Could you retire early by setting your finances on FIRE?

Amy Hamilton Chadwick
Could you retire early by setting your finances on FIRE?

The hottest movement in personal finance right now? It’s FIRE: financial independence, retire early.

The movement began with the 1992 book Your Money or Your Life, but it’s only in the past five years that it’s taken off as Millennials have embraced its principles.

FIRE is all about living frugally, saving aggressively and investing as much as you can. The ultimate goal? No longer relying on your traditional nine-to-five job. Instead, you can live off the income produced by your investments while you take on a passion project, relax or volunteer.

It’s a full-on community (some joke that it’s a cult) of passionate savers. They meet online in Reddit communities and in local Facebook groups, discussing ways to cut costs and invest their money.

Fans say that by making permanent and dramatic cuts in your spending and saving the difference, you can eventually save enough to completely pay for your living costs. When your savings are 25 times your annual outgoings, you’ve reached your ‘crossover’ point: spending 4% of your investments each year will theoretically support you forever. You could potentially retire in your thirties or forties.

Auckland financial adviser Lisa Dudson, director of Acumen, knows exactly what this feels like. She has been an aggressive saver and thrifty spender since she was a teenager – investing her disposable income in property and other assets. By the time she reached the age of 40, her income from her investments was enough for her to live off, giving her the option to quit work.

“I don’t need to work,” says Dudson. “I choose to keep working because I enjoy it. But I don’t work anywhere near the hours I used to. I like to travel and my trips are getting longer and more expensive.”

She loves the idea of the FIRE movement because it’s getting young Kiwis thinking about their financial future, as well as encouraging people to realise that accumulating possessions won’t make you happy.

 Dudson worked at her financial independence from both angles, spending carefully while also earning and investing as much as possible: “Whether you spend less or earn more, the key thing is the gap between the two, so try to move one of those lines.”

Spending less and saving more means you are no longer tied to your employer. As Dudson points out, it massively increase your options in life: “It’s all about getting into a position where you have the freedom to choose. Think about what you could do with that freedom.”

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