F.I.R.E Away But With A Plan!
India Incs second quarter earnings is underway and an interesting trend is panning out in mostly all sectors. Attrition rate has raced past 20 per cent which was quite unheard of in India thus far.A similar trend is playing out in the US with a record 4.3 million workers quitting their jobs in August 2021 (Source: CNBC).This could very well be the F.I.R.E movement taking off in the western world. F.I.R.E is abbreviated from Financially Independent, Retired Early. This new-age idea contradicts the age-old concept of retiring at the age of 60- 65. F.I.R.E consists of three broad steps. Extreme savings in the early stage, frugality (‘jugaad’ attitude) and creating a passive income source later.
You begin saving up to 70 per cent of your income at an early age and as you take on additional responsibilities, your expenditures may increase, but you would have earned equal or more returns on your past savings or investments if you start early. This continues until your savings reach 30 times your annual expenses adjusted for inflation and then you retire. Instead of following the income-expenditure = savings formula, follow income-savings = expenditure.
• Lean F.I.R.E.: Trying to minimise expenses and maximis-ing savings.
•Fat F.I.R.E: Spending a bit more rather than squeezing expenses drastically. This means retirement could take longer.
• Barista F.I.R.E: Save enough and between the age of 26-28, attempt to start your own enterprise. If it takes off, you may be able to retire before 40.
All of this is aimed at giving up the traditional 9 am to 5 pm job. It is more about having the freedom to pursue what you wish in life and being able to monetize it efficiently as well, thereby leading to better mental health, skill development and standard of living.
Indians too are increasingly warming up to this concept. Today, individuals are ready to give up their traditional job to pursue ideas and convert them into monetizable company. The government too has been supportive in the form of supporting funding needs through a Fund of Funds for Start-Ups (FFS) with a corpus of `10,000 crore. As of December 2020, the number of recognised start-ups in India stands at 14,778 compared to a mere 504 in 2016. However, one of the key reasons this has been possible is due to private equity funding, IPOs, etc. leading to creation of young millionaires and neophyte rich. Fund-raising today is much more than what it was 20 years ago.
Triggers for F.I.R.EWork from home brought to light the importance of maintain-ing a balance between work efficiency and leading a comfort-able standard of living. Not eating out, no travel and no means of entertainment or discretionary shopping for almost two years led to incredible savings, thus giving many a head-start towards the F.I.R.E. journey. Spare time while being locked at home and the fear of missing out triggered innovation on several fronts, thus leading to faster means of earning. Also, the realisation of the absence of social security in India led many to tighten their belts and embark on the Fat F.I.R.E journey.
F.I.R.E. includes factoring in inflation and planning for your finances, retirement and provisioning for emergencies, etc. There are many websites which guide you with retirement planners. In F.I.R.E. you have to sustain without a steady income source while maintaining your standard of living. So, do not miss out on taking into consideration inflation while calculating your retirement corpus. Remember to adhere to asset allocation at all times i.e. spread your savings across asset classes such that even if there is an extreme development in one asset class, your portfolio is not terribly impacted.
Keep on adding to your retirement kitty and use tax-efficient investment avenues. Do not let short-term developments disrupt your compounding journey, especially in asset classes such as equity. Given that this is a crucial decision in one’s lifetime, it is best to consult a financial planner who can take a wholesome perspective while building an investment portfolio. Remember to consult your planner at all times when there is a decision on sizeable inflow or outflow to be made. After all, retiring early is possible only after you earn your financial freedom.
The writer is Managing Partner, Pranitya Wealth Advisors