The Fire (financial independence, retire early) movement is a lifestyle movement whose main goal is financial independence and retiring at an age well below what many people would consider normal. The ideas and principles of Fire originate from a 1992 bestselling book titled Your Money or Your Life by Vicki Robin and Joe Dominguez.
Fire has since gained traction, particularly in the US, but has also spread to many other countries, including South Africa.
The movement is filled with ordinary people who usually hold pretty ordinary jobs. Where these people are different is that they have made a conscious decision to live within their means so that they can focus on the goal of becoming financially independent.
People seeking to achieve Fire minimise their time at the office by maximising their savings rate (the percentage of their income that goes towards saving and investing each month) to as high as 75%. This higher savings rate is what allows them to reach financial independence much sooner than most.
The “retire early” part of Fire is a bit misleading, though, because many people who achieve Fire continue working. The main benefit of Fire is that it allows these people to work on what they want, when they want, where they want and only if they want to.
The cornerstones of Fire
Below are some of the key principles that people in the Fire movement adhere to:
. THE RULE OF 300
One of the burning questions around financial independence (and retirement in general) is how much is enough. The Fire movement applies a formula known as the 4% rule, or “rule of 300”, to help them estimate an answer to this question.
The rule states that the amount required to be financially independent is 300 multiplied by your monthly expenses in retirement. For example if your monthly expenses are R18 000, you would need R5.4 million to become financially independent.
. KEEP EXPENSES LOW
The Fire movement focuses heavily on keeping expenses low. They believe that, while it is important to reduce small expenses (such as insurance, banking fees, the number of coffees bought each month), the real strides can be made by focusing on big expenses – cars, housing and commuting.
There are two reasons lower expenses are so important:
1. The lower your expenses, the lower the amount you will need to be financially independent because the rule of 300 is based on expenses only, not on income.
2. The lower your expenses, the more you will be able to save and invest each month.
In other words, lower expenses mean you’ll be able to invest a larger monthly amount towards a smaller overall target – a double benefit.
Avoid short-term debt
People pursuing Fire have a strong aversion to short-term debt. They view debt as an unnecessary expense (which lowers their savings rate), and realise that the opportunity cost of not being able to invest the monthly instalments can add extra years to their office job.
Why Fire?
In short, Fire means buying back your time. The movement fully appreciates that there are a limited number of hours in a day, in a week, in a year and in a lifetime.
They aim to fill as much of that time with activities that they enjoy the most – whether that is time with their family, travelling, volunteering or even starting their own business.
Many Fire devotees don’t plan to spend 40 years on the bowling green or on the couch in front of the TV – many of them want to continue working and pursuing other interests, but without the stress and restrictions of being in a corporate environment.
And then, of course, there is this quote by Ellen Goodman, which nicely sums up the blueprint many have been given: “Normal is getting dressed in clothes that you buy for work, driving through traffic in a car that you are still paying for to get to a job that you need so you can pay for the clothes, car and the house that you leave empty all day so that you can afford to live in it.”
Stealthy Wealth is a personal finance blogger. Go to stealthywealth.co.za