it each month, and whether you're setting up sinking funds for irregular-but-predictable costs like car repairs. (Yes, I will be the annoying personal finance person who reminds you that even $10 counts.)
I know there will be months when saving feels impossible, and other times when the numbers just don’t work, putting you into debt. That’s when you return to the two steps I mentioned earlier: track your net worth, and find ways to increase it. Keep following the plan and focus on the parts you can control.
You might find yourself in a position to FIRE during a recession, or you might not—but since you can’t control that, you might as well keep working toward financial independence.
That’s the plan I’m following, at least.
