Nope, FIRE is not a song from SIA.
Fire! The thing that burns!
Yes, Fire! The thing that Sia is pouring gasoline on!
F.I.R.E.! The thing that makes people quit their job and sip cocktails on the beach!
If you think your job sucks and you want to just show your boss the finger, then this is the post for you.
About 10 years ago, a community started to form in the US. They were all about a minimalist lifestyle, frugally investing their money. They wanted to find ways to retire earlier than the designated age of 60, where they will need to go into an old age home and die. This movement is called the FIRE movement.
At their core they didn’t want a boss or be in a corporate setting. They wanted to be in control of their own lives – whether it’s spending their life on a beach in Thailand (as FreeAt33 did) or spending time with their families rather than with their bosses (no double meaning intended).
What is FIRE then?
FIRE is an abbreviation for “Financial Independence Retire Early”.
Let’s break this down:
Financial independence refers to not being dependent on your boss for money. You have investments that will generate income and dividends for you.
You should be in control of your time, and be able to determine what you do and when you do it; if, indeed, you want to do anything at all. It’s not about doing nothing – like sipping margaritas on the beach the whole day, but rather doing what you love and value.
The idea of FIRE is investing enough money until the income from these investments offers a replacement for your salary. Oftentimes you will discover that you don’t have enough money to save from your salary. In this case, many of the people in the FIRE community will start side hustles or take on another job (which is probably the sixth full-time job they have at the same time).
You then get to do what you want with your time.
There are different types of FIRE?
Yes, it’s true! You get different types of FIRE!
- LEAN FIRE – These people will live on pap and no vleis to reach their goals. They will sacrifice everything, including their health to retire early
- FAT FIRE – These are often rich people that do not have to sacrifice a lot to reach FIRE. Their salaries allow them to invest loads and still have a high savings rate.
FIRE Calculations
Savings rates
The idea is you need to save all you can now, so that you can enjoy a free life later. Here is an extract from Wikipedia to explain the savings rates:
- 10% Savings rate – it takes (1-0.1)/0.1 = 9 years of work to save for 1 year of living expenses.
- 25% Savings rate – it takes (1-0.25)/0.25 = 3 years of work to save for 1 year of living expenses.
- 50% Savings rate, it takes (1-0.5)/0.5 = 1 year of work to save for 1 year of living expenses.
- 75% Savings rate – it takes (1-0.75)/0.75 = 0.33 years of work to save for 1 year of living expenses.
Your number
Every financial advisor knows the 4% rule. This rule connotes that you can only use 4% of your retirement fund to live on. If you use more, you might starve without food.
Grant Sabatier from Millennial Money reworked the rule into something people like us might understand. He called this ‘your number’.
Your number is the amount you need to FIRE (or, retire!). The calculation is simple, yet is about equal to the 4% rule:
Monthly Expenses x 12 x 25 = Your number.
Here’s an example:
R 30 000 x 12 x 25 = R 9 000 000 (what you need to FIRE)
Did that scare you? Good! It might help you to either kill yourself (please don’t do that, get help if you’re struggling) or start saving for retirement.
Can FIRE happen in South Africa?
The short answer is yes.
The long answer has to do with your spending habits, your investment returns and how well you navigate yourself far away from take-away restaurants.
Conclusion
Financial Independence and Retiring Early is possible.
Few people want to start the journey, as they are mortified at their financial situation.
Some people who invest hard to get where they want to be allows for early retirement.
It is a choice.
I personally like property and leverage it to make more money quicker. Check out my property articles here!
Happy investing!