I thought it might be nice on a long weekend to take a little time to write about part of my financial path, and share part of the story of how I came to be in the position after less than a decade of saving, to be on the precipice of retirement at just 38 (in other words, I’m capable of retiring now, but I’d be poor). More specifically, I want to share the alternative approach to FIRE that I came up with.
What Is FIRE?
You’ve probably heard of FIRE, which stands for Financial Independence, Retire Early. It’s a relatively new movement, the idea behind which is that you live minimally in order to save like crazy and retire early.
I think living minimally and saving like crazy is a great way to get a fast start to your financial goals. In other words: you have to invest; and in order to invest, you need a pile of cash; in order to get a pile of cash, you have to save; in order to save, you probably have to live minimally.
The bigger the pile of cash you have saved, the more significant the compounded interest will be on your investments, and the faster you will be accelerated towards your end goal.
The trouble with FIRE is that people sacrifice their lives to get to their goal, which I believe is counter intuitive if your goal is freedom rather than safety. It’s counter intuitive because when you safe hard, you’re probably not living. This means that you’re sacrificing your time now, to get more time later. Any older person will tell you that time is worth more when you’re young.
Every time you choose something, you miss out on something else.Lewis Hurst
The trouble is, for every decision you make, you miss out on something else. You choose the chocolate cake, you don’t get the raspberry cake; you choose to lose weight, you don’t get the food; if you choose to save, you don’t get to buy things and experiences; and if you choose to buy things and experiences, you don’t get to save.
My Alternative To FIRE
I believe that there are a few ways to get rich, and if you’re investing, you first need to save. The trick is, once you have saved and are investing, you might not need to save.
Using financial modelling you can find balance between saving and living, in exchange for a slightly extended timeframe of your financial independence. With my alternative to FIRE, you can even live frivolously after a stint of saving, but before retirement.
My approach has been to aggressively save (I didn’t need to do a spending budget, but budgets works for some), then calculate my rate of saving (which I wouldn’t have needed to do if I’d budgeted) per month / year. Then I started investing my saved money, at which point I calculated my Return On Investment (ROI) per annum. I then used financial modelling to work out how long I’d need to save for at my current ROI to get to my retirement goals.
In doing my financial modelling, I ran various models to see what happened if I adjusted the amount I saved each year. I noticed that the more money I had, the less my saving affected my retirement goals, to the point where (in later years) saving had no effect whatsoever.
I realised that I was able to save enough to get the benefits of compound interest from my investing activities, which meant that I could use the salary from my job 100% for my own enjoyment – which leaves a big entertainment budget and still gets my to my retirement goals earlier than I otherwise would.
Modelling at which point in time (age) I started to rely solely on ROI from my investments enabled me to make decisions about how early I could stop saving and start living my life the way I wanted to. Rather than sacrifice all my years saving before retirement, I could decide what was an acceptable amount of my youth to sacrifice in order to have freedom at an older age.