Ready, Aim, FIRE to retire early

The idea of FIRE is about wealth accumulation while you're young so you can retire in your 30s or 40s. FIRE tends to be about yield investing where you look to live off the passive income created from your investments for the many years before you super kicks in. FIRE believers see it as the new age financial freedom with a safe investing ‘work optional’ philosophy.

And to be honest it's not just about the young this is about getting people of all ages to engage with their future finances and living in a more sustainable way.

What are the principles of FIRE?

It does have some brutal principles. Here are basics:

• Embrace a frugal lifestyle
• Pay off your debts as fast as you can
• Calculate how much money you need to live off each year and stick to it
• Set up a detailed budget
• Cut non-essential spending
• Save as much as you can
• Increase your income
• Invest for your early retirement

There are clear advantages and disadvantages to FIRE. The standout advantage is that FIRE gives you a very strong investing goal and structure, with a habit-learned lifestyle. The standout disadvantage is during accumulation phase the lifestyle needed can only be described as ‘minimalist’ at best, restrictive at worst.

So if you were to adopt the fire principles it leads to next question:

How much do you need to retire (early)?

FIRE principles suggest that you will need 25 times your annual expenses in investments and that once in (early) retirement that you withdraw no more than 4 per cent per annum from them.

Let’s do some sums on this – if your household expenses are $50,000 a year, 25 times that is $1,250,000. That should give you $50,000 a year to live on until super kicks in to sustain you in later life. Again, the caveat here is sticking to the FIRE principles of minimalist living and investing wisely. Further to this the FIRE movement suggests that you need to be saving 35% of your income during accumulation phase – after tax. Which is near enough to 50% of your take home pay going into your (early retirement saving plan)

Is FIRE achievable?

For some yes. However, we want to look at FIRE a bit differently and that is we think you can take the best bits out of FIRE movement and use them to your advantage without some of the restrictions.

• We love the investment discipline it can instil.
• That it creates an investing strategy that is long term focused.
• Makes you make regular contributions for dollar-cost averaging as you are saving for your “Financial Independence”.
• And that it advocates for investing in strong long-term assets and developing a savings mindset.

These principles we think make the FIRE movement something to study and admire for its best bits. But the full movement is not for everyone.

Being frugal is part of the FIRE strategy, so get frugal on fees as well by using an InvestSMART Diversified Portfolio with capped fees.