FIRE [Financial Independence, Retire Early]

Greetings all!

A great article caught my eye in the May-2018 issue of the Money magazine. The Editor’s Note was catchy - “This Issue is on FIRE.” FIRE stands for “financial independence, retire early” as described in the 1992 book by Vicki Robin “Your Money or Your Life” (which I plan to read soon!).

                  Image from https://pixabay.com/en/photos/investment/

The article by Elizabeth O’Brien starts with this, “Vicki Robin wrote a book on retiring happy.” I read this sentence and thought to myself, “Where do I sign up?!!” Here is my summary/interpretation.

FIRE is about shifting your mindset and transforming your relationship with money. “It’s not about becoming rich; it’s about figuring out how much is enough.” OK, doesn’t this sound like LAGOM I wrote recently about?? Not too little, not too much! You want to make a life rather than a living. 

“The goal of the movement is to gain financial independence, meaning you’re no longer relying on paid employment to keep afloat.” Once you get there, you have to figure out what you will do with the rest of your life. For some people, having an empty calendar is a scary thing, and some research links early retirement to premature death. You have to plan wisely and prepare for the retirement!

To get there, you have to track each purchase and be mindful of the real cost of items. Think about dollar amounts as “hours of life energy” (I really like this concept!). The example in the article is this: if you make $300 a day and want to buy a $100 pair of shoes, you have to ask yourself “Are those shoes really worth nearly a third of a day of your precious time on earth?” This is a general example as it does not seem to consider taxes taken out of a paycheck!

We often do not think of how much an item REALLY costs. Many of us can benefit from a more intentional purchasing – do we really want to work that many hours to buy this extra item to put into our already oversized closet? If the answer is yes, at least make sure this item sparks joy!

Some FIRE adherents go to extreme lengths – taking the bus and scrimping on food – all to be able to put $150,000 a year (yes, you read this right!!!) into savings. The couple featured in the article has 2 rules: 

1. Educate yourself
2. Stay away from stuff [“Don't attach purchases to happiness.”]

Hard to argue with either rule as they both make a lot of sense! Of course, it is up to every person to decide how much, if anything, to sacrifice now in order to be at least financially comfortable, if not financially independent. While simultaneously planning for retirement! Although perhaps part of the mental shift is not to think about this as sacrifice?

Here is a good retirement advice (for any age): “you need to save up at least 25 times your annual expenses.” You invest your savings to later withdraw 4% for your living expenses, adjusted for inflation. I have seen 4% withdrawal rate referenced in many other sources; however, keep in mind, people now live longer, and general prices rise, with medical costs rising even more drastically.

I like how Elizabeth (the author of the article) asks her readers “Think you have what it takes to play with FIRE?” and lists specific FIRE steps: 

• Calculate your net worth
• Track every penny you spend
• Question every spending decision
• Find cheaper substitutions
• Invest in low-cost index funds [Robin also recommends buying real estate so your tenants can cover living expenses]
• Map your “crossover point” – when your total monthly income from your investments exceeds your monthly expenses. 

I really enjoyed the article – very good tips and a lot of food for thought! You can read the full article here: http://time.com/money/5241566/vicki-robin-financial-independence-retire-early/

What did you think? Drop me a line!