In a recent post, I wrote about setting goals and the importance of a strategy. In light of that I felt it was important to go over F.I.R. E, which is a movement that has been gaining traction for a few years now. The reason why I would like to discuss this movement is that I do believe that there is a lot to learn from this movement, including our socialization around money and lift milestones. I hope that you find the below information useful and valuable, let me know you thoughts in the comments below.
What is F.I.R.E?
For those who haven’t heard of Financial Independence, Retire Early (FIRE), it is a financial movement defined by frugality and extreme savings and investment. The FIRE movement was borne from a 1992 book Your Money or Your Life authored by Vicki Robin and Joe Dominguez. The premise is that you lower you total expenses and in so doing you improve you cash flow and the additional money that you have coming through would be put into you savings or an investment.
It is generally recommended that yo save 10-15% of you monthly income, however FIRE followers argue that by saving up to 70% of annual income you can aim to retire early and live off small withdrawals from accumulated funds.
What is usually encouraged is that you use the 4% rule, this means that you would have an investment that has an interest rate of more or less 7%, but every month you would only draw 4% of this. The rest would be fed back into the investment and through compound interest you investment would continue to grow.
The main components of F.I.R.E
A growing international trend seems to have emerged and this is the trend of minimalism. The attitude appears to be that frugality is the new black and instant gratification is a thing of the past. Instead, if buying convenience and instant satisfaction there is the growing trend to live a minimalist lifestyle so that you can attain a long term freedom and a more satisfying retirement.
As mentioned earlier, many financial advisers would recommend that you save 10-15% of you monthly income, but people who want to achieve FIRE typically save up to 50-70% of their monthly income. This would mean that people who wish to achieve FIRE would need to live a very frugal lifestyle. Here are a few practices that one could live by to achieve this.
1. Ditch the car obsession
It is a well-known fact that people in South Africa, share the car is king mentality with America, and having been socialized into thinking that you car is a vital asset means that deciding to go without it can be very difficult.
Recently my wife and I decided that we would go without a car, and the reactions we got were hilarious. Bother my parents and my in-laws felt “We were making a huge mistake” and I’ll admit that initially the decision came from a point of frustration. To give you some context, when I finished school my dad got me a car for university, and it was a reliable Hyundai Getz 2009. Ever since I’ve had the vehicle, I’ve been a very happy driver, she seldom let me down and I couldn’t imagine life without a car, but despite the fact that she was serviced regularly, she started giving problems. When we looked at how much we had spent on repairs over the past year, we felt it was more than a bit excessive.
The car which had been so reliable had become a distinctive liability and had eaten through our savings, which meant that we had to cancel our plans to go overseas for holiday. This resulted us thinking in earnest about whether owning a car is worth the expenses given that there are ride hailing services available.
The bottom line, is that it worked out cheaper for us to rather use public transport and ride hailing services to improve our cash flow and build up our savings. By cutting the expenses associated with owning a vehicle we are able to reduce our overall expenses and add more into savings.
2. Forget the mansion
A number of financial institutions will tell you that you shouldn’t spend more than 30% of you earnings on rent or mortgage payments. As some people depend on a second income to fund their accommodation – this can be risky when it comes to accommodation security. Therefore, buying modestly, or down scaling later, allow you to diversify into other asset classes. Therefore, focus on the functionality of you house rather than prestige and excessive comfort.
3. Avoid unnecessary data usage
There is no doubt that we are swiftly moving into an era of extensive data usage and reliance. There is nothing wrong with this, but think about where you are wasting money on data that you aren’t using. For example, if you have a mobile contract which gives you data at home and you have an uncapped internet connection at home and in the office, then what is the point unless you constantly on the move?
If towards the end of the month you find yourself watching YouTube videos just to finish you data, then chances are that you’ve bought too much.
4. Eat out for celebrations only
Here’s a scenario, its pay-day and you get that notification that you richer than you were a few hours ago. You’re happy, jubilant even, and the first thing you do is celebrate with that special someone. One swipe later and you realize that you still have a budget that you need to stick to.
Restaurants and Takeaways are honestly the best and worst things ever. It’s so convenient to have something delivered, but after you’ve eaten it you’re suddenly hit with all kinds of regret. Trust me, as someone who has struggled with his weight his whole life, I feel your pain. So I would earnestly urge you to avoid eating out, except for special occasions, as this adds more to the occasion and there is a lot less guilt when this moves from being a tradition to a treat.
5. Shop and learn to cook
When you move away from convenience, you move closer to a space of learning. I learn this when I started cooking for myself and relied on takeaways far less. What initially got me to start cooking was when I decided to move away from meat – just as an experiment – and the results were great. Initially I bought for major retailers, and was caught up by all their rewards programs, and when I stopped to think about how much money I would save with a rewards program vs how much money would save from buying from farmers markets. I immediately realized that the major retailers were ripping me off.
As things are now, we are moving to only go to major retailers once a month for things we can’t get at our local market.
Increase you income
Robert Kiyosaki often says that if you are relying on one source of income to survive then you are living very
dangerously. Can you imagine if you were suddenly retrenched? Or you were involved in an accident which left you unable to work? For this reason it is essential that you find other avenues of income.
This can come in the form of investments or side hustles, but you need to constantly look for opportunities to
increase the number of income streams that you have, and decrease you total expenses. We are fortunate that we live in an era where it is far easier to raise capital both offline, through property investments, stocks and bonds and online, such as affiliate marketing.
The F.I.R.E is Lit – Concluding Remarks
The concept of F.I.R. E is, in my opinion, very clever and it allows people who perhaps have a high spending mentality to realize that you don’t require a lot of capital to achieve financial independence. The concept doesn’t challenge mainstream ideologies around saving but rather encourages you to use what you have to achieve financial independence.
The biggest critique against this model, is perhaps from the fact that in order to achieve FIRE you’re required to live a very frugal lifestyle, which isn’t what everyone wants. For this reason I would recommend that you use this model as a starting point to build towards financial freedom.