Ep # 16: Decoding the F.I.R.E. movement.

Hello! and welcome back to yet another episode of my podcast. In today's episode, let's talk about the FIRE movement. The "Financial Independence Retire Early" movement. What's FIRE? What are the different types of FIRE? Do the work? What are the risks involved? This and a lot more questions will be answered. So, let's dive in to find out.
 
 It's time to have a word with me, Rajive Dhavan. 
 
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Transcript

Hello, and welcome to yet another episode of my podcast today. Let's talk finance. Let's Talk Money. In the last three or four years, a financial term has caught some steam. It's called F I R E. It's an acronym for Financial Independence. Retire Early, but is Fire Practical in today's erratic landscape? Is it achievable?

Let's jump in. So it's time to have a word with me, Rajive Dhavan. See you on the other side of the intro music.

Let's first understand in detail what is FIRE (Financial Independence Retire Early). That's the acronym. It's a movement of people devoted to a program of extreme savings and contrarian investment that aims to allow them to retire earlier than traditional budgets and retirement plans would permit. So here are a few things and a few pointers about the fire movement.

First financial independence. Retire early is a financial movement defined by frugality and extreme savings and investment. Second, by saving up to 70, 80, or even 85% of their annual income, those who are a part of the fire movement aim to retire early and live off. Small withdrawals from their accumulated funds.

Typically, fire followers withdraw a mega three to 4% of their savings annually to cover living expenses during retirement. Detailed planning, economic discipline, and Weis investment are key components in achieving a fire retirement. But in today's erratic scenario, in today's ever-changing l. Does this really make sense?

Is it possible? Is it realistic? Let's find out more about this. As part of this movement, one of the big things that you need is a huge chunk of accumulated funds or wealth that you've been able to collect in a high-interest rate and high-inflation situation. It's not so easy for us to save 60, 70, or 80% of what we make on a monthly basis.

This trend is particularly popular with the millennials when inflation is going through the roof across various countries and ranging between five to seven to 8%, and a typical salary hike for a salaried professional. It could be somewhere along the lines of 3%, 4%, or even 5%. It becomes extremely difficult for people to generally keep pace with the ever-increasing household budgets.

The core idea of this movement is to do away with the traditional age of retirement, which could be around the sixties and bring it down all the way to the thirties or forties, somewhere. The millennials are not convinced by the idea that you'll have to work 60 years of your life to possibly be in comfort.

Or enjoy a little in the last 10, 15, or 20 years of your life. Depending on the life expectancy today. So what people are trying to do over here is work for 20 years, slog for those 20 years, cut down on a lot of unnecessary expenses, cut down on holidays, excessive shopping, cut down on a ton of other things, live a bare minimum life so that they can accumulate a huge chunk of money and use this wealth for a sustained lifestyle thereafter.

I am sure a lot of you would think that this is simply impossible, but let me tell you, a lot of people are doing this today, and they've been successful in retiring early through various means, either cutting down on their expenses big time or increasing their income multiple times so that they can have a huge.

Or, in some cases doing both. While the fire movement has been planned meticulously by a lot of people, and too many experiments are being done, people are talking about it. There's a discussion on online forums, blogs, podcasts, et cetera. There is a big risk involved in doing something like this. One of the biggest risks here is the healthcare crisis, which means once you've accumulated your wealth, your money begins to work for you, and your passive income becomes decently big.

You still run the risk of a major health setback, and that can completely be a big spoiler to all your fire plans. Hence, it's tough, but it's not impossible. Now, a lot of people think that the fire movement is purely about completely retiring from work and not doing any work at all. But at its heart, the fire movement is about retiring early and choosing to do work that gives you a little more satisfaction, or if I can say, doing work that looks less like it.

The idea is to get out of the grind. In simpler terms, it's more of retiring from the typical nine-to-five high-pressure scenario. It's about retiring from the rat race. Now, a little history about this movement. It's been around since 2010, 11, and it caught a little momentum in 2018 and then it a mass huge following since 2020.

As per data, around 10% of the population in the US, for instance, is actively pursuing the fire movement, and around 40% are considering it. So this number is not small; it's big. A lot of people also use the terms financial freedom and financial independence interchangeably, but they both have their own meaning and place.

Financial independence is based on the idea that money should work for you rather than what you work for. Financial freedom, however, is achieved when your passive income exceeds your active income. Your passive income is the income which you make from the stock market or you make from other sources where you are not actively doing something.

It's just that your money is invested in the right place to help you gain some income from it. Your active income is the job that you're actively pursuing and making money by putting in your time and effort. Now let's dive deeper into the fire movement and understand what the different types or kinds of fire movements are and how you can choose which one to go ahead with, depending on various influential factors. Over the years, the movement has given rise to three key types of FIRE, which is financial independence retiree. The first one is called Fat Fire. Then there's lean FIRE, and the third one is Risa. Let's start with fat Fire.

What really is fat Fire? This is for the individual who wants a traditional lifestyle and aims to save substantially more than the average worker but doesn't want to reduce their current standard of living. This generally takes a high salary. Aggressive savings and smart investment strategies to work.

The next one is Lean Fire. Now, this is the most difficult one to achieve because this requires stringent adherence to minimalist living and extreme savings along with a very highly restricted life. Many lean fire folks live in the US, for instance, for as less as $25,000 or even lesser a year. Of course, there are many riders to this.

Let's take another example. In a country like India, due to purchasing power parity, this would mean you will have to survive for as less as Rupees 2, 3 or 4 lakhs per annum. The catch, however, is that a huge population in India doesn't even really make that much money in a year. The third one is the Barista fire.

Now this sits somewhere in between the first two, which are fat, Fire, and lean. This is for people who want to exist between the two choices. They quit their traditional nine-to-five jobs but use a combination of the side hustle and part-time work. And savings to live a less-than-minimalist lifestyle. The former lets them obtain health coverage while the ladder prevents them from dipping into their savings.

So basically, they do have health coverage because they're doing a side hustle or a part-time job, and that gives them. Some sort of health coverage – which is one of the biggest aspects of the fire movement, as I discussed or mentioned earlier. And the other part of this is because they don't have a huge chunk of savings with them, they continue pursuing an active income strategy where they're trading their time and effort.

To make money. Now, while this is not in a full-time capacity, it's only part-time, so they'll still be left with a lot of free time to do things that they like, and they would be partially retired. So it's more of a partial fire movement. Now that we know a lot about the fire movement, there are also three key lessons that we can learn from this movement.

The first one is to make sure that you spend less than you. Now, while it seems cliche, it seems something that has been spoken about for ages, but you'd be amused to know how most people still don't do this. So Fire teaches us to live in a frugal fashion, focus on savings and invest our money. The first lesson is to spend less than you make.

The second lesson is to invest in your future. The idea of a retirement fund doesn't really exist in our country because most people are running from pillar to post to manage and maintain their current lifestyle due to the high inflation. The third lesson is to diversify your income. If we study the portfolios of most of the fire folks, we will understand how they've put in their money to work in different places because the idea is that they have to cut down risk as much as possible and make sure that the money lasts longer.

The recent trend of moonlighting is also somewhere connected to the fire movement. A lot of people have wanted to take up a side hustle, mostly secretly and add that extra fund to their big chunk of retirement savings. In my upcoming podcast, I'll talk about moonlighting in detail. I think it's a connected and very interesting subject.

A subject that we all should have some idea about. With this, we come to the end of this episode, but before we close, I'd like to request you make a little effort for me and subscribe to this podcast if you've not done it yet. Also, rate the episodes if you like them. This will help me understand and get some real-time feedback, so I can add more value.

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