The Goal of this Website is to help you achieve FIRE. Start Here for a brief introduction to the What? and Why? of FIRE.
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What is FIRE?
FIRE — Financial Independence Retire Early.
I am not aware of the origins of the acronym and to be honest, I have made no efforts to find out either. The reason is that it is not important. What is important is what it implies.
FIRE as the acronym indicates, is all about the pursuit of Financial Independence and Retiring Early. Now let us break it down a bit.
Retiring
This is something the Baby Boomer Generation took for granted. A typical comfortable Boomer retirement in the USA would mean a 500K $ — 1Million $ House and about 500K$ in 401K and other investments.
(Please note that most of the retirement benefits were Defined Benefit where the Pension Fund Management stipulated a fixed benefit pay-outs regardless of actual investment performance. This has changed over the course of time to Defined Contribution, where the only thing fixed is one’s contribution into the fund and not the pay-out which depends on market performance. This implies that the fund subscriber bears the risk of market performance. )
Retiring Early — One important thing to note is that Retirement was and is typically linked to an age instead of a $ amount — 60 Years. This seems to be the magical universal average number.
In summary, a typical best case scenario Retirement looks like this. Graduate -> Find a Job -> Marry -> Buy Home -> Raise Kids -> Pay off Mortgage -> Retire at 60 -> Enjoy the good Life (for about 10–30 years) -> Die Gracefully (If possible)
Getting back to FIRE, any retirement <60 is retiring early by definition.
Financial Independence
I would define it as
‘A state where one has enough wealth that he or she is no longer obliged to work for money’
Financially Independent people may choose not to work at all. They may also choose to work, but not out of necessity (money).
Financial Independence does not mean making near infinite amounts of money, like several Billions of $s. It is a lifestyle choice in many ways. In most cases it is about deliberately choosing the minimum acceptable standard of living that affords the earliest date to retire.
In summary, FIRE is all about achieving the state of Financial Independence before the standard age of Retirement.
Now that we know what FIRE is, let us move on to the more important question of ‘Why FIRE?’
Why FIRE?
Although aiming for FIRE is a very personal decision, I believe that everyone should aim for it. Below are the list of reasons why I think so.
To Learn
What a time to be alive! The joy of learning is something indescribable in mere words. The cost of learning has tumbled down to Zero! Of course the cost of obtaining branded pieces of paper also known as degrees has inflated to stupendous figures. Regardless, we are in a period of history where one can afford to learn anything. The only requirement is Time.
FIRE gives you the opportunity to learn what is important to you instead of learning what is important to your current or prospective employer.
Travel
We are in a special goldilocks situation when it comes to travel, more so in the past decade. The oil prices have been historically low leading to low cost air travel. Newer aircraft like the Airbus A320s , Boeing 787 Dreamliners have made air travel safe and comfortable (I still mourn the demise of the A380).
There are no major global pandemics that completely prevent world travel other than fairly regional and well-contained outbreaks like Ebola, Zika etc.
Historically speaking we are at one of the most peaceful periods with no major conflicts around the world.
Most importantly we now live in special times where the world is connected enough but not too much so as to not lose the cultural diversity. Sure, one cannot tell where one is when inside a mall in Manila, Bangkok, Toronto, Bangalore etc. But, fortunately, the hinterlands are still untouched as of the writing of this article. I speculate that this would be the case for the next decade at the least. The 100% cultural homogeneity state is being rapidly exacerbated by social media. Not that it is a bad thing, but personally speaking it takes out one of the incentives to travel — Cultural Exploration.
FIRE allows you to travel and explore the only planet we have and can explore(for now). More importantly, it enables you to find opportunities for geographical price differences and leverage them to your advantage. Ex: getting a knee replacement in Mexico + Few months of luxury vacation costs a fraction of what it would in the USA ( depending on the structure of your insurance of course)
The Gig Economy
The current state of the job market in the developed world is rapidly moving towards the so called Gig Economy. In a Gig Economy, an individual’s career is a succession of Gigs instead of a Career.
This is no longer a fringe phenomenon, According to a 2016 McKinsey article, there are about 150 Million + independent workers in the developed world. Individuals are being pulled into this mode of working either willingly or unwillingly.In addition to this, fewer still are aware that they now operate in a Gig Economy.
Ex: A Knowledge worker might have worked in the same Software Firm for the past decade but the work he or she has done over the decade has changed drastically. The worker has to constantly learn, unlearn and relearn a host of skills to remain relevant. The worker implicitly moves from one ‘Gig’ to another.
Being part of the Gig economy means that there is very high uncertainty in income . Gone are the days of a steady paycheck with known increments, predetermined bonus percentages, planned vacations and employment benefits like insurance. The individuals in the Gig Economy are responsible to manage all of these on their own. Even having some semblance of a financial cushion can reduce the anxieties caused by being part of this new economy.
FIRE is more relevant in the Gig economy as it removes the uncertainty of income that is strongly associated with it.
Automation
One often hears hipsters complain about the rich getting richer, Evil corporations, Wealth concentration etc. They are not completely wrong. There has been a greater increase in the concentration of wealth. One of the main drivers for this has been automation.
From an economic perspective, automation is a double edged sword for the worker. On one hand the worker faces the uncertainty of current and future employment in the job market, while on the other hand, the gains of such automation increasingly go towards the investors or the capital holders.
Automation disproportionately benefits investors vs workers. If I had to put a number on it, I would say the split is 99 to 1.
FIRE enables you to transition from being in a state where your life is at the mercy of automation to one where you benefit from automation.
Developed and Accessible Capital Markets
We are in a world where access to investing has become easier than ever. Gone are the days of sleazy brokers and opaque price structures. Wallstreet can no longer take the Mainstreeters for a ride. Thanks to the likes of Mr, Bogle, the founder of Vanguard, the true colours of these smooth talking salesmen have been exposed.
Digital exchanges, Digital banking and Financial services have made the movement and investment of money easier than ever.
Access to Capital Markets through ‘easy to understand and invest’ instruments like Index ETFs allows the small investors to reap the benefits of capitalism.
These tools and opportunities make FIRE easier to achieve both in terms of the amount required to FIRE and the time taken to achieve it.
Deferred Life Plan
One of the worst states to be in, financially speaking, is to have led the good life when young and face poverty in old age (having led a poverty stricken life when young and also facing poverty when old is not the worst, mainly due to the fewer number of regrets).
The second worst thing is to have led a life of deferring all enjoyment only to die rich without having had the chance to enjoy any of the fruits of one’s labour.
The current work setup, or the standard formula prescribes that one should do nothing but work, however unpleasant it may be, until retirement and once retired , one can enjoy the good life. If, enjoying the good life is the goal to begin with, then it is smarter to achieve it more efficiently. i.e. With lesser time and resources.
Aiming for FIRE puts one in such a mindset. This is slightly controversial as some of the implications of FIRE means that you end up saving a major percentage of your earnings leaving very little as spending money. The short answer to this is to find the balance and draw the line. Like everything in life, it is a trade-off.
The important point is to understand what the trade-off is. Many a times it is hard to decipher unless put it in the right context, ex: One way to structure spending decisions is — Buying a brand new car vs an used car adds 5 years to your retirement date. Now it is up to you to choose between 5 years of additional work or a Newer Car.
Freedom
Freedom is probably the single biggest reason to FIRE in my opinion. Financial Freedom is a prerequisite to most other freedoms. Being free to spend your limited time on this planet to do things that you think are important is probably something I wish for myself and everyone.
FIRE frees you from the evils of the Debt Trap, the seduction of consumerism and the desperation of buying happiness.
FIRE allows you to be yourself, go on the long and interesting journey of self-discovery. It inculcates a strong form of self-discipline that can be a true life skill.
FIRE allows you to choose to make a difference to the world. It allows one to take up meaningful causes instead of pandering to the greed of the owners of capital alone.For example, It has been my dream to teach science to the younger generation, a pursuit that FIRE can enable.
Your life is too precious to be spent losing sleep over making someone else rich in exchange for the deferred life plan while living in a constant state of fear of getting fired. Instead, choose freedom and life!
Go FIRE!
I would like to end with the re-retelling of the story on JL Collins Blog It goes something like this.
Two childhood friends go their separate ways once they reach adulthood. They happen to meet after several decades. One of them is a minister in the court of the King of the Land and the other is a monk at a monastery.
The Rich Minister takes pity on the monk who is dressed in humble orange robes with no worldly possessions. He says, ‘ My Friend! You don’t have to eat that simple porridge if you serve the king like I do!’.
The monk quietly responds, ‘If you can learn to enjoy the simple porridge, you don’t have to serve the king!’
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