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Should you join the FIRE movement?

Posted 18.03.2021
Should you join the FIRE movement?

Some things have nothing to do with age, for instance, maturity, success, and retirement. The last one is a bit contrary because the retirement age for South African men and women is down in the books as 60. But the FIRE movement is throwing tradition out the window and opening the door to early retirement in your 30s and 40s. 

It’s all about quitting the workforce while you still have enough youthful fire in your veins to enjoy life and time with family and friends. So how do you jump on board this sounds-like-a-fantasy idea, and where’s the money? Let’s explore the FIRE movement and how it can help you find the obscure shortcut to financial independence.

What is the FIRE movement?

When stretched out, FIRE becomes Financial Independence, Retire Early. This best-selling concept sprung up from the book Your Money or Your Life by Vicki Robin and Joe Dominguez. The idea caught fire, took on a life of its own, and is now a movement being rolled forward by many millennials worldwide.

It’s a hardcore financial plan that involves saving and investing like no one’s business, so you can retire somewhere between 30 and 50, or earlier if possible. Of course, saving involves spending less than you earn, which is nothing new. But to join the FIRE movement, your saving game has to be on steroids. You have to save a whopping 50 – 70% of every rand you earn. 

That means stripping your expenses down to the skeleton and then finding a way to raise your income. It’s the winning formula for financial independence: Low expenses + High income. Generally, you’re considered financially independent when your net worth is 25 times more than what you spend per year. 

So if you need R84,000 to stay afloat each year, you can safely retire once your net worth has reached R2,1 million rand. According to the FIRE movement, the sooner that happens, the better. You will then have the freedom to choose whether you want to chill at the beach or keep working without worrying about the landlord kicking you out. But, is it a practical plan for the average South African out there? Let’s find out.

What’s good about the FIRE movement?

The FIRE movement has been around for a while, and its proponents are well known for their intensity and aggressive drive to reach set financial goals. Chasing early retirement dreams could be working for these people, and here are some of the reasons why it might work for you:

It challenges society’s concept of retirement

As they say, you live only once. So why would anyone want to spend a big chunk of their life caught up in the meaningless drudgery of going to work every day? Most people don’t, but society tells them that’s just the way life is. 

The FIRE movement is the newfangled idea that challenges this flawed system. It points out that there’s more wealth to be found in living out your dreams and going through meaningful experiences and relationships with your loved ones. Instead of thinking of retirement as something you do when your life’s almost over (South African life expectancy is around 64 years while retirement is at 60, so you do the math), you have to start planning for it at an early age.

It helps you manage your expenses better

As a FIRE participant, you can choose to be an extreme saver (save 70 to 80% of your income) or a moderate saver (save 50% or more). In any case, this teaches you to look at expenditures with X-ray eyes that can differentiate between necessary and unnecessary expenses. It requires that you live a budget lifestyle where every cent is accounted for. These behaviours are essential if you want to rack up enough savings to reach your goals early.

It encourages you to push for extra sources of income

Attaining FIRE requires an aggressive approach. So it’s no surprise that you’ll have to put some serious muscle into your working hours. This could mean working extra hours and weekends at your high-paying job. Or you could look for a side hustle that pours cash into your lap during your free time. Whatever the case, earning more may require sweaty effort. But it’s the sacrifice you need to avoid the grow-old-at-work trap that robs your life of many meaningful and fulfilling moments.

It gets you familiar with the world of investing

Spending less, earning more, and saving is just one side of the coin when it comes to financial independence. You’ll have to invest or, in other words, give your money a job, so it brings in even more money. This can work spectacularly well once time and compound interest kick in. Typically, the end goal is to pump money into your nest egg until you have enough to withdraw 4% a year from your investment portfolio profits. Popular investments include index funds and rental properties.

What’s bad about the FIRE movement?

The concept of early retirement may be glamorous, but it has also received its fair share of criticism. Hold your horses before buying into it and consider the drawbacks first:

It’s designed for the rich

The biggest objection raised by critics is that no matter how much you reduce spending, you’ll still be spinning your wheels in the dust unless you have a well-endowed income – something that’s alien to the average, unprivileged South African. Of course, anyone can build wealth over time but accelerating your retirement on a low income will likely take longer than hoped.

It’s not practical and could be risky

When pitched against real-life scenarios, FIRE might not hold up well. The movement is optimistic to a fault. Some critics point out that it doesn’t consider potential economic upheavals and how inflation can affect longer-term expenses such as raising children and healthcare. In fact, some FIRE participants are in danger of retiring on funds that don’t have enough legs to last the remainder of their lifetime.

The sacrifice may be too great

Saving up to 80% of your income could leave you with only crumbs to survive on. It’s an extremely frugal and restricted lifestyle that will depress your current quality of life. However, some proponents don’t seem to mind. They prefer to fast-track financial independence so they can start doing whatever they want.

It doesn’t always provide life satisfaction

If you hate your job, FIRE might seem like the perfect escape. But some critics warn that you may find boredom, lack of purpose, and disappointment at the end of that tunnel. There’s also nothing meaningful or fulfilling about slaving at a job you don’t vibe with in the hopes of getting rich quick. A better solution to a loathsome job would be a career change, preferably one that matches your passions and skills.

A more balanced roadmap to an accelerated retirement

There’s nothing wrong with dreaming big. Whether you intend to retire in your 60s or 30s, the common denominator involves having a well-crafted retirement plan. Here are some top tips to help you if you want to hop on the fast train to early retirement:

Pay off your debt and set up an emergency fund

Before you can even start thinking about being an early retiree, you’ve got to get out of debt and build an emergency fund first. That’s because you don’t want loan repayments and unexpected costs to continually trip you up on your journey to financial independence. 

You’ll be off to a good start if you chuck away the credit cards, pay off your credit accounts (including mortgage), create an education fund for your children, and have at least 3-6 month’s worth of rainy day money.

Choose a retirement account and start stuffing it

This should be the exciting part! Savings options for retirement in South Africa include company pension funds, provident funds, and retirement annuity. You could start by investing 10-15% of your gross income (or whatever works for you) into retirement plans, preferably those with considerable tax benefits. Gradually, you can ramp up your savings strategy to reflect any income boosts. The more you stash away, the faster you reach your goals.

Diversify your investment portfolio

It’s time to get your financial savvy on and dabble in the stock market. Consider investing in exchange traded funds and other low-fee, tax-free investment products. You can also keep escalating your investment contributions to increase your forward motion.

Talk to financial and investing gurus

It’s okay if putting together all the pieces for your early retirement seems complex. Happily, you can find financial advisers or planners, and investment professionals to simplify the process for you. They can help you:

  • Plan your retirement budget
  • Grow your retirement income
  • Choose the right retirement savings account
  • Understand how the stock market works
  • Revise and upgrade your investment portfolio 
  • Plus much more

The bottom line

There’s a lot to take away from the FIRE movement, some of it good, some of it bad. As a would-be early retiree willing to pay the price, the trick is to personalise the premise to your situation. Hopefully, you’ll quickly find the freedom to spend your money and time on the things you love and enjoy.