Investing is not a Flower, its a FIRE, jhukega nehi.. Financially Independent, Retire Early!
FIRE — Financially Independent, Retire Early! was a movement started in the 90s after the authors Vicki Robin and Joe Dominguez popularized it in their book — “Your Money or Your Life”.
The concept is to save/invest 70% of your earnings, meet the consumption demands with the 30%, and then retire rich in 7 to 10 years. It may be doable in your 20s when you get into a job or before marriage & kids. I am extremely not sure how a 40 year old can survive by spending just 30% of his income on expenses like rentals, groceries, education of kids, medicals etc (unless of course the income is very high).
We will analyze if this thought process is rational or not. Let us assume a 4 member family — husband, wife, and 2 school-going kids.
- Total Income = 1,50,000 per month
- F.I.R.E expectations — invest 70% of 1,50,000 = 1,05,000 per month
- Amount available for consumption = 150000–105000 = 45000.
If the family saves 105000 for 7 years on a 15% interest-bearing instrument, then the calculation works out to be:
Total fund value = 1,56,00,000 ~ 1.56 crores.
If they deposit this amount into a fixed deposit with a 7% interest rate, then they get approximately 10,92,000 per year interest ~ 91000 per month income.
The takeaway is that the family saved 105 thousand a month for 7 straight years and then managed to get an assured income of 91000 per month for life. Looks pretty good on paper.
Let us just try one more example, wherein the tenure is 14 years instead of 7 i.e. the couple would prefer to retire rich by 54 years. The number works out to be 6.01 crores.
6 crores at 7% fixed-deposit rates translate into 42 lakhs per year ~ 3.5 lakhs per month. WOW! That is much better.
The catch is that you should be able to survive on 30% of your income, something nearly impossible considering the rising costs of groceries, energy, and fuel. But if you can, it can make all the difference.
Another assumption made is that the income is steady and available at all times — this is entirely possible only if you are salaried. For a business person, self-employed professional — an assured income per month is not even thinkable.
The intent to save more will be higher for people who are so frustrated with their current nature of work. At the same time, people who are in their dream job would prefer to spend more on life now and save proportionately less for the future.
Another data point to consider is the creepy nature of the lifestyle diseases & other health issues. A family may think of taking that vacation next year rather than pushing it after 14 years, wherein they are quite scared to think of their health condition. A leisure or additional spend in between may break the investment rhythm & the FIRE may not attain full effect.
Your thoughts?
read more about FIRE at Investopedia or Mint.
Calculators are for illustrations only and do not represent actual returns.
Mutual Fund investments are subject to market risks; read all scheme-related documents carefully.