How much is enough?

There has been a movement going in the US for some years now known as FIRE – Financial Independence, Retire Early. 

The basic idea is to live well below your means for years in order to accumulate anywhere from 25 to 60 times your annual living expenses and then retire.

For those who genuinely love the job they do, FIRE is not for you, but for everyone that doesn’t love their job (or even like it), FIRE could be for you.

Most of the people in the FIRE movement are in reasonably well-paying jobs who value their time and how they spend it far more than living a lavish lifestyle or having a fancy job title (so many people these days seem to have the words “manager”, “partner”, “director” etc. in their job title, but if you are showing up to work and taking orders from anyone but yourself, it isn’t worth a damn). 

I can really relate to the FIRE movement because I was doing it long before it ever had a name (and it works). 

There are only five ways that a person can become wealthy:

1. Inherit a large amount of money;
2. Start a highly successful business;
3. Obtain a very high paying job;
4. Win the lottery; or
5. Live well below your means and carefully invest the money that you chose not to spend.

Options one to four are impractical for the vast majority of people. Option five is very possible for many people (although not all), but it requires lifestyle choices that most people will be unable to make.

Think about people who are overweight, almost all of them can lose the excess weight, but many will not because they don’t have the discipline (or ultimately the desire) to do so.

FIRE is not popular with many people because it involves many of the following behaviours:

•         Minimising on eating out, going to movies, concerts or sporting events;

•          Driving a fuel efficient second hand car (no luxury cars please);

•          Not taking out loans for items like cars;

•          Using public transport to get to work (where possible);

•          Never paying interest on credit cards;

•          Avoiding tying up very large amounts of money in a home which produces no income;

•          Minimising spending on clothes and shoes;

•          Minimising overseas holidays (or holidays in general where you “go away”);

•          Avoiding purchases of expensive jewellery or watches;

•          Not having costly pets (or any pets);

•          Not indulging in expensive hobbies;

•          Taking the time to find the best deals on things like home, car and health insurance;

•          Availing yourself of legal tax minimisation strategies;

•          Taking an interest in your own finances and investments;

•          Not hiring help (e.g. gardeners and cleaners);

•          For those that can, continuing to live with parents (for quite a while!); and

•          Forgetting about having the latest iPhone or other expensive (and time wasting) gadget.

Now, how many people are prepared to do all that? Answer: Very few.

Most people would rather take the overseas holidays, spend a pile of money on entertainment and pay for it all by giving an employer an additional 20 or more years of their lives. This is a very high price to pay because time is very finite  and money is not, we print more of it every day, try “printing” more time. 

Many people in the FIRE movement who have retired are in their 30s or 40s, still young and able to really enjoy life. Having years of retirement in your 40s or 50s is more valuable than the equivalent time in your 70s or 80s because there will be plenty of things you simply will not be able to do in your 70s and 80s due to health issues.

The workplace itself can be very unhealthy. For example, working in an office and staring at a computer all day is not ideal for your posture, your eye sight, your fitness (sitting all day) or (often) your stress levels. The sooner all of this can be confined to your personal history, the better.

Personally, I think that (right now), a net worth of 25 times your living expenses (excluding your home) is too little to contemplate retiring in your 30s or 40s, 60 times seems much more sensible and will provide a good margin of safety. And yes, that’s a difficult goal to attain, but you will find that almost everything in life worth achieving is difficult.