F.I.R.E is an acronym for Financial Independence and Retiring Early. There are a lot of US bloggers who write about their F.I.R.E journey. Most of these blogs assume that the readers are already familiar with the concept. We’ve been on this journey in India for over 5 years and to be honest we find ourselves questioning the basics and math behind F.I.R.E every year because we don’t want wrong assumptions made in our 30s to affect our quality of life in old age. Like for example: Does F.I.R.E mean you no longer have to work ever again in your life? But what if your money runs out before you die? What about other unforeseen emergencies that cost a lot of money? Will you regret quitting work when faced with such situations?
You get the drift…so we want to clarify this F.I.R.E concept to the best of our understanding.
What is Financial Independence and Retiring Early?
F.I = Financial Independence. When you don’t depend on a job to meet your monthly expenses then you are financially independent. This is possible if you invest your savings in assets that generate a passive income equal to your monthly expenses. Assets like Real Estate, Stocks, Mutual Funds, Fixed Deposits etc. If your monthly expenses are Rs 1 lakh and you receive rental income of Rs 25K, interest income of Rs 25K and dividend income from stocks of Rs 50K then you are financially independent.
R.E = Retiring Early. If you achieve financial independence at an early age say in your 30s or 40s then you can declare yourself to have retired early. Typically people retire from active work at age 60. So if you have enough money to never work again in your 30s or 40s then you have achieved Early Retirement.
Difference between FI & RE
So the key difference is that once you are Financially Independent(F.I) you may decide to continue in your career but you may get picky about what kind of jobs you choose because you are no longer dependent solely on salary income. Example: You may decide to work for a startup to learn a lot in a short period of time so you can become senior management faster than at a corporate job. You don’t mind the risk of the startup going out of business because you are financially independent. You will also take tough decisions at work without caring about your monthly paycheck as you are no longer dependent on it.
With Retiring Early(R.E), you are planning to quit your current career altogether and branch out into other activities that you are passionate about. Example: working for a non-profit, traveling the world, taking care of family etc. Note that with Retiring Early the opportunities for earning money are much lower because you will be spending time and money in non-remunerative activities. Naturally, if you plan to Retire Early and never work again you need a much larger corpus than if you were to be simply financially independent.
Why are they referred together as F.I.R.E?
The reason it is called F.I.R.E is because the path for both is similar: Saving a large amount every month to reach your target as soon as possible via frugality and/or high income. The only difference is the target corpus needed and what you plan to do after you achieve it. Some people want to achieve F.I as a backup but they don’t want to quit working. Not all people hate their jobs.
Now the Retiring Early part is tricky because no one seems to have done it yet in the F.I.R.E community. By that I mean, no one has retired in their 30s or 40s and lived till age 90 by simply living off their saved-up corpus with no extra income and blogged about it for 50 years. That’s right! this concept is so new that it has not been tested in real-life yet.
Another important issue is that one person’s lifestyle might not be suited to another person. Are you willing to Retire Early to a village with no modern amenities? If not then your corpus amount needed will be significantly higher.
Philosophy of the Financial Independence and Retiring Early (F.I.R.E) Movement
To condense it here I would say the quest for F.I.R.E is based on maximising the quality of life, happiness and work-life balance.
In that sense, F.I.R.E is less about not having to work ever and more about having the freedom to pursue your dreams in life. It means that you can design your life without taking money into consideration.At a more philosophical level F.I.R.E also forces you to look at another important life questions that only you can answer for yourself:
What would you do with your life if you didn’t have to work for money? How much is your freedom is worth to you? Once you achieve freedom through F.I.R.E what do you plan to do with your life? Our Key observations on Financial Independence and Retiring Early (F.I.R.E) concept
There is a wealth of knowledge available on F.I.R.E online that helped us establish our understanding of this subject. However, mostly all the bloggers have their own personal touch to this concept and what they mean by F.I.R.E. Few things we noticed which are worth mentioning at the outset are:
1. F.I.R.E is still a nascent concept
It is still a nascent concept which attracts lot of controversy on its viability even in the US where a dozen people have already retired early and actively blog about how they are managing their expenses and investments after achieving F.I.R.E. So it will be interesting to see how all the theory pans out in real life in next 20-30 years. It looks promising but we feel it will not be without a few bumps on the way.
2. There are different flavours of F.I.R.E
There are so many variations of F.I.R.E that it is easy to get confused or dogmatic and hesitate to get started. For example:
If you are F.I, you can afford to take a break from working to take care of your old parents/young baby or travel the world and then join the workforce after a few years. Notice how this bends the definition of Financial Independence(F.I) I gave earlier.
2. Part-time retirement
You are R.E but you work as a consultant or freelancer only for certain months of the year say during tax season or you run an online store that you operate only during Diwali/Christmas season. This bends the definition of R.E I gave earlier.
3. Permanently Retired aka Never work again:
This is the holy grail that attracts most people to Early Retirement. I’ll discuss the viability of this in my next blog post.
We recommend that you not waste time debating the “exact” definition but instead focus on your day-job and achieve Financial Independence first with 25 times annual expenses as the initial target while also figuring out a side-income based on your passion that can fund your expenses. This way you’ll have two layers of protection: side income and saved-up corpus. Plus since the side-income is based on your passion you might not feel like it is work.
3. Almost all F.I.R.E people we know have active income
Almost all the people we know who have achieved FI or RE have not stopped working for money completely. Some have taken time off to travel, raise a kid, or just explore life but all of them have figured out some passion that generates side income which not only covers their expenses but continues to add to their net worth. We find this approach smart and practical as you get your freedom to explore your life along with some side income to support your expenses fully/partially.
4. How viable is it in India
We are confident that the concept is solid and can be practised in India. But not without major modifications to the core idea. The idea of this blog is to share what works for us in India and what does not. We will keep sharing our observations with you as we go about it.
What Financial Independence and Retiring Early (F.I.R.E) means to us?
Financial independence offers us the freedom to pursue our life goals and dreams. Turns out we are in a unique situation where we are already doing that and saving up for F.I.R.E at the same time! Once we were debt-free, owned a house without a loan, and had 7+ years worth of expenses we quit our jobs to pursue our dreams in Goa. 3 years into the business we are our own boss. Our business covers all our expenses (we still live frugally), we work on our own terms and also have location independence. If we could reinvent ourselves with just 7 years of expenses saved up imagine what you could achieve with 25 years of expenses saved up.
Disclaimer: With 7 years of a safety margin we did feel a certain pressure and insecurity about the future. In the first 3 years when the business did not cover our expenses fully, we lived very frugally. But it did serve its purpose and now we want to increase that safety margin to 25X.
This article was first published on SavingHabit.com and can be accessed here.