A F.I.R.E blog by SoulFairy

Whether you’re new to investing or have been at it for a while, you would have probably heard or seen the acronym F.I.R.E before and if you haven’t your timing is perfect!

A few weeks ago, our EasyWealth team hosted a webinar on how we can invest for our future via managed investments, which you can catch up on here. We had incredible guests who took us through products you can invest in under your TFSA or RA easy accounts.

Our Easy futurist, Rochelle Warries aka SoulFairy, took us through some of the strategies she uses to invest for her future, and explained to us about the F.I.R.E concept. The EasyCommunity seemed to love this movement, so she has put together a detailed explanation of what this is.

Read the piece below, which she put together for you.

What is F.I.R.E.?

You often hear people the investing community talk about their F.I.R.E. number. The mysterious number that will set them free for life. But what precisely is F.I.R.E.?

The F.I.R.E. (Financial Independence, Retire Early) movement is a lifestyle movement with the goal of gaining financial independence and retiring early. F.I.R.E. devotees believe that retirement is no longer an age, but a measurable amount of liquid assets which enables early retirement. Those seeking to attain F.I.R.E. intentionally maximise their savings rate by finding ways to increase income and/or decrease expenses, along with aggressive investments that again increases their wealth and/or income. The objective is to accumulate assets until the resulting passive income provides enough money for living expenses throughout one's retirement years.

For those in the F.I.R.E. movement, “financial independence” doesn’t just mean sitting on a beautiful tropical beach or shopping trips all the time. It means reaching the point where you don’t have to work a full-time 9-5 job if you don’t want to. You can scale back to a part-time job or simply stop working altogether. The choice is yours…just imagine.

The Magic Formula

• You need to build up a net worth of 300 times your estimated monthly spending to achieve financial independence
• You should only withdraw a maximum 4% from your savings each year

The rule of 300

Calculate your estimated monthly expenses in retirement using today’s values. If your bond is going to be fully paid by the time you retire, exclude that from your F.I.R.E. number. Do not forget to include medical aid. Many forget that they won’t have a salary deduction and will need to pay this themselves. Include medical aid in your F.I.R.E. number. Multiply the monthly number by 300. That is how much you need today to retire.

The 4% rule

In the first year of retirement, you only withdraw 4% of your portfolio. You may only increase this number by inflation annually and your money will last on 30+ years, stock market returns dependent.

What are the principles of the F.I.R.E. movement?

• Saving as much of your income as possible:  I personally started with 10% of my income and have increased it to 50% currently

• Living exceptionally frugally:

• Make the necessary lifestyle changes and do not adjust your lifestyle with every salary increase. Keep your eye on the prize…freedom
• Buy a used car and keep it for as long as possible instead of opting for a new car every five years
• Ride a bike or use other low-cost transportation to further cut travel expenses
• Learn how to do household repairs instead of buying a new appliance or paying a handyman. YouTube has a wealth of DIY resources
• Cut back on recurring expenses such as cell phone, DStv, internet, and other services where possible
• Take advantage of free entertainment options

• Paying off all your debt, including your homeloan:

• Once my mortgage is paid off, I will invest 70% of my income and live on only 30%
• Credit cards are evil if you do not use them like cash. Pay the full balance every month and only collect the reward points and benefits

• Increasing your income through side hustles and investing it aggressively:

• Invest 80% of side hustle income and spoil yourself with the 20%
• Treat any windfalls like bonuses or monetary gifts in the same manner

• You must have a 3–6-month emergency fund, to never disturb your investments:

• Emergencies do not ask for permission before they happen
• Never disturb the compounding in your investment accounts

• Investing in low-cost investment vehicles like ETFs, blue-chip and dividend-paying equities

• The key is to get into a regular habit of saving and investing every single month.
• When you do that, time, and compound interest work for you instead of against you
• Always reinvest your dividends
• Invest in assets such as commercial real estate or rental property that can generate predictable income

Can this really be achieved?

I have always been an avid saver and I always knew I want to retire a bit earlier than normal. When I started working and saving, it did not have the name F.I.R.E. or the fancy formula. By the time I got hold of the formula and doing more online research, I was amazed at the broad spectrum of people from all walks of life working towards F.I.R.E.

It was not directors and presidents of companies, but every day people yearning freedom. Some needed very little, but everyone needed to work equally hard because that “multiply by 300” is universal and levels the playing ground in terms of sacrifices.But how much sacrifice F.I.R.E. requires you and your family to make, really depends on your goals, your disposable income, and what you're prepared to give up or cut back on to get your savings rate as high as possible.

If this lifestyle interests you, give it a go. We do have fun and splurge on what is important to us, but our goals remain intact.

Reach out to me on Twitter (@soulfairy3) if you want to dive deeper into the F.I.R.E.

Happy investing!

SoulFairy

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