FIRE: Financial Independence, Retire Early
Would you believe me If I tell you there is a way to live your life fulfilling all your needs but also save in a way that you can be financially independent and never have to work again? FIRE movement or FIRE path is a way to reach a financial point where your savings and investments alone earn enough for you to take care of all expenses.
But what if I want to work? There are multiple reasons for someone to work a job. It can be financial, social, or just genuine interest. FIRE doesn’t mean that you should retire and wait until you get old and pass out of this world. It just means that you will have freedom. Freedom to choose what job, volunteering, travels or whatever you enjoy doing.
After reaching FIRE, working will be your choice not a need and this makes all the difference. You don’t have to deal with a job, a project, or a boss that you hate but still have to do that 9-to-5 to pay off your bills. Even if you love your job, things can change pretty fast. Your industry can change, new tech can come which makes your job obsolete, your work environment can get hostile, or a health issue that can make you incapable of doing a job. All in all, multiple things can change quickly and unless you have the freedom to choose, you will be forced to work.
How to reach FIRE?
“FI” of FIRE isn’t a new concept as such. After all, it’s just financial independence and people of each generation have worked hard to reach financial independence. For example, your parents or someone you know might have worked hard for all their working life, saving each month, and eventually when they reach a retirement age they either got pension through their retirement account or used their savings for their daily expenses. This is the old approach which promotes working your whole life and when finally you are older, you get a few decades to enjoy the fruits of your labor, of course, unless you don’t pass out before you can enjoy your lifetime of savings.
The FIRE movement takes a savings and investment-based approach. You save each month from your earning and while building a portfolio that will reach a point where it will generate enough passive income for you to take care of your day-to-day needs and never run out of your savings in your lifetime. There is a safe withdrawal rate(SWR) of 4% annually to keep the savings untouched while still taking care of your living expenses and this already accounts for inflation.
Ok, but how do I know how much to save?
I mentioned SWR in the above section, the formula to calculate how much one needs to save to reach FIRE is calculated using this SWR.
I will use dollars as the amount in this blog as I do my calculations in USD but you can use this for any currency
Let’s say your monthly expenses are $4000. Your years expenses will be 12x4000 = $48,000.
FIRE number formula => Yearly expense / SWR
Your FIRE number => 48,000 / 4% or 48,000/0.04 = $1.2 million
An easier way to calculate it is 48,000 x 25 = $1.2 million
So in this example, 1.2 million will be enough to allow withdrawal of $48,000/year without running out of money in your lifetime. This of course requires a careful investment where earnings are more than the withdrawal rate. I will go through these details again in a blog where I calculate my FIRE number.
I’m starting this blog to cover my journey to reach FIRE as a USA expat. There are many resources that talk about FIRE as a resident of a country but as an expat, you have to jump through multiple hoops to save and invest. I have been researching this and want to share my journey to allow other people in a similar situation to learn and hopefully join me and start their FIRE path.