#4 How to achieve FIRE?

In this day and age, youngsters are now aiming to work to live and lead a better life and not live to work and toll away at their jobs forever. A traditional 9-5 is not considered the only way to make money anymore. People are focused on exercising more control over their time.

While the importance of financial independence and planning has always been present, there is now a growing trend of early retirement as well. The FIRE (Financial Independence, Retire Early) movement was started to cater to the section that wants to achieve it. Let’s look at the terms individually:

1. Financial Independence: This essentially means that your annual return on investment (ROI) can cover 100% of your annual living expenses, making your job a choice, and not a necessity.

2. Retire Early: This implies forgoing the traditional retirement age of 60 and choosing to retire early, to engage yourself in other enjoyable activities, or live on a beach-side villa in Goa or in a cottage in Manali, just because you can.

Let us understand both these terms, with an example. Suppose, you have an annual (in hand) income of 10,00,000 INR, and your annual living expenses are around 4,00,000. The remaining 6,00,000 can then be used to invest in various assets such as stocks, mutual funds, dividends, bonds, etc. Assuming a very modest 20% ROI, your 6,00,000 will grow to 7,20,000 over the course of a year. You then re-invest this money and keep the cycle going till you hit your dream number.

To calculate your dream number, referred to as the FIRE number, you multiply your annual living expenses by 4%. So, in this case, 4,00,000 × 25 = 1,00,00,000. This essentially means you need to have 1 crore in your bank account to cover your living expenses indefinitely, assuming you only withdraw 4% of the money and keep your lifestyle moderately same.

Now, say your in-hand income now goes up at 15,00,000, assuming a 50% hike. Here comes the tricky part. If you want to achieve FIRE, you should not increase your living expenses with your income. They will need to stay at the same level as before. Your new income now gives you more leverage as you can save and invest more, and in turn earn more return.

The two keys to achieving FIRE requires a tremendous amount of self-discipline. You need to save wisely and invest cautiously.

Are you feeling inspired or uninterested by the FIRE movement? Do you wish to plan to retire early?

Let me know in the comments!

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