Imagine this. You are in your late 50s, coming home to your family after a long day at work, spending an hour or two with them, only to go back to work the next day...AND repeat. Bleak right?
This is probably the image that pops up in the average 20-something’s mind when they think about working all the way up to 60. And this image is probably what gave wind to the FIRE (Financial Independence, & Retire Early) movement among millennials.
What is FIRE? The basic idea of the movement is to spend frugally, and save aggressively. Think Molly Weasly! In its most stringent form, this means that you save 70% of your income and spend only 30% of it. Once you’ve saved around 30X your yearly expenses, you can safely quit your day job! You could then withdraw only around 4% from your savings stash every year so that you don’t outlive your savings.
It is a hard idea to sell. Why would you want to hoard money instead of spending in your prime years? Well, one of the biggest misconceptions about FIRE is that it is a one-size-fits-all blueprint. It’s not! Psst...this means you don’t have to cancel your tickets to that exotic holiday destination you always wanted to travel to. Yes, really. FIRE can also be looked at as just a saving hack, customisable to your lifestyle, nudging you to save and invest more than the average Joe. Consequently, helping you retire well before you are 60.
SIPs are an excellent way of doing this in your 20s without getting overwhelmed. Think of them as the love child of mutual funds and EMIs. Instead of investing a lump sum, you pay monthly instalments towards a mutual fund. Working out your annual expenses would be the first step here. This is how much you need to save every year. Then you simply pay monthly SIPs for your selected mutual funds to reach those savings every year you are employed. In around 10 years, you would have put enough aside to bid adieu to your day job In your mid-30s!
Always wanted to be a painter, musician, or entrepreneur? Well, with FIRE you can be one…
Fast forward 10-15 years - You have enough funds to retire comfortably. What next?
WHATEVER 👏 YOU 👏 WANT 👏
The idea of FIRE in the millennial outlook is that it is an avenue to fund your creative pursuits after retiring early. These pursuits give you passive income to depend on for daily expenses, without having to dip into your savings.
Truth is, making passive money is not very difficult, especially with avenues available today. Take cues from Mr. Money Mustache, the software engineer who quit his day job at 30 to make money doing what he loves, teaching personal finance through his massively popular blog! He also actively invests in real estate & index funds to make sure huge amounts of money are not sitting idle in a bank account.
The moral of the story - having financial freedom gives you the flexibility that depending on a paycheck every month just does not. No matter how much you are enjoying your job now, saving up for early retirement is always a good idea. Still love your job after 10 years? Just use your savings as a downpayment for your dream house or that oh-so-fancy car you’ve always wanted. Win-Win!