Viraj Khatavkar
Understanding the FIRE Movement

What is this F.I.R.E. Movement?

FIRE is an acronym for Financial Independence Retire Early. The goal is to save enough money to retire early around the age of 35-45 rather than the traditional age of 55-65. It feels almost laughable to think that we can retire by the age of 35. But hear me out, many people have done this at the age of 28 or 32 or 35. Now, this is not some get rich quick bullshit.

Studies have shown that once we save 30 times our annual expenses, we can retire early if we invest that money in a portfolio of stocks and bonds. The Trinity Study (conducted in the US) has shown us the rule of 4%. This rule states that if we only withdraw 4% of our initial portfolio every year, we would be able to sustain our lifestyle for a long time on our retirement corpus. Depending on how much we invest in stocks or bonds, the rate of withdrawal can change between 3-4%.

What's the catch?

The main catch is that we have to save 30 times our annual expenses. We cannot have a goal of retiring early and spend extravagantly. Some compromises are needed. People following FIRE invest about 50% to 70% of their salary for over eight to ten years. Cutting expenses doesn't mean leaving frugally on rice and dal. We have to focus on saving our money on significant expenses like a luxurious house, a fancy car, or a new cellphone every year.

At the end of the day, it depends on our priority. What is essential for us? A fancy car or control over our time? That's the only catch.

How to save 30 times Annual Expenses

In a regular year, we tend to save around 10% to 15% of our annual expenses. For achieving FIRE, we would need to save more aggressively. Assuming that the income and expenses remain the same, it has been observed that:

  • At a savings rate of 10%, it takes 9 years of work to save for 1 year of living expenses.
  • At a savings rate of 25%, it takes 3 years of work to save for 1 year of living expenses.
  • At a savings rate of 50%, it takes 1 year of work to save for 1 year of living expenses.
  • At a savings rate of 75%, it takes 0.33 years of work to save for 1 year of living expenses.

As we can see above, if we save aggressively, it takes around ten years to save 30 years of annual expenses. But that's not the end of it. If you invest this money, it will take much less time to reach our goal.

Types of FIRE

Within the FIRE movement there are many different approaches to follow. Here are the most popular of them:

Fat FIRE - People who want to splurge on some luxuries in their retirement follow Fat Fire. It is recommended that we save around 45-50 times our annual expenses to follow this strategy.

Lean FIRE - This for those of us who want to live a very minimalist lifestyle. If you are a very frugal person, you can follow this strategy by saving around 25-30 times our annual expenses.

Barista FIRE - It is for people who want to quit their traditional 9-5 job but can do a part-time gig or a side business to cover their expenses. The retirement fund can be left aside to grow for retiring fully in 10-20 years.

Coast FIRE - It means that we have invested enough money at a young age to stop contributing to retirement savings. The corpus can be left untouched to grow until our traditional retirement age, like 55-65. This allows us to use our salary for any expenses that we want. We don't need to save more.

Why Financial Independence - My Take

We have to decide for ourselves about what is essential for us? Financial freedom to live our lives in our way OR to be tied to a job for our whole life to satisfy our material needs and lavish expenses. For me, financial freedom is vital. Even if we are working for one of the world's best companies, we are never free. It is more about spending my time on my terms. I don't want to be answerable to anybody for my time. What's the use of working a day job for 30 years and seeing our life go by in vain!! I want to spend my day reading books, going on trips, spending time with my family, and pursuing my hobbies. We get one life to live. I don't want to waste it in a meaningless material rat race. Having a successful business is one way to live our lives in our way. But it's very tough to run a profitable business. More than 95% of people fail at it. Another way is to be financially independent. More than 95% of people can achieve it if they have their priorities right.

At last I'd like to leave this quote to think about:

"We either make ourselves miserable or we make ourselves strong. The amount of work is the same." -- Carlos Castaneda

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