Just close your eyes and think about retirement. What comes to your mind?
Most of us imagine our retired selves laid back on a chair, probably playing with grandchildren.
Well, that’s the reality for most people in the previous generation. But, who said that retirement is only for the old? No law states that you have to work till the age of 60.
“Retirement is not an age, it is just a financial number”.
If you put your mind towards it, retirement can be attained at 35-40. I’ve known many people planning to retire much earlier and on a blazing path towards financial freedom through the F.I.R.E movement.
Let us take a closer look at the F.I.R.E movement and understand how it works.
So, What is F.I.R.E?
The term F.I.R.E stands for Financial Independence, Retire Early. The goal here is to start saving aggressively at a young age – somewhere between 50 – 70% of your income and reach financial independence early at somewhere between 35-40 years.
Yeah, you heard it right – you need to save at least 50% of your monthly income.
The idea is:
The higher your income and lower your expenses, the faster you can reach financial independence.
When I say financial freedom, it does not mean that you can vacation every day of your life after retirement. It just means that you are no longer tied down by any commitment where you are not required to work a full-time job if you don’t want to. You could choose to do a part-time job or work on projects, or even decide to stop working.
The Benefits of F.I.R.E
F.I.R.E’s primary benefit is that it pushes younger people to start thinking about retirement and plan for the future well in advance. It points out how much money you need to save for retirement to define your goals accordingly.
It gives you the freedom to make your life choices. F.I.R.E isn’t just about retirement but about financial freedom. When you are financially free, you can choose to work on your interests rather than working for someone else. It enables you to be your own boss.
By setting goals and budgets and sticking to them, you also learn many money management skills that may come in handy for the rest of your life.
The Sacrifice Involved
However, if you want to attain that kind of freedom, you will have to change your lifestyle. The thumb rule for F.I.R.E dictates that you need to have 25x of your monthly expenses saved before you retire, assuming that your lifestyle and spending habits remain constant.
Suppose you are earning ₹75,000, and your expenses add up to ₹50,000 every month. You may have to have a corpus of ₹1.25 crores before you retire. This means you need to save at least ₹10,000 every month for the next decade to achieve financial freedom after paying off all your debts.
The trick is:
Understand that you cannot spend on everything you want. You cant eat out every day and rent an expensive place and buy a luxury car, etc. You may have to pick or choose which ones to do and which ones to let go.
The sacrifices you need to make are totally up to you. Some people will be willing to live a minimalist lifestyle to save more quickly. In contrast, others may live a comfortable life and save a bit longer.
Roadmap to Retiring Early
So, if you want to F.I.R.E too, here is a step by step road map:
1. Pay off Debt and Build Your Emergency Fund
Debt is what holds back millions of young people from investing for retirement. First things first, work towards paying off your debt quickly and staying away from borrowing more.
Simultaneously, start building an emergency fund equal to 3-6 months of your living expenses. When you have enough money in your savings, you would not have to worry about surprise expenses like a broken phone or a pandemic. And it will keep your retirement investing from derailing.
2. Invest Minimum of 15% of your Income for Retirement
Once the debt is off your shoulder, you can start saving vigorously. Try to save at least 15% of what you earn into a retirement account. There are many tax-friendly pension plans such as NPS, EPS etc. There is also a Bitcoin pension plan called Bitcoin IRA.
Once you are on track, you can also focus on saving other commitments such as your wedding funds, kids college funds, medical funds, etc. Set a target age for retirement and start accumulating beyond 15% towards it. Once you have enough corpus to get you going for life, viola, you will have completed F.I.R.E and well on your way to a comfortable retirement.
As Indians, our commitments are far different from Westerners, and our inflation rates swing every season. It is better to a personal analysis of what you need to do to achieve F.I.R.E and keep the thumb rules and roadmap as a mere guide to help you.
Rather than viewing F.I.R.E as a prudent lifestyle involving sacrifice, you could understand what keeps you happy and make conscious spending decisions.
Stay lit 🔥
[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]
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