FIRE – Financial Independence Retire Early 

FIRE- Financial Independence Retire Early 

If you are an avid financial reader, then chances are that you would have stumbled upon the term FIRE movement and how it is spreading like fire in the last few years. For those of you who still haven’t heard of it and wondering what it is, very soon you will find out.

FIRE or Financial Independence Retire Early concept is looked upon as a life hack for the working population today to escape from their dissatisfactory jobs early instead of having to devote the entire working life to it. 

 

So what exactly is FIRE and where did it originate? 

FIRE or Financial Independence Retire Early is essentially a lifestyle movement to achieve financial independence and make enough money for a sustainable retirement when you are much younger by following an extreme form of money-saving and investing techniques. 

The ideology behind FIRE originated in the USA and some of its concepts were first published in 1992 in the book “Your Money or Your Life” co-written by Vicki Robin and Jon Dominguez, who propagated the idea of living frugally and deriving income from investments to achieve financial independence early on in life. 

The FIRE concept has two elements of financial planning Financial Independence (FI) and Retire Early (RE). Financial Independence is viewed differently by everyone but more or less it means financial freedom without having to worry about money as you now don’t have to work for additional money. It could be freedom from debt, creating a passive source of income, etc. 

Retire Early quite simply means that you no longer have to work for money and you have created enough money for it to work itself for you.  Normally, when you talk about retirement and retirement planning, your reference point for age is 60 and above, as that is the standard age for retirement. You work around your financial plan in such a way that you have repaid all your debts and have created enough wealth to suffice you in your retirement. 

FIRE movement adheres to the traditional principles of achieving financial freedom and creating a retirement corpus but retiring much earlier in life, possibly in their 40s or 30s, which is a decades before the actual retirement age. Apart from the early retirement aspect, FIRE ideology differs from conventional practices in more than one way. For example, usually, when you think of financial planning you are always looking to upgrade your current lifestyle but FIRE ideology would require you to live a frugal lifestyle even after retirement to just cover your monthly expenses in most cases. 

 

How has it taken off in the recent past? 

The FIRE movement has become very popular in the last few years thanks to all the attention it has been getting on social media and many today are now trying to incorporate it in their life. 

In today’s day and age, many want to live their life on their terms and give up the tried and tested conventional ways of living. They don’t want to spend more than half of their life in a cubicle working in a job they dislike; instead, they want to explore the opportunities and possibilities that exist.  

 

How should individuals manage expenses and savings for FIRE?

Achieving financial goals in your 30s and 40s sure is exciting and appealing but it is not all that simple. To adhere to the principles of FIRE, you need to cut down your expenses dramatically and save up at least 50% to 70% of your income each year. More than your earnings, your ability and capacity to save decides your success in FIRE. Frugal living means just focussing on your necessities and cutting down all other expenses like restaurant outings, movies, lesser use of electronics, buying used stuff, etc. In today’s time when being flashy and thrifty is fashion, adopting the FIRE ideology requires you to be at the other end of the spectrum and be extremely frugal. 

 

Is FIRE a realistic goal? 

The pursuit of financial independence and breaking free from the shackles of hectic corporate schedules with long working hours and stressful lives is tempting especially now when people value experience over material possessions. The FIRE ideology has helped people to take interest in financial matters from a very young age and helping them save and invest from the beginning of their career which can be extremely rewarding. In a world where spending money mindlessly is a norm, adapting to a lifestyle of being frugal can help people curb unnecessary expenses. 

However, like all the other things, FIRE philosophy too poses some challenges. It focuses too much on retiring early in life, which is neither healthy nor exciting.  Moreover, being extremely frugal by cutting down dramatically on everything can harm your mental health and disrupt your family life if you are not on the same page with your spouse. 

 

Conclusion

Even though the concept is gaining momentum globally and the millennial find it appealing and endearing, one must fully weigh the pros and cons of it. Instead of extensively focusing on retiring early, you should aim for financial freedom so that you could retire early if you have to, to pursue your passions. 

 

Interested in how we think about the markets?

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