There’s a growing movement in the personal finance community called FIRE — Financial Independence, Retire Early. Basically, the FIRE movement promotes an ultra-high savings rate during your early career, so you can then live off of that money for the rest of your life without working anymore.
If you start to follow the early retirement movement closely, you’ll find that a lot of the core advice is repeated often, becoming community mantras.
I’ve been following personal finance forums for several years now, and I’ve found that some readers have grown tired of these advice cliches. One subreddit group called PF Jerk, for example, satirically pokes fun at the oft-repeated opinions in other Reddit personal finance-related communities.
I’ve worked in several different corporate settings so far in my career, and I’m close to completing my master’s degree in business. Through these experiences, one thing that often strikes me as strange is how the higher education system, and American culture in general, seem to view business finance and personal finance so differently.
For example, I’ve never been taught about personal investing strategy or budgeting in school. Plus, businesses are incentivized to keep their expenses equal to their revenue so that they can avoid posting a profit which will create a tax burden. In personal finance, though, having money leftover to save for the future is, of course, a good thing to do.
It’s funny, to me, how different personal and business finances are. Ultimately, the difference is that businesses must produce results now because their owners/investors demand it. Personal finance, in contrast, should be viewed as a long-term effort.
In reality though, many of the popular FIRE strategies, specifically, are worth considering and can be applied to business ownership to gain a competitive advantage over competitors. I want to share some of those strategies with you today.
These are five things that business owners can learn from the FIRE movement.
1. House Hacking
FIRE followers and future real estate moguls love the concept of “house hacking.” The idea is to purchase and live in a multi-unit home, or just have roommates — in essence, your roommates can pay your mortgage payment and you will essentially reduce your monthly housing costs to nothing.
In a real estate sense, businesses can do the same thing. Consider leasing out unused space in your building to another business or as a short-term coworking space.
The house hacking mindset can be applied even more broadly. In essence, this process is just a licensing or subscription model.
Do you have extra equipment, employees with a bit of extra time, or under-utilized intellectual property? Another company would likely be willing to pay you for short-term use of those assets — and you can capitalize on them.
Many new entrepreneurs overlook the value in tax efficiency early in the life of their business.
3. Credit Card Rewards
FIRE followers and financial bloggers alike tend to really like leveraging credit card rewards programs. Some will call this “travel hacking” — no, coding is not required for any of the hacking I keep talking about today!
For many people, using the right airline rewards cards for most everyday expenses means that they can fly for free when they travel with their family.
The key here is to always pay off the monthly balance in full, to avoid the high credit card interest rates.
If your employees make a lot of work-related transactions in their jobs, why not let them use a rewards card and keep the benefits for personal use? If you’re planning to pay for the expenses anyway, this can be a nice perk that your employees will appreciate.
On a broader scale, is there a rewards program that you could implement for your business? You may want to consider it. Offering a small incentive to your customers to repeat purchases from you can be more than worth it.
You should set up the program so that incentive to retain the customer will cost you less than your average customer acquisition marketing costs. Then your business will come out ahead, and the customer will be getting a nice bonus for their loyalty.
4. Simple, Low-Cost Investments
Low expense ratios are a hot topic in the finance world. With that, many people in the FIRE movement are now big fans of Exchange Traded Funds (ETFs). These funds track indexes (like the S&P 500, for example). ETFs are not actively managed, like mutual funds are, so they are able to offer lower expense ratios.
Over time, even a few tenths of a percentage point difference in expense ratios can slowly eat away at an investor’s compounding returns. So, ETFs are increasingly popular now.
Similarly, you should consider low-cost investments for your business. Consider these application points:
Are your suppliers all offering you competitive prices? Shop around occasionally to make sure you’re still getting the best rates.
What are the key features in your products or services that customers care about most? Don’t cut corners for those features. But, you may be able to reduce costs associated with the other features that aren’t as important to your customers — without significantly impacting your customers’ satisfaction level.
Sometimes simpler, more focused pursuits are better than many, less focused pursuits. Do you have too many new product initiatives, too many customers on the prospecting list, or too many stops on the talent acquisition recruiting trail? Consider cutting down the lists to the few options that you’ll get the most benefit from. Each of these areas can have diminishing returns.
5. High Savings Rates
A big part of the early retirement formula is having a high savings rate and investing early. On a related note, many people in the FIRE community are very frugal in order to achieve these high savings rates. In the long run though, investing early and often creates serious wealth and, therefore, flexibility.
How can you be more frugal with your business? Do you have unnecessary or unhelpful expenses in your budget that could be cut?
What can you do to save or invest more back into your business? Is there technology or a new employee position you could spend money on now that would result in significant increases in productivity long-term?
The FIRE movement is not for everyone. But, even if it’s not a fit for your lifestyle or ambitions, there are several valuable techniques that can be applied in your life and your business.