Abhi
The concept of F.I.R.E movement (Financial Independence and Retire Early) is still poorly understood by a lot of us in India. To this day, I receive messages on social media from uncles who tell me I need to grow up, I am still a dreamer or a kid (I am 29 now BTW). They say I will not understand the difficulties without a job. So, this article is for all those who are keen to know what the FIRE movement is all about. No it is not about retiring early so one can chill out without a job!
Ultimate Goal of the (FIRE) Movement?
Let me start with the ultimate goal anyone and almost everyone who are on the FIRE movement set out to achieve. It is not to Retire. It is to remove dependency on a Full Time job for your expenses. Think about it, if you have a steady stream of income that allows you to live a content life, then your life is truly yours! You no longer need to worry about financial security and what happens if you don’t have a job.
Once you attain this goal, you are free to start pursuing other things you truly like. Start doing good at an NGO. Spend more time with your kids and family. Work for a job you truly enjoy, but that does not pay that much! Read, write, maybe even cut back on the number of hours you work as you no longer need to worry about a good appraisal. Life truly becomes your oyster.
Youngsters who say they are on the FIRE journey are not fools and lazy to stop working. It takes a lot more of planning to build up a saving for 40 years of retirement, than what it took our parents to work till 65 in order to retire. One needs rock solid discipline to consistently save smart, build a steady stream of income and manage money well. I spend over 5 hours every week planning my finances and FIRE strategy.
Financial Independence and Passive Income
Financial Independence is the state of existence where you are not dependent on any job or someone else for your expenses. Achieving Financial Independence is to have sufficient income to cover all your expenses.
Passive income is one of the most important aspects of achieving Financial independence. Passive income is income that you earn without doing any work. Here is a list of passive incomes you can earn:
- Income from rental properties
- Dividends from Mutual funds, stocks
- Returns from bonds, ULIPs, PF, PPF, VPS etc
- Patents and Royalties
- Interest from loans
- Returns from businesses where you are a silent partner
- Income from money generating assets such as loans, cars that you have given on rent, fixed deposits, Post office savings scheme returns etc
Once all of these put together are able to cover your expenses completely, you have achieved Financial Independence. So if you need Rs.70,000/month to take care of your rent, family, cildren education, travel, groceries etc. All your assets should be able to generate you Rs.70,000 every month for you to gain FI (Financial Independence).
Keep the Inflation factor in mind. Eg: If you have assets that generate Rs.70,000 fixed income every month and inflation in India is about 5.5%. Goods and services worth Rs.100 today is going to cost Rs.105.5 next year and Rs.111.3 next next year and so on. So your investments should be increasing their payouts by 5.5% or more if not, you loose your financial independence sometime in the future.
Retire Early and Do I have to?
My dad who is 60 right now retired about 3 years back. He is still not able to deal with it. This is the same for most Indians, in our world, we need something to keep us occupied. In FIRE, it is not a criteria or requirement that you retire and sit at home or in Phuket.
The whole point is for you to choose and do what ever you want to do after reaching financial independence. Of course, you can chill out in Phuket if you want to. Then again, you can continue working or study or even take up teaching any damn thing. You don’t have to care about money any more as your expenses are covered with the passive income assets you built to reach FI.
How does it work? Key principles of the FIRE Movement
Aggressive Savings
First and foremost principle of FIRE is to save a lot more than usually advised. Most financial planners tell you to save 10% to 20% of your salary. In FIRE, you try to save over 50% of your salary. Again, there is no fixed number here. You get to choose how much you save and based on this, you will know when you reach financial independence.
As an example, if you Earn Rs.10,000 per month and spend Rs.5,000 per month, then for every month you earn, you can retire for a month. So if you work for a year, you would have saved up enough to retire for a year. Here is a table that shows you how many years you would have saved up for with different % of savings. This is assuming you get returns that is equal to inflation.
| Total Salary | Expenses from salary | Savings from salary | Number of years you need to save for 1 year of retirement |
| 100% | 90% | 10% | 9.00 |
| 100% | 80% | 20% | 4.00 |
| 100% | 70% | 30% | 2.33 |
| 100% | 60% | 40% | 1.50 |
| 100% | 50% | 50% | 1.00 |
| 100% | 40% | 60% | 0.67 |
| 100% | 30% | 70% | 0.43 |
My example: I save about 60% of my salary. Here is my old salary update. At the time of writing this, I was saving about Rs.22,000 in cash and Rs.35,000 towards a home loan (yes I consider this as an investment). Now, I have been promoted since the time I wrote this and am now earning about 50% more (pre-tax) than what I mention in this article. As of today, my savings is around 68%. My monthly expenses are around Rs.45,000 (excluding Home loan which I consider as an Investment)
Build Passive Income
Passive income is the key here. You need to have consistent and steady stream of passive income to be flowing in that will allow for you to remain Financially independent. Make sure you are choosing safe opportunities.
My example: Read my monthly updates to see my latest passive incomes statements. I have income from loans, incomes from PF, dividends, alternate investments etc. As I’m quite young, there are a few risky bets I’ve taken. Don’t follow me. Instead, you should do your due diligence and research before putting your money anywhere.
Hustle all the way
You can look at picking up additional works and hustles and gigs (slang for short term/part time jobs) such as a independent consultant, freelancer, teaching and anything that will help speed up your savings. Write a blog (like I do!), teach something you are good or even start a freelance programming/content writing
My example: As I said, I write blogs. I also am a bargain and deal hunter. I try to save money on buying things and almost every paisa I spend.
Have a Clear F.I.R.E Strategy
A FIRE Strategy is another important aspect of your journey towards FI. You need to plan your expenses to the “T”. Plan for how much you will save, how you are going to invest your savings, how much money your investments will make etc. Have a clear monthly goal, annual goals and ultimately a goal till you reach Financial independence.
My example: My aim is to save up a total of Rs.5 Crores in 12 years. I have monthly targets, ROI targets, a plan that says in a year how much to invest where to balance risk and returns etc. Check out my monthly progress updates to see where I am in achieving this.
Frugal – only if you want to be
Just like most other things in FIRE, making sacrifices (that Netflix account or a holiday to Paris) is entirely your choice. For you are an intelligent adult who should be able to weigh decisions. There are a lot of people who criticize the F.I.R.E movement for asking for a lot of sacrifices and cutting down on a lot of luxuries. Well, if you want to reach financial independence quicker you need to make changes to your life. But you dont have to down right sacrifice everything and live the life of a hermit.
You get to plan your expenses, based on this you decide how much you will save. Based on this, you will know when you will reach Financial Independence and ca Retire early if you choose to.
My example: I have not made any major sacrifices from the time I started on FIRE, I have simply cut back on unnecessary parties, been a little more thrifty in hunting for deals and calculative in making spends. I still have the same level of lifestyle I had before starting to save for FIRE.
A few FAQs on the FIRE movement to sum up
No, this is your choice. Once you have reached your financial target as per your individual FIRE plan, you choose if you wish to continue working. The only difference now is, you working is optional and you are no longer dependent on your job for income.
You can use the 4% or 3% rules that basically say you need 25 times your annual expense (more if you go with 3%). This is a simple way that assumes that if you spend Rs.6,00,000 a year, you need a corpus of Rs. 1,50,00,000 (1.5 crores) to retire. The idea is you will draw down 4% of this money and that should last you for 30 years of retirement (including inflation)
This if your choice. The more you save, the quicker you achieve FIRE, however do not become a miser and make your life miserable by cutting back important things that make you happy
Yes, if you succeed, you are Financially independent and not longer dependent on your job for income. If you don’t succeed, you at least have more money saved than if you had not started on FIRE. Either way, start!
