Fundamentals of the Financial Independence, Retire Early (FIRE) Movement | BetaShares

Fundamentals of the Financial Independence, Retire Early (FIRE) Movement

BY BetaShares ETFs | 13 July 2018
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Fundamentals of the Financial Independence, Retire Early (FIRE) Movement

There have been enough debates, discussions and deliberations on what drives human behaviour. Theories have evolved and schools of thought have been devoted to the study of human motivation. Still, ages after Henry Ford designed the famous moving assembly line for manufacturing cars after studying people at work, although the studies of psychology and sociology have no doubt progressed a long way since those days, we are continuously learning more about what motivates people, and how much of that motivation emanates from money.

However, we do know one thing for certain – money matters! And that is what has powered the FIRE movement (Financial Independence and Early Retirement).

The FIRE movement has inspired legions of everyday workers  – wage earners – to question the basic premise on which the world of finance has been built. Why do our working lives often feel like an enormous chessboard where only a few retire early while the rest fight it out for life? Why should the normal, wage earning worker keep slogging it out for the major part of the day and commuting for much of one’s life, only to retire with just enough money to make ends meet? Is retiring well, and retiring early, only a privilege of the few who find themselves at the top of the human value chain?

Retiring early is not a myth

Retirement planning is perhaps one of the most important aspects of our working lives, but typically nothing substantial ever happens on this front – as everyday distractions, short-term commitments and the working weeks turn into months and years without a lot of focus on retirement planning. Retirement age is often thought of as being around the magic number of 65, at which, for instance, the government allows you to withdraw your superannuation without incurring excessive taxes.

But rather than waiting for such an age, a lot of discussion now centres around the ambition of retiring early and achieving the financial freedom to live your life the way you desire – when you’re still young enough to do so. The FIRE movement has inspired people to look beyond the obvious and create opportunities that would set the retirement age much earlier in time.

We do not often hear of people who achieve financial independence early in their lives, that’s to say, not in their 60s, not in their 50s, but even in their 40s, 30s and 20s. How do some people escape the 9-5 grind and make their FIRE dream possible, when most people are stuck repaying their debts with the limited income that they manage to bring home?

Financial independence is all about reaching the stage of being independent from the clutches of monetary obligations, where you are able to achieve all that you want without being bogged down by the pressure to make ends meet. And no, financial freedom and retiring early are not myths but are realities experienced by those who are following the fundamentals of the FIRE movement.

What are the fundamentals of the FIRE movement?

FIRE is not about quitting your job: The popular idea of retiring early does not mean that you can quit your job and keep touring the world for the rest of your life; that would not equate to financial freedom. Financial independence is when you can decide your movements and living standards without compromising on your dreams – it is about increasing your net worth in line with your present and future costs.

FIRE is planning for multiple streams of income: Your retirement income depends on how you plan your financial future. If you decide to get locked in with your current full-time job for the rest of your life, you may not have the time, energy or the resources to start planning to achieve financial independence. The FIRE movement advocates creating multiple streams of income to power you closer to financial independence in a much shorter time.

FIRE is about watching your expenses against income: Just as watching what you eat leads to achieving health and wellness, watching where you spend is an important ingredient to achieving financial independence.

FIRE is about creating opportunities: Creating secondary or even tertiary streams of income becomes an essential aspect of your equation – and that is all about creating opportunities for yourself to rise above the tide. You may want to scout around for low-cost investment options that are not too complicated and are simple to operate and maintain. You may need to think beyond your conventional savings accounts and consider investing in low-cost options such as exchange traded funds or ETFs.  For example, with the low management fee of 0.07% p.a., the BetaShares Australia 200 ETF (ASX Code: A200) will give you exposure to a diversified portfolio of the 200 largest Australian companies listed on the ASX, in a single trade.

FIRE is about discipline: It is easier said than done. Unless you are determined to make a concerted effort to make FIRE happen, it will continue to be in your dreams and not much in reality. FIRE is not for everyone who wants to retire early, but is for those who want to retire early and are committed to achieving financial independence. This requires a concerted effort that could make a substantial difference to your lifestyle and your livelihood in the long run, and it does not come without discipline and commitment to create the change that you want.

The way of the future

The FIRE movement is about rising above the ordinary to cut down on your expenses and increase your income simultaneously, to bridge the gap between now and the future. The good news is that FIRE is possible, it is happening, and will be the way of the future for the determined and the savvy!

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