Last Updated on 2021-10-25
Definition of F.I.R.E.
FIRE stands for Financial Independence, Retire Early and it means literally what it says. The goal is to gain and accumulate assets that generate enough passive income which will provide enough money for living expenses throughout one’s retirement years. How do we know how much asset/money is enough for us to retire? Luckily, someone has done the math for us that is the 4% rule. It could simply break down into 3 steps.
Imagine your desired lifestyle and calculate how much would it cost yearly.
Take an example of living in Taiwan. Let’s say we want a comfortable lifestyle for 1 person. 30,000 USD will do.
Use the 4 % rule to do the math and you’ll know how much money/asset you need to save.
X * 4% = 30,000 USD, thus X = 750,000 USD.
Invest in yourself and learn how to manage money. Through practice, you will find ways to get that 4% ROI annually. Then it would be enough money for living expenses of retirement life.
Take 3 minutes to sit down and think this : How much time you’ve spent on the work today? This week? This month? I’m making a wild guess that 80% of us spent more than 50 hours a week. But to what end? Buy more fancy cars/houses so that we can enjoy it? Or to gain control of our time and be free, do whatever we want whenever we want it?
Did you see the tricky part of Consumerism here? It drives us to make more and more money and never stop till the day we have control over our own desires. We aren’t aiming for stingy and cheap. It’s about spending our money wisely and not wasting it on the stuff we don’t really need. LVMH, Richemont, and all that big brands are paying big-budget money to buy commercial advertisements on any form of media just to make us feel that we NEED and HAVE to buy their stuff.
FIRE is not an investment strategy, it is a lifestyle. We work because we choose to, not because we have to. When work is optional, you will have much more time for other aspects of your life – Love / Play / Work / Health which were mentioned in the book was written by Bill Burnett(Consulting Assistant Professor at Stanford) and Dave Evans(adjunct lecturer in the Product Design Program at Stanford). We should be able to take care of every aspect of our life. At least, work shouldn’t be the most part of life for me.
Related Book : Designing Your Life: How to Build a Well-Lived, Joyful Life
The FIRE Movement
In the 2010s, the FIRE Movement was getting more and more popular among millennials. They exist in many forms such as online communities via information shared in blogs, podcasts, and online discussion forums.
Currently, there are 3 types of FIRE –
1. Fat FIRE
2. Lean FIRE
3. Barista FIRE (a hybrid of Fat and Lean FIRE)
People Actually Did It – Winnie and Jeremy
Winnie and Jeremy are the couple who actually did it, F.I.R.E., in their 30s. They are very unique and special because they achieved the goal when Jeremy was 38 and Winnie at 33. The atmosphere of society back then and even now, is to compare who owns nicer cars, bigger houses but they know exactly what they truly desire. It’s not a big empty house with a cleaning lady, it’s a healthy and wealthy connection between family members. Therefore, they choose to take public transportation like MRT instead of buying cars even they can afford it.
The reason why I’m so familiar with this story is that Winnie is from Taiwan. So do I. She is the living proof and if she can do it, then so can we. The question is HOW?
Forbes : How This Couple Retired In Their 30s To Travel The World
Winnie’s FB : https://www.facebook.com/winni328travel
Winnie’s Blog : https://winnielife.com/
How To Start
Rational thinking and the best strategy is
1. Focus and work hard on your DAY JOB
2. Your income will rise gradually through time
3. Plan and control monthly cash flow
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4. Increase the saving rate (Spend the same amount of money after wages go up)
5. Learn how to invest in index ETFs
( Related Book : The Four Pillars of Investing: Lessons for Building a Winning Portfolio )
6. Take action and start invest in PASSIVE index ETFs.
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These steps and strategies are exactly what Winnie and Jeremy took during their journey to FIRE. As you read through the article of Forbes, you’ll discover that they aren’t different from us. They don’t have rich parents. They had goals and executed plans to get them.
Advantages of Passive Income
Rich Dad Poor Dad has sold over 32 million copies in more than 51 languages across more than 109 countries, been on the New York Times bestsellers list for over six years.
According to the book, Rich Dad Poor Dad, the definition of passive income is that once you own assets. It provides cash flow whether you’re working or not. Or just require a little of your time to take care of it. Money keeps flowing into your bank account and you will have more time to do other things… like spending quality time with loved ones or finding more cash-flowing assets.
The 4 % Rule
The 4% rule was developed by William Bengen in 1994. He published a report called Determining Withdrawal Rates Using Historical Data. The 4 Percent Rule indicates that your portfolio which includes stocks and bonds will grow at 7% ROI annually. According to the historical data, the average inflation rate is 3%, you can withdraw 4% with ease and leaving 3% behind to inflation. Since we are only using that incremental 4% from our assets, theoretically we will never run out of money.
Easy FIRE Calculator : https://www.playingwithfire.co/retirementcalculator/