Early retirement is a relatively new idea in this country. It is particularly popular among millennials and Gen Z, who want to defy conventional norms and retire before the age of 60. With rising inflation and the overall cost of living, it may seem impossible, but if you play your cards right, there is a chance you can achieve it.
The popular way to achieve this is through the FIRE movement: Financial Independence, Retire Early. In this article, we explain what it means and how it can help you.
What is FIRE?
FIRE is a financial strategy for people who aim to accumulate enough wealth to cover their living expenses without relying on a traditional day-to-day job. The goal is to achieve financial independence early in life, allowing investors to live a fulfilling life while they are still young. Its core principle is to aggressively save and invest as much as possible so you can live off the returns.
How to Calculate Your FIRE Number?
Let us take an example: if your annual expenses amount to ₹6,00,000, then your FIRE number would be ₹1.5 crore.
The logic behind this formula is based on the “4% rule”, which basically means that withdrawing 4% annually from your investments can sustain your lifestyle indefinitely.
Strategies People Have to Follow to Achieve FIRE
- Aggressive Saving: Aim to save a significant part of your salary income. Many FIRE followers save 50% to 70% of their earnings.
- Smart Investing: Invest in assets that typically offer high returns over the long term. Mutual funds, stocks, and real estate are popular choices but if you have doubts you can always ask us.
- Frugal Living: Get used to a minimalist lifestyle by cutting unnecessary expenses. This doesn’t mean you starve yourself but is about making logical choices to prioritize savings.
- Increase Income Streams: Focus on side hustles or passive income opportunities and boost earnings.
- Regular Monitoring: Review your financial goals and adjust your strategies as needed. Having a talk with a mutual fund advisor can help you with this a lot.
- Food: Be careful about what you eat. Eat in a healthy and mindful way and avoid expensive restaurants that can hurt your savings.
- Sleep: Maintain a good sleeping schedule. Late-night sleep affects productivity and health, so ensure adequate rest.
Different Paths You Can Follow Within FIRE
1. Lean FIRE
Living very simply and cutting unnecessary expenses. Ideal for people who want to retire early but are okay with a modest lifestyle. You need a smaller amount of money saved since your monthly expenses will be low — think living in a small home, avoiding luxury purchases, and having a very budget-conscious mindset.
2. Fat FIRE
The opposite of Lean FIRE. For those who want to retire early but still enjoy a comfortable or luxurious lifestyle. This requires saving and investing enough to cover higher expenses without stress. Your retirement savings target will be much higher but is worthwhile if comfort is your goal.
3. Barista FIRE
A hybrid approach. You partially retire early but still work part-time or in a less stressful job. The part-time income supports your investment returns, meaning you don’t need a large sum. This offers more flexibility and reduces financial pressure while allowing more leisure time.
4. Coast FIRE
Focuses on saving a lot in the early years of your career. Once you reach your target corpus early on, you can stop adding to it. Your investments grow passively over time, which allows you to “coast” into retirement without extra savings later. Perfect if you want financial freedom without constant budgeting, and it also leaves extra cash for unforeseen situations like health crises.