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Financial lessons from the FIRE movement

By Pauline Muindi | September 6th 2020 at 12:22:29 GMT +0300

Do you often think about your life in retirement? If you are lucky, plan well and work hard at it, it is possible to afford the idealistic image of retirement that most people have in their minds: days spend strolling on sandy beaches, endless travel, and a leisurely lifestyle for your sunset years. On the other hand, many people haven’t had the kind of opportunities to afford to retire comfortably.

In a survey by T Rowe Price, 43 per cent of millennials say they expect to retire before age 65. But a study by NerdWallet found that due to factors such as rising cost of living and student debt, students who graduated in 2015 might not be able to retire until they’re 75.

According to Olivia S Mitchel, a professor of insurance/risk management and Business Economics and Public Policy at the University of Pennsylvania, millennials need to save as much as 40 per cent of their income to be able to retire at 65 per cent. This is more that two times the 15 per cent of monthly pay check that most financial gurus recommend to put aside for retirement.

Despite these dismal findings, millennials are determined to retire earlier than previous generations and enjoy post-retirement life. One testament of this is the Financial Independence Retire Early (Fire) movement.

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The goal of the Fire movement is to promote aggressive saving so as to retire early. Followers are advised to save as much as 50-75 per cent of their income to enable them to retire in their 30s and 40s.  

Early retirement allows the followers of the movement to retire when they still have the energy and youth to enjoy activities such as travelling, pursuing hobbies, spending more time with their children, work part-time, and generally living a life free of financial worries.

The Fire movement might not be suitable for everyone. You need to have a large enough income that you can afford to live a reasonably comfortable life on only half or less of your income. But the Fire movement contains valuable financial lessons that can benefit anyone who wants to gain financial freedom. Here are some takeaway financial lessons from the Fire movement:

Prioritise saving

Many people only save what is left after spending. But if you want to achieve financial freedom and retire early, you have to prioritise saving over spending.

According to the Fire philosophy, financial success starts with your approach to spending. When you get paid, you should immediately direct the predetermined amount to your savings account. For Fire devotees, the savings rate should be as high as 50 or 75 per cent percent of their salary.

But a more reasonable amount for most people might be around 20- 30 per cent of their income. You can adopt the 50/30/20 rile of budgeting where you allocate 20 per cent of your income to savings, 30 per cent to wants, and 50 per cent to essentials.

Work to live

Do you live to work or work to live? Working to live means that you prioritise enjoying the experience of life more than working as if you were born to work. Devotees of the Fire movement focus on working hard in their 20s and 30s so as to live fulfilling lives when they retire early.

Simply put, they aspire to get the most out of their best years. Most of them don’t necessary want to live a life free of work. They just want to get to a point where working is optional. This allows them to pursue meaningful work without having to consider how much money they’ll take home.

Working, for them, becomes about having a sense of purpose and adding value. Even if you’re not a believer in the Fire movement this is a philosophy you can adopt. To be at optimum productivity, it is important to look for a job you actually enjoy. Your job should be closely related to what you feel is your life’s purpose and dreams.

If you loathe your job, you’re likely to feel depressed, stressed, and unhappy. This might result in physical and health problems that cost you money, reduce your life enjoyment, and ultimately shorten your lifespan. However, if you can tolerate a job and it pays well, it might enable you to save more and retire early. Weigh your options to make the best decision for your situation.

Earn during retirement

In the past, retirement was seen as complete cessation of working life. But for most millennials and the proponents of the Fire movement, retirement means not having to work full-time to afford a normal lifestyle.

Simply put, retirement doesn’t mean not working or not earning. You will find many retired Fire proponents still making decent money from blogging, vlogging, podcasting, hosting webinars, part-time jobs and other hobbies. Retirement for them is about leaving their corporate jobs and not having to work the regular 9 to 5 day.

The truth is that few people have the wherewithal to entirely stop working in their 30s and 40s. You can start by creating your own business on the side or working at a side gig before you quit your 9-5 job.

Avoid lifestyle inflation

It is understandable that you will want to upgrade your lifestyle with each pay raise. But to attain financial freedom and retire earlier, it is wiser to resist this urge as much as possible. Your goal should be to increase the gap between your income and expenses.

This way, you will increase your savings rate and have more money to invest in passive income streams that can earn you money when you retire early. Instead of moving to a new house or buying a new car when you have a pay raise, think of paying off debts, saving a bigger percentage of your income, and investing for your future.

Increase your income

Fire devotees are advised to look for ways to maximise their income streams. While there is a limit to how much you can afford to save from your income, there’s no limit to how much you can earn. Don’t be shy about asking for a pay raise at your job if you feel you deserve one.

Additionally, look for a side gig or business that you can work at when you’re away from your regular job. It is advisable to go for something you’re passionate about. This gives you extra work fulfilment and if it gains traction, it can eventually become your main job.

You have control

When it comes to financial matters, it is easy to feel like you have little control. You can’t control the stock market, the interest rates, and other factors about the economy. The Fire movement helps you concentrate on the elements you can control.

These include the amount of money you spend, how much you save and how much you invest. You can make big changes in your personal finances by focusing on what you can control instead of becoming intimidated by what is out of your control.


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