The highest form of wealth that you can have for yourself is the ability to wake up in the morning and say – “I can do whatever I want to do today.” The new generation has termed this as – FIRE: Financial Independence Retire Early
People, like you and me, want to become rich and wealthy to gain happiness. But being happy does not have any perfect or universal meaning. The definition of happiness varies from person to person, you may have one definition, and I might depict it in some other way. But one common factor that we all have in our definition of happiness is – The ability to live and control our lives as we see fit.
Gaining this ability to do whatever you want, with whomever you want, when you want, is completely priceless. This is the biggest profit, or say dividend, that money can give you!
The FIRE movement revolves around gaining this ability and freedom. The idea of Financial Independence and Retiring Early has boosted exponentially within the last few years. Most of the Millennials and Generation-Z people are hustling to achieve the F.I.R.E.
In this article, I will break down all the answers to every question regarding the F.I.R.E movement. I will share its meaning, purpose, my opinion, worldwide opinion, and yes, I will also share the ways by which you can be a part of this movement too.
Table of Contents :-
What is the FIRE Movement?
Its name accurately defines the purpose behind this movement. FIRE stands for Financial Independence, Retire Early.
People following this movement, or say “Trend”, prioritize their lives to gain financial independence and retire as early as possible. The goal is to invest as much money as possible to gain maximum profit and then retire from their jobs to gain the freedom we talked about earlier. If we talk about numbers –
People who religiously follow this movement start saving and investing their incomes as early as possible, i.e., between the ages 20-25. The percent of the money that goes into saving and investing is as much as 50-70% of their income. That’s crazy, right? This is what we call aggressive investing; all this is done to retire as early as possible, i.e., in their 30s or 40s at max!
But how is it possible? How can you save 50-70% of your income and still manage to stand your daily expenses, let alone the luxuries you want? This takes us to the less popular concept behind FIRE. Besides investing and retiring early, FIRE is also about keeping the daily expenses really-really low and finding ways to increase income.
More the income, lesser the expense ratio! The more you earn, the more you can invest! Let your money work for you.
Types of Retirement in FIRE
In our senses, retirement means quitting a job and relaxing for the rest of our lives and spending the money we have saved all this while. So, the first way is –
Save most of your income and invest smartly to get at least 20-30% returns per year and retire with the compounded amount. The retirement period and corpus amount totally depend upon your investing period and amount. Say, you want to retire with a corpus.
We will apply the rule of 4%. The 4% rule for Financial Freedom states that the required corpus for your retirement is –
Corpus = 25*Annual Expenses
Eg – Your annual expense is 5,00,000, then you’d need an amount of 25*5,00,000 = 1,25,00,000. Now you can put half of it in some Equity and other half in Fixed Deposit. Withdraw 4% every year, i.e. 500000.
Do you get it? This is one way to invest for a period and retire with the corpus you need. But this takes a considerable amount of time. Say, 15 to 30 years.
But, when it comes to F.I.R.E., there is one more type of retirement that seems much more fun and smarter.
Building and scaling your own business or passive income tends to grow and generate regular income without you having to intervene or perform any task. For example – let us suppose your YouTube channel. Once you build up your YouTube channel, gain followers and a massive audience, you can basically stop working for a while, and the channel will still earn you an income based on your past videos. You can go from uploading one video a week to just one video in a month or two, and you will still be getting money every single month.
The same goes for several businesses where you can establish a name and hire other people to do the job while you relax and enjoy your royalties.
You can rely on many ways when it comes to this second type of early retirement.
Should you tag along with the FIRE Movement?
As we talked about earlier in this article – The ability to do whatever we want, when we want, with who we want is the biggest profit money can get you. Now, ask yourself. Do you want such freedom? Will you be happy if you had all the time in the world for yourself and the people you love? Would it be great if you were not supposed to show yourself at the office every day and live paycheck to paycheck?
If ‘Yes, then you must give it a go. If you are young and in your 20s, this is the best time to follow this FIRE movement.
But it’s not as easy and sizzling it sounds. It comes with a lot of sacrifices and hard work. So in order to retire early with a sufficient amount of income stream to spend the rest of your life, you need to devote some of your years working hard.
You will have to –
Grind every day to build multiple sources of income.
Sacrifice the luxuries and fantasies for a while.
Learn investing and invest at least 50% of your income every single month.
Live far below your means.
But it’s not as difficult as it sounds too. Living below means avoiding luxuries is not a big deal. It will only bother those who are bound to the Consumerism approach. People need to understand that life can be beautiful and fun even without luxuries and materials!
The FIRE movement may or may not be for you. If you think it is, then begin today itself. You just need to love the process and enjoy the journey to your financial freedom!
How much money will you need to become Financially Independent?
When we generally ask someone about the amount they want after retirement, the answers we get are completely absurd and dreamy.
But in actuality, the amount that someone really needs post-retirement may be way low or way high than they could have ever imagined.
In general, it is advised to have at least 25-30 times the amount of your yearly expenditure. But this amount is not final. This is taken into consideration that this amount is invested as a whole, and you live on the returns that you get off of this amount.
This is still not the final line. The amount you really need post-retirement can never be determined because it depends on numerous factors, i.e., your expenses, family members, market situation, your retirement period, etc.
So, the best advice is to save as much as you can & invest as much as you can.
Basic Roadmap to FIRE
Although everyone has a different way and motive to attain financial independence, some of the steps are common for every person out there –
- Debt: Get rid of all Debts. Debts will prove to be your worst nightmare. Unless you cancel out the negative, the positive can’t be stacked up.
- Build an emergency fund that can cover at least 6-8 months of your expenses. Be it for unexpected circumstances or as a backup to fund your future business or anything. Have it!
- Along with building an emergency fund, create a budget that suits you. Take into account your income, expenses, and future plans.
- Save at least 30% & Invest at least 20-25% of your income every month. Preferably, in some Index Fund if you do not have much knowledge of the market. Moreover, it would be best if you diversify, say – Index funds, Stocks, PPFs, real estate, etc. wherever you find suitable.
Above mentioned steps are the most basic ladders to climb the FIRE mountain and are applicable to almost everybody.
I hope you’ve understood the basic concept of what Financial Independence and Retire early is all about. All you need to do here is – Be smart with the income you have, invest as much as you can, and look for ways to scale your income. All this while enjoying your life too! Saving and investing is not always about being fiscal and frugal.
You can have a free detailed session with me on this. How to start, scale, and everything. It’s all free. I’d love to talk to you. Schedule a call with me here.
Till then, Happy Investing!