If you are an avid financial reader, then chances are that you have stumbled upon the term – FIRE (Financial Independence Retire Early) – a movement that is spreading like a wildfire in the last few years. This concept is a life hack for the younger generation who want to escape their jobs early.
It is a lifestyle movement to achieve financial independence and make enough money for a sustainable retirement when you are much young, by following an extreme saving and investing technique.
The ideology behind FIRE originated in the US and some of its concepts were first published in a 1992 book, Your Money or Your Life, co-written by Vicki Robin and Jon Dominguez, who propagated the idea of living frugally and deriving income from investments to achieve financial independence early on in life.
It has two elements of financial planning – Financial Independence (FI) and Retire Early (RE). The former includes freedom from debt, having enough savings and investments, and creating passive sources of income.
Retire early simply means you work around your financial plan in such a way that you have repaid all your debts and have created enough wealth to suffice and are ready to retire in your 30s or 40s. This ideology differs from conventional practices. For example, when you think of financial planning you always look at upgrading your current lifestyle, but FIRE would require you to live a frugal life even after retirement to just cover your monthly expenses.
Frugal living means just focusing on your necessities and cutting down on all other expenses like restaurant outings, movies, lesser use of electronics, buying used stuff, etc. In today’s world when being flashy and thrifty is fashion, adopting this ideology requires you to be at the other end of the spectrum.
This movement has gained popularity in the last few years, thanks to all the attention it has got on social media. Most people don’t want to spend more than half of their life in cubicles, working for a job they potentially dislike. Instead, they want to explore the opportunities and possibilities that exist.
To adopt FIRE, you need to cut down your expenses dramatically and save at least 50 to 70 per cent of your income every year. More than your earnings, your ability and capacity to save decides your success.
The pursuit for financial independence, breaking free from the shackles of hectic corporate schedules with long working hours and stressful lives are tempting, especially when you value your experiences in life over material possessions.
FIRE has helped people to take an active interest in financial matters from an incredibly young age, luring them to save and invest from the beginning of their career, which is extremely rewarding.
However, this philosophy has its palette of challenges. It focuses too much on retiring early. Remaining extremely frugal by dramatically cutting down on every expense could harm your mental health and disrupt your family life if you are not on the same page with your spouse. Finally, adopting FIRE as an escape from a bad job may not be a permanent solution.
Even though the concept is gaining momentum, you must fully weigh the pros and cons before embracing it. Instead, aim for financial freedom so that you could retire early to pursue your passion.
The author is the Founder and CEO, Kuvera.in