What is FIRE:
FIRE is a short form of Financial Independence
Retire Early. It 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.
For Example:
A 30 yr old person with monthly
expenses of ₹ 75,000 per month (or ₹ 9 lacs a year) who has 18 lacs of current
corpus and is ready to now aggressively invest Rs 80,000 per month for the next
15 yrs and will increase the SIP by 8% each year. The investment growth will
happen at 12% and the inflation assumed is 7% (pre-retirement) and 6%
post-retirement along with post-retirement returns of 7%. 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. And his corpus will be around 32X (32 times his
expenses).
However, it does not mean that
you just stop working. 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.
Why people want to achieve
FIRE:
The main reasons to achieve FIRE
are:
1. In today’s fast and highly competitive world, It’s
getting tougher and tougher to be employed till 60, hence people don’t want to
depend on the fact that they will keep earning for a very long time.
2. Once we achieve FIRE. Life is easy, and we
get the power to live life on our terms. People want to create a situation
where they don’t have to dance to the tune of their bosses and employers.
3. As we grow older, we want to get out of
stressful and demanding jobs. We prefer a more enjoyable job, even if it pays less.
This is possible only when we have already created enough wealth.
How to achieve FIRE:
It’s not that easy. Most of people
can’t meet their expenses even after working till the age of retirement i.e. 60
years. However, prudent planning and smart investment management can help you
to achieve it. Some basic ingredients to achieve FIRE are:
1. We need a very aggressive
saving (40-60% of income) and deploying that money in smart investments.
2. We need to keep our expenses
in check and keep it on the lower side, because FIRE is not just about wealth,
but both wealth and expenses.
3. To achieve FIRE we need to
have good earnings so that enough amount can be saved. If you earn 3 lacs a
month and your expenses are 50k per month, You are earning 6 times of expenses
every month. That helps a lot.
4. If you are not able to control
your lifestyle and keep upgrading then it will be tough to achieve FIRE despite
having good wealth as the goalpost keeps shifting.
5. The saved money should have
been invested smartly where it can earn inflation-positive (more than
inflation) returns, then only we will have positive wealth to achieve FIRE.
And Finally:
FIRE is a concept and based on
mathematical models and calculations. A small difference in inflation or
returns assumption can change the target amount or target year by a big margin,
hence you should consult a good financial planner to project your calculations.
Also, these are all complicated topics in reality, but for discussion’s sake,
these points look simple, so better to take an expert’s guidance to get actual numbers
for your own FIRE.
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