The FIRE (Financial Independence/Retire Early) movement has got quite famous for the last couple of years in India. Every investor I meet these days wants to achieve FIRE asap. I would like to discuss some important points related to FIRE movement & types of FIRE today with you all.
What is FIRE Movement? : FIRE or Financial Independence Retire Early is all about creating enough wealth for yourself as early as possible, so that you are financially independent and free from worries of money. Once you achieve FIRE, your wealth is enough to generate an inflation-adjusted income for you which lasts your lifetime.
Let take an Example : Imagine a 30 yr old person with the monthly expenses of ₹ 75,000 per month (or 9 lacs a year) who has ₹ 18 lacs of current corpus & is ready to now aggressively invest ₹ 80,000 per month for the next 15 yrs & will increase the SIP by 8% each year. The investments growth will happen at 12% & the inflation assumed is 7% (pre-retirement) & 6% post-retirement along with post-retirement returns of 7%.
How will his corpus grow & where will it at age 45 (in 15 yrs time) : He will achieve FIRE at the age of 45 with a Corpus of ₹ 7.2 Crores. At that time his expenses would be around ₹ 22.8 Lacs approx & his corpus will be around 32X (32 times his expenses).
Do you actually stop working when you achieve FIRE? : Actually NO
It’s your choice if you want to work after FIRE or not. You can stop working if you wish, but if you still want to work, you can & any money you earn will be a cherry on the top and will only add up to your FIRE goal.
Top 3 reasons why people want to achieve FIRE?
1.It’s getting tougher & tougher to be employed till 60 these days & hence people don’t want to depend on the fact that they will keep earning for a very long time.
2. Once you achieve FIRE, life is less stressful & you get power in you to live life on your terms. People want to create a situation where they don’t have to dance to the tune of their managers & employers.
3. People also want to get out of stressful & demanding jobs by the time they hit a mid-life crisis & that means moving to a job that is more enjoyable, even if it pays very little. This is possible only when you have already created enough wealth
But, FIRE is tough!! Is it very easy to achieve FIRE? : NO, is the answer
1. Forget FIRE, even normal retirement at 60 is not possible for many people in India. We can clearly see that a big number of investors will have a bad retirement because they are not living their financial lives in the right way & are not on the path to creating sufficient wealth.
2. FIRE in that sense will only be achieved by a small minority.
a. Most of the people who achieve FIRE do that not because of fantastic returns, but very aggressive saving & deploying that money in meaningful investments.
b. If you keep your expenses in check & keep it on the lower side, it simply means that it becomes easier for you to achieve FIRE because FIRE is not just about wealth, but both wealth & your expenses
c. Most of the people who achieve FIRE are those who earn quite well. If you earn ₹ 1 Lacs a month & your expenses are ₹ 50 k per month, You are earning 2 times of expenses every month. That helps a lot
d. Most of the people who are not able to control their lifestyle & keep upgrading their life find it tough to achieve FIRE despite having good wealth as the goal post keeps shifting.
In simple words, if you want to know how does a person who achieves FIRE looks like, its like this :
1. The person has a very good income
2. The person saved a very big portion of that income (often more than 60-70%)
3. The person is not extravagant and mostly lives a frugal and simple life (but not compromising on fun and desires)
4. The person makes sensible investment choices (often earning at least more than inflation)
5. The person has mostly created liquid assets and not blocked his money, because you need to generate cash flow at the end
5. The person is quite confident of managing the money post FIRE & earning decent returns (he won’t keep all money in FD)
What is COAST FIRE? : There is one more concept called Coast FIRE, which is something many of you may have already achieved.
A person is said to have achieved Coast FIRE when he/she has enough corpus already which will grow to FIRE corpus in the future without the need for any new investments. This simply means reaching a point, where you just have to earn money equivalent to your monthly requirements and wait for 5-10-15 yrs to achieve the actual FIRE.
This discussion above is just for basic knowledge. I would love to know what you feel about FIRE & what are your thoughts about it?
c. Most of the people who achieve FIRE are those who earn quite well. If you earn ₹ 1 Lacs a month & your expenses are ₹ 50 k per month, You are earning 2 times of expenses every month. That helps a lot
d. Most of the people who are not able to control their lifestyle & keep upgrading their life find it tough to achieve FIRE despite having good wealth as the goal post keeps shifting.
In simple words, if you want to know how does a person who achieves FIRE looks like, its like this :
1. The person has a very good income
2. The person saved a very big portion of that income (often more than 60-70%)
3. The person is not extravagant and mostly lives a frugal and simple life (but not compromising on fun and desires)
4. The person makes sensible investment choices (often earning at least more than inflation)
5. The person has mostly created liquid assets and not blocked his money, because you need to generate cash flow at the end
5. The person is quite confident of managing the money post FIRE & earning decent returns (he won’t keep all money in FD)
What is COAST FIRE? : There is one more concept called Coast FIRE, which is something many of you may have already achieved.
A person is said to have achieved Coast FIRE when he/she has enough corpus already which will grow to FIRE corpus in the future without the need for any new investments. This simply means reaching a point, where you just have to earn money equivalent to your monthly requirements and wait for 5-10-15 yrs to achieve the actual FIRE.
This discussion above is just for basic knowledge. I would love to know what you feel about FIRE & what are your thoughts about it?
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