What’s all the buzz about the Financial Independence, Retire Early (F.I.R.E) movement? Read this blog to know the definition of F.I.R.E, its pros & cons, and the steps to achieve F.I.R.E.
There’s a lot of talk about the Financial Independence, Retire Early (F.I.R.E) movement these days. On one hand, it’s generating awareness around financial freedom which every investor should know more about. But is it actually true that you can retire in your 30s or 40s?
Understanding the F.I.R.E movement may help answer this question. In this blog, we’ll tell you everything you need to know about the F.I.R.E movement.
Financial Independence, Retire Early (F.I.R.E) means to save and invest aggressively in your 20s and 30s to retire early. For the past few decades, the conventional age of retirement in India has been 60 years.
Retiring before 60 is considered almost impossible in India. The primary reasons for this include a lack of financial advice, inflation, wanting to earn as much as one can for as long as one can, not having to sacrifice various needs and wants, and others.
The F.I.R.E movement aims to debunk the this conventional notion that you can’t retire before 60 through:
Let's dig deeper into how the F.I.R.E movement works.
The core principle of F.I.R.E is viewed as a way of life rather than an investment strategy where you save and invest up to 50-70% of your income in assets that can generate high returns and passive income.
The other important aspect of the F.I.R.E movement is to live below your means. When you keep your expenses low, you can save or invest more than usual. This can help you achieve financial independence in the long run.
The motivation behind F.I.R.E is to willingly choose not to work full time by making your money work for you compared to retiring early and partying forever.
The origins of F.I.R.E can be traced back to the concepts laid out in two books:
1. “Your Money or Your Life” by Vicki Robin and Joe Dominguez.
2. “Early Retirement Extreme” by Jacob Lund Fisker.
The groundwork for F.I.R.E was established by these books by combining the principles of “Simple living” and investing aggressively. Simply put, the higher the savings/investment rate, the faster you can retire.
Ever since then, millennials have embraced the concept and made it their own. But there are criticisms that the F.I.R.E movement is only for those in the high-income group.
But the F.I.R.E movement has received significant coverage over the years and believe it or not, there are even dating sites dedicated to bringing people who share the F.I.R.E vision together.
Lean F.I.R.E enthusiasts tend to live a minimalist lifestyle so they spend less than the average person. They save up to 25x their annual expenses and adhere to a strict budget to achieve financial freedom earlier than usual.
Fat F.I.R.E is a direct contrast to Lean F.I.R.E. Someone who wants to lead a Fat F.I.R.E lifestyle will have a large post-retirement budget with investments that can produce aggressive returns and passive income.
Barista F.I.R.E is a combination of both Lean and Fat F.I.R.E. The Barista F.I.R.E lifestyle will involve getting a part-time job after retiring early to fund post-retirement expenses.
But Barista F.I.R.E enthusiasts will have sufficient savings and investments that can generate aggressive returns and passive income.
Coast F.I.R.E enthusiasts will get a part-time job after retirement just like Barista F.I.R.E. But they don’t have enough money saved up for post-retirement.
It’s important to note that there’s no easy way to achieve financial freedom at any age. You’ll have to stick to a budget, make sacrifices and consult a wealth coach periodically. That said, here are widely accepted steps to achieve F.I.R.E:
While the basic tenets of F.I.R.E are straightforward, it’s important to know about the various types of F.I.R.E (listed above) to understand what lifestyle would suit you.
Once you understand what type of F.I.R.E enthusiast you are, consult a financial advisor and create a budget. Ideally, you would have to make 2 budgets:
Note that no budget is set in stone. Every budget must have room for both good and bad instances of life. Focus on having liquid assets too. Speak to a wealth coach to know more about investing in assets that can help you plan for future wealth creation.
Cutting your expenses can help you live a less extravagant life today and post-retirement all the while saving more money. This is crucial to achieving financial freedom of any kind.
Saving even ₹1,000 more than usual each month can help you add more to your F.I.R.E vision. Let’s see what happens to this money over time when you invest in mutual funds SIP or keep the money in a savings bank a/c.
This does not, however, mean that you should not leave room for joy. Stick to a budget. But ensure that the budget factors in expenses for recreation and/or group activities.
Explore avenues that can add to your existing income. This may involve getting a side gig, freelancing, or starting a small business of your own. The math is simple:
More money today = more investments/savings today = more money tomorrow.
Saving your money is important. Once you do that, you should think about making your money work for you for F.I.R.E. How do you do that? By investing!
Remember, F.I.R.E involves investing at least 50-70% of your income. Choosing the right aggressive investments for the long term can bring you closer to achieving F.I.R.E due to the risk-returns principle.
Assume you earn ₹1,00,000. You save 10% and invest 60%. You start a monthly SIP (₹15,000 each) in aggressive investment options for the long term.
Note: Historical returns don’t guarantee future success. This is just an example. All facts & figures as of 23-12-2020.
The “shut it and forget it” principle applies here.
The rigours of a 9-5 can be taxing. Retiring early can save you the hassle of working every day.
Retiring early ensures that you have time and ability on your side. You can pursue your dreams, hobbies and spend more time with family and friends. F.I.R.E helps you live a life that you choose on your timeline.
Since F.I.R.E requires you to save and invest aggressively, you’ll develop a lifelong habit of spending less and saving/investing more.
More free time to do nothing or close to nothing may have negative effects on your mental health.
Living below your means may require you to cut back on several things. This may affect morale and happiness.
The future may hold unexpected and unforeseen emergencies that you might not be prepared for with your F.I.R.E budget.
Financial Independence, Retire Early (F.I.R.E) has been gaining a lot of traction for obvious reasons. But the promise of retiring early does come with its own share of benefits and risks.
While you won’t have to worry about long work hours, not having to work or be productive may impact your health. At the same time, you may or may not be prepared for every future scenario.
Retirement is hard. F.I.R.E can be harder since it would require you to invest 2-3x more than you spend on essentials and wants. Thus, it is crucial to know more about your idea of early retirement and whether F.I.R.E may be right for you.
You can read these blogs to know more about retirement finances:
Nevertheless, it’s important to aim for financial freedom if not F.I.R.E. Step #1 to become financially independent is to speak to a wealth coach to make your hard-earned money work for you.
Watch this video to know how busy professionals can grow rich
Ans. F.I.R.E stands for 'Financial Independence, Retire Early'. The goal of the movement is to invest aggressively when young to retire in your 30s or 40s (before the traditional retirement age).
Ans. F.I.R.E or Financial Independence, Retire Early is a movement that focuses on investing aggressively in your 20s, 30s, and 40s (50-75% of your income) to retire early (in your 40s or 50s).
There are 4 popular types of F.I.R.E movements that vary in degree of investing & end goal:
Note: Facts & figures are true as of 31-03-2022. None of the information shared here is to be construed as investment advice. Exercise caution when investing in assets like stocks, mutual funds, alternative investments, and others.
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