In my previous post, I spoke about the Financial Independence Retire Early movement (F.I.R.E.). The FIRE movement is something that has gained a lot of popularity in recent years as it allows people to realize financial freedom without needing a great deal of capital. All one really needs, is to reduce their expenses and live below their means, while investing or saving their money aggressively. In this post, I look at lessons we can learn from the FIRE movement which I believe can be beneficial for everyone.
Lesson 1 – You’re never too young for life satisfaction
What is retirement? For many, retirement is the period in your life where you no longer need to work or can no longer work. This signifies the end of your career, and for many people this is something to look forward to. The reality is that many people who do retire can’t afford to retire. My father is a good example of this. When he turned 65 years old, he was required to enter retirement, and this is something he looked forward to for many years, as he thought that he would be able to rest and relax after many years of service. What he did not realize is that the money that was paid out to him was taxable, and he did not anticipate out-living his retirement. In hindsight, his preparations for retirement were inadequate. This served as a cautionary tale for my siblings and I.
In truth, retirement shouldn’t be the goal that we work towards until the end of our career. Rather, we should see retirement as a safety net. We should aim to have a strong enough cash flow to support ourselves that we do not need to rely on a job we hate. This is something that can be achieved well before you reach retirement age.
Lesson 2: Retired doesn’t mean that you aren’t working, it only means that you don’t need to work
When I initially thought of retirement and what it meant, I thought that it meant that you didn’t need to or couldn’t work anymore, and one had the freedom to travel and do whatever you desired. As exciting as this sounds when you’re young, it quickly dawns on you that by the time you retire, you will be so tired that the very thought of an adventure will exhaust you.
But what if one were to retire early? What if someone were to retire at the age of 30? What would you do then?
Initially one might think that within that scenario you would laze on a beach somewhere to the end of your days. In reality, you would find yourself incredibly…BORED doing this day in and day out! Having youth, vitality and time on your side means that you will ultimately become restless after 1 week of soaking up in the sun. Therefore, it is generally recommended that you look for work.
Not work in the traditional sense, but look for projects that interest and excite you. There is something amazing that happens when you find work or projects that excite you…you find things like happiness and fulfillment.
Lesson 3: Focus on your expenses
The next point that I would like to discuss relates to one’s personal balance sheet. In a balance sheet you have income, expenses, assets and liabilities. Most people focus on the income and expenses section, and when thinking about acquiring wealth, people immediately think of increasing their income. If this is something that you are able to do then that’s great, but I am of the opinion that it is far easier to control your expenses.
When you lower your expenses you’re able to save or invest your money, and ideally you would invest your money into an asset that would see you generating a good return.
Lesson 4: Controlling F.I.R.E
If you want to be rich, what do you need to do? Most people would respond with increasing your income. This is not wrong, but what do you think is more achievable between increasing your income and reducing your expenses?
If I wanted to increase my income, I could:
- Get a higher paying job
- Start a side hustle or small business
- Start day trading
- Do affiliate marketing
- Start a YouTube channel
- Invest in property
These are feasible ideas of how you could increase your income, but all of these things take time and can be difficult to control. Something that is far easier to control is your spending habits.
I will take an example from my own life: when I decided that I wanted to achieve financial freedom I immediately thought of how I could increase my income. I explored and experimented with a number of options, but in starting these endeavors I found that they require time and a great deal of energy, but when I focused on reducing my expenses. I find that I have a lot more money towards the end of the month.
So the key takeaway from this is to examine your spending habits and try to get them under control.
Bonus Lesson: Understand your balance sheet
When starting this journey, something I learnt early on is that my financial literacy was very poor. Financial literacy is one of those skills that is highly undervalued in most schooling systems. I learnt this the hard way when the bank asked me to complete a balance sheet to see what home loan I qualify for.
Robert Kiyosaki, a renown author and professional property investor, is considered to be a champion of financial literacy and summarizes 4 key proponents that we need to understand to be financially literate. These proponents are:
Understanding these concepts and your balance sheet allows you to better understand how to make your money work for you, but what is far more important is that you also become conscious of bad spending habits and unnecessary liabilities. I would highly recommend reading Rich Dad, Poor Dad to understand this in greater detail, and playing the Cashflow game if you would like a practical approach to utilizing a balance sheet.
In my journey thus far, I find that I need to start with simple changes in my lifestyle to fully appreciate what it is that we pay for and use my money more effectively.
In my case, I found that I pay for conveniences which I grew up thinking were necessities, such as a car. For many South Africans, a car is considered to be an essential asset. This could not be further from the truth, as in my experience, a car is a liability and a convenience that most people cannot afford.
It was only after I decided to sell my car and utilize public transport, Uber/Bolt and my own legs that I realized that owning a car was unnecessary. In the time that I have been without my car I find that I have more opportunities for exercise, fresh air and I am able to spend quality time with my wife when we walk to the shop.
I am not saying that you should all abandon driving, but rather I would encourage you to be critical of your lifestyle and experiment with alternatives.
- Is it cheaper to cook or to eat out?
- Can I save money by eating a whole-food plant-based diet?
- Are farmers markets cheaper than grocery stores?
The above are questions you can start asking yourself and always look to challenge yourself and experiment. Get out of your comfort zone and you will find a world of opportunities.