Is Early retirement and FIRE only for Rich? What if my salary is low?

A salary of Rs.30,000 is enough to FIRE. Here's an example (with excel calculator) of a 27yr old Hero in India on journey to FIRE by age 49 with low salary

A lot of people brush FIRE aside stating that it is only for the rich and those earning a very high salary. In this article, I am going to debunk it, showing how someone earning Rs.30,000 salary can start saving and still reach Early retirement. Our Hero, earning Rs.30,000 right now can still reach Financial Independence by age 48! if you are not sure of FIRE read this first, FIRE movement and what Financial Independence and Retire Early is about.

You can FIRE with a low salary. If someone tells you that you can’t, tell them to shut the puck up and read this article. Let me introduce our hero in this example, I shall call him Hero. His salary is Rs.30,000, he has 1 child and 1 wife and no dogs or cats. He is a good kid who supports his parents, does not gamble, drink (too much), no cigarettes and leads a simple life.

Income and Expenses of someone on low salary

Monthly Income30000
School fees & Other lifestyle expenses-6000
Gives Parents for expenses-4000
Electricity, mobile, broadband, Cable TV-2000
Remaining Balance5000

This is my assumptions of what our Hero is going through. I have been quite liberal and only assuming he is able to save Rs.5,000 from his salary every month (about 16%, well below the 50% or more suggested by FIRE enthusiasts).

I too would encourage our Hero to save more, but for the sake of this example, let us assume the following:

  • Hero does not do any part time jobs or earn additional income
  • Heroine (Hero’s wife) is a homemaker and does not earn any income
  • Hero is 27 years old right now
  • Hero’s may or may not have a PF and Pension fund. I have excluded it from the calculations. With this, he can become Financially Independent sooner
  • Hero may or may not earn an annual bonus, I have not considered it in my calculations. If he does, keep that for additional luxuries and emergencies
  • Hero’s parents depend on him for the whole 22 years he is on his FIRE journey

Story of our Hero on FIRE

Hero is 27 years old and on a salary of Rs.30,000. Of this he gives Rs.4000 to his parents every month and manages rent, school fees, groceries and other expenses. He is left with Rs.5,000 to save. Hero sees Abhi’s articles on about getting financially independent and wants to start too 😉

He plans, does his research and says the following:

  • I am 27, I wish to become Financially Independent by age 49, that is 22 years from now
  • To do this, I will save Rs.5000 per month and also increase this monthly savings by 8.5% every year
  • I will invest in low risk funds, deposits, Post office savings schemes and instruments that give me 8% per annum returns consistently
  • I am spending Rs.25,000 per month right now.
  • I consider inflation to be at a constant of 5% every year.
  • Using the 4% rule, I see that I need a retirement corpus of Rs.75,00,000 to be financially independent

Heroine on hearing this is super excited and loves Hero all the more for being super smart and savvy. Hero’s father who retired at the ripe old age of 68 laughs sarcastically. Hero’s mom is not in the scene.

FIRE Strategy for someone on low income

Here is the excel file our Hero created that shows how he can still go for Financial Independence and Retire Early on a low salary. His FIRE strategy is simple, keep investing, increase investments by 8.5% annually, and invest in low risk opportunities that provide at least 8% returns.

For those who are too lazy to check the file out, here is what it says:

  • Hero consistently saves money for 22 years
  • At the end of 22 years, Hero has a retirement corpus of Rs.75,00,390

All assumptions and how things can work out for our Hero

The corpus of Rs.75,00,000 is based on the 4% rule (quite popular and endorsed by most experts) which states that you draw down 4% of your portfolio annually to take care of your expenses. Now apart from this Hero can do a couple of more actions to enhance his corpus and reach FI sooner or have a greater corpus:

  • Pick up freelance or part time jobs and hustles to make more money
  • Hero’s wife too could pitch in and help make some money
  • Any annual bonus and windfalls is plugged into savings
  • Hero has a PF accumulation over the 22 year which will be a substantial Rs.16,78,000 at the time of retirement

At the age of 49

At the age of 49, our Hero has three choices he can take

  1. Retire and live the rest of his life with the corpus he has saved up

    He is now financially Independent and is no longer dependent on his job for monthly income. So if he wishes to retire, he can

  2. Continue working

    He can, if he does not want to stop working, continue working. He will be earning a larger corpus and when he chooses to finally retire, a good corpus to retire comfortably.

  3. Quit his job for a less time consuming job or Downshift

    He can downshift by reducing his weekly working hours for a lower pay, or choose a freelance or part time job to keep himself occupied and without fear of a monthly income

Some frequently asked questions about FIRE on a low income or salary

Can I start FIRE if I am already beyond 40?

Yes, this depends on how much money you already have. Even if you have no savings or investments so far, you can start saving more and follow other principles of FIRE. You may not be able to Retire Early as it is a bit too late. However when the time comes for you to retire, the wise decision you made of starting on FIRE will ensure you have a much better retirement corpus.

What if there is a stock market crash or recession and my investment is in trouble?

You should still not be in too much of a difficulty. The 4% rule has been statistically tested through 2 major recessions and holds true. You should have a balanced portfolio that can withstand these events. Nevertheless, if you have achieved Financial independence with no buffer and feel there is a risk, keep yourself occupied after retiring too and continue earning a bit on the side.

What if my salary does not increase every year?

Contrary to what you believe, your salary increasing is in your hands. You need to upskill yourself and seek a different job if your current one does not pay sufficiently. If you are complacent then you won’t get what you want. “If you keep doing what you have been doing, you will keep getting what you have been getting”

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Abhi is a 29 yr old Indian, on FIRE to retire by 40. He has been investing and learning Finance for the past 12 years. After completing Mechanical engineering, he started working in a multi-national Bank and grew to become an AVP. Currently with an IT MNC as a VP. He lives in Bangalore with his wife and their 1 year old daughter. In his free time, Abhi loves to game on the Xbox, watch movies, read and blog.

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