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Financial Independence Retire Early

We have noticed in the media an increasing awareness of “FIRE”. Which stands for Financial Independence Retire Early.

There is an increasing number of people who have started saving/investing a large percentage of their income. Their intention is to replace their “worked income” with investment income. Then when they don’t need to work for income. They can spend time doing what they want with who they want. 

Since COVID19 a lot of people are worried about what would happen if they lost their worked income.

What we like about FIRE:
  1. It is encouraging people to complete a budget and track their spending and keeping expenses low.
  2. People are saving and investing for the future, and making this a priority. Maybe you can’t afford to invest 50% of your net income – but starting with 5% of net income is better than nothing.
  3. More people are looking at ways they can increase their income -through additional education or training or side businesses etc.
  4. It gets younger people to start thinking about retirement and how that might look. What they might do and how much it will all cost.
  5. If people reach financial independence early, they don’t have to retire – they can instead spend more time doing other things. For example working 3-4 days a week and playing golf, spending time with kids/grandkids or whatever they want on the other days of the week.
What we don’t like about FIRE:
  1. Many people are scrimping and saving large percentages of their income to retire early but not enjoying themselves along the way- saving 70% of your net income doesn’t leave a lot left to have fun. Managing your finances is a balance between enjoying your life and also saving/investing for the future.
  2. People wanting to retire early because they hate their job. I guess I am one of the lucky ones who enjoys my job but I don’t see the point in working in a job you hate – perhaps you instead need a new career path.
What can we do to improve our chances of retiring early?
  1. Paydown your debts and have a rainy day fund. Paying off credit cards/personal loans first but then making additional payments onto mortgage will allow you to become debt free sooner.
  2. Start investing into growth assets – whether that is in shares or property as long as you invest regularly and consistently. Famous Warren Buffett Quote: “If you don’t find a way to make money while you sleep, you will work until you die”
  3. Start planning as early as possible as “compound interest is the 8th wonder of the world, he who understands it, earns it and he who doesn’t pays it”

Some of our wealthiest clients do not earn a large income. They just control their expenses, started investing early and consistently. Then let compound interest do its magic over a long period of time.  

Wherever you are on your journey, if you are looking for financial advice, feel free to reach out.