FIRE Investment – Everything You Need To Know

Who doesn’t dream of early retirement,  where you can trade your current job for pursuing your passions,  all without financial worries? The idea of retiring early has captivated many,  and one of the most popular methods to achieve it is through the FIRE Investment. 

In this article,  we will talk about the FIRE (Financial Independence Retire Early) movement.  It is a financial planning method for early retirement that challenges the popular belief of working until 60-65 years,  the conventional retirement age.  This concept has recently gained popularity among Gen Zs and millennials. 

So,  let us dig in to understand the fundamentals of this unique financial rule in detail. 

What Is The FIRE Investment?

Vicki Robin and Joe Dominguez introduced the FIRE concept in their book “Your Money Your Life” in the early 90s. 

Financial Independence Retire Early (F. I. R. E. ) is a way of life that aims to help people escape the 9 to 5 grind much before the widely accepted retirement age of 60.  

All those who are dedicated towards FIRE investment must allocate a majority of their paycheck to saving and investing while living a frugal lifestyle. 

Living below their means will help not just with saving while working but also when the individual has retired early.  

Thus,  you could say that FIRE Investment is also a mindset switch that relies less on materialism and more on sustainability,  rooted in the philosophy of intentional living and financial autonomy.  

Types Of FIRE Investment

Based on people’s financial habits,  the FIRE Investment has several types.  These types are:

Lean F. I. R. E. 

This is the most extreme form of F. I. R. E.  Learn F. I. R. E.  is an approach that requires you to lead a highly minimalist lifestyle.  

You must ideally have a target of saving 70% or more of your monthly income,  which will be invested in top passive income ideas.   

To achieve this goal,  people turn to three principles:

• Geographic Arbitrage: Move into a smaller home that carries lower rent to ensure that your living expenses are at a bare minimum
• Mindful Eating: Stick to eating homecooked meals with an odd date/treat here and there
• Extreme Frugality: Save,  save,  and save most of your income

Fat F. I. R. E. 

This approach is the exact opposite of Lean F. I. R. E.  Fat F. I. R. E focuses on leading a comfortable lifestyle while working towards early retirement by creating a sizeable portfolio of investments.   

As a follower of Fat F. I. R. E. ,  you must have a general goal of saving 50% or more of your monthly income.  

To achieve these goals,  you shall invest in real estate or other securities that can help generate passive income and turn to principles such as:

• Diversified Portfolio: Invest in real estate,  stocks,  bonds,  and other passive income investments 
• High-Quality Living: Lead a comfortable lifestyle by investing in quality experiences,  things,  and assets for early retirement
• Real Estate: Aim to generate income through real estate (rent & lease)

Barista F. I. R. E. 

This approach is a combination of Lean F. I. R. E.  and Fat F. I. R. E.  It requires you to take on a low-stress part-time job like a barista or part-time teacher after you retire early.  Your aim must be to save 30% or more of your income. 

Furthermore,  this type of F. I. R. E.  may seem contradictory to the overall promise of retiring early because you’ll still be working after financial independence. 

But the thing is,  you’ll be pursuing passion-driven jobs that pay a decent amount of money.  Barista F. I. R. E.  principles include the following:

• Early Retirement: Achieve financial independence early in life to transition into part-time work on your terms
• Pursue Passion: Choose a part-time job that is in line with your passion or interests
• Flexibility: Maintain the freedom to explore hobbies,  travel,  and spend time with family while supplementing income through work

Household F. I. R. E. 

It is an F. I. R. E.  type with a focus on securing financial independence as a family unit.  All your family members will work together to save and invest,  eventually retiring early together.  

You all must make financial decisions based on the welfare of all members by following early retirement principles such as:

• Collaborative Effort: Work together as a team to achieve shared financial goals pre and post-retirement
• Open Communication: Discuss financial decisions,  budgets,  and investment strategies as a family
• Mutual Support: Ensure the well-being of all family members by making financial choices that benefit everyone 

Coast F. I. R. E. 

This is a highly relaxed approach to FIRE Investment.  It requires you to save enough money to retire early,  but you may continue with your current job till you reach a certain age.  

Under this approach,  you must aim to save 20% or more of your income.  You can continue working till you are 60 or above,  and achieve this type of F. I. R. E.  based on principles such as:

• Flexible Retirement: Choose when to retire based on your preferences and financial milestones
• Less Pressure: Work and gather experiences that align with personal interests rather than financial necessity
• Balance: Enjoy the benefits of financial independence while maintaining a balanced lifestyle with continued employment

Investment Strategies For Early Retirement

Retiring early requires a regular,  stable and fixed income source.  Investors can look for below to generate passive income. 

• Inflation-beating
• Non-volatile
• Tax-saving investments

Moreover,  investors should aim for investment diversification,  including options across the entire risk-reward spectrum.  These options can include a mix of stocks,  bonds,  SDIs,  real estate,  other alternative investments,  etc.  

Here are some options to help your financial independence and early retirement journey. 

Systematic Investment Plan (SIP)

A SIP can help investors experience the power of compounding.  It encourages investors to invest regularly in small amounts for a longer period.  SIPs are the easiest way to invest in mutual funds and SIPs in  corporate bonds.  Moreover,  this option is open-ended,  enabling investors to withdraw the total corpus whenever they want. 

Employee Provident Fund (EPF)

EPF forms a significant part of any retirement plan despite withdrawal restrictions.  Employees and employers contribute a percentage of their monthly salary towards EPF,  which earns interest.  It is also one of the tax-saving investments.  Alternatively,  they can also contribute to the Public Provident Fund (PPF). 

National Pension Scheme (NPS)

NPS is a market-linked pension scheme that allows retirement planning.  In this voluntary scheme,  investors can contribute till the age of 60.  After that,  they can purchase an annuity with 40% of their savings and withdraw the remaining amount either as a lump sum or systematically on a monthly,  quarterly,  half-yearly,  or annual basis. 

Securitised Debt Instruments (SDIs)

An SDI is an exchange-listed,  rated and regulated debt instrument.  It helps investors access fixed returns of up to 16% pre-tax IRR,  higher than traditional options like FDs.  The returns from SDIs are not subject to market volatility.  Investors can explore many SDI opportunities (LoanX,  LeaseX,  BondX,  InvoiceX) at Grip Invest and diversify their portfolios and achieve their retirement planning goals. 

Corporate Bonds

Companies issue corporate bonds to raise capital from investors for a predetermined time.  Investors receive periodic interest payments and principal repayment upon maturity.  This option is attractive for investors seeking stable monthly/quarterly income.  However,  investors should invest only in investment-grade bond opportunities to mitigate credit default risk. 

Fractional Real Estate

Investing in real estate is the most common way to build passive income for retirement.  It is considered an appreciating asset that simultaneously provides investors with rental income.  However,  real estate investments require large initial capital and due diligence to mitigate associated risks.  

Conversely,  investors can generate stable yields by investing in fractionalised commercial real estate (CRE) through alternative investment platforms.  With CRE,  investors can own a part of the carefully vetted property at lower investments and earn stable periodic returns.  

Benefits of the FIRE Investment

The FIRE method is becoming popular because of the benefits that it provides.  Here are some of the advantages of the concept –

Encourages financial planning:

The FIRE concept is all about managing your finances and becoming mindful of your income and expenses.  When you adopt the FIRE method,  your finances take center stage,  and you start planning for your finances.  As such,  financial planning becomes a habit in your journey to financial freedom. 

Helps in Achieving Financial Independence:

As mentioned earlier,  FIRE’s first concept is financial independence.  It means accumulating sufficient funds,  so that you can fulfil your financial goals easily.  This gives financial independence as your savings may become optimal to meet your needs. 

You Can Take Control of Your Finances:

As you adopt FIRE,  you take control of your income and expenses.  You scrutinize the sources of inflow and outflow and ensure that deviations or problem areas are resolved quickly and effectively.  This also allows you to cut down on unnecessary expenses so that your disposable income is enhanced and you can save more. 

You Start Retirement Planning Early On:

The next part of FIRE is all about retirement.  While individuals might delay retirement planning at the early stages of life,  FIRE forces them to change their views.  Under the FIRE method,  you start retirement planning early and give importance to it.  This might allow you to save up a sufficient corpus for retirement so that you do not depend on others after you retire. 

Better Debt Management:

Under the FIRE method,  debt repayment also becomes a priority since individuals do not want to retire with an existing debt burden.  This can promote efficient debt management wherein you try and repay your debt on time and get rid of your liability at the earliest.  This also helps you avoid missed payments,  late payment charges and degradation of the credit score due to improper debt servicing. 

Savings and Investments Become Priority:

With the FIRE movement,  saving money and investing it in suitable avenues becomes a priority because creating a retirement corpus becomes paramount.  As such,  you try and save more and more of your income and invest it into good avenues that can generate returns and grow your corpus.  

While you plan for retirement,  you also fulfil other financial goals along the way so that your responsibilities are taken care of by the time you retire,  and you can live a financially worry-free life post-retirement. 

FAQ: FIRE Investment

What are the challenges of the FIRE Investment?

Some of the potential challenges include:

• Market volatility
• Unexpected life events
• Tax Changes
• Medical expenses,  etc.  Hence,  it is always important to keep an emergency fund. 

Can you join the FIRE Investment with low income?

Individuals with low income can also go for FIRE.  They can focus on LEAN Fire with minimalist living,  strict budgeting,  and intelligent low-risk investing. 

What is the typical FIRE retirement age?

There is no fixed age.  However,  it aims to retire before the traditional age of 60-65.  Most of the followers of the fire movement aim to retire in their 40s or 50s. 

Conclusion

FIRE (Financial Independence Retire Early) investment is a popular strategy that aims to achieve financial independence and retire at an early age.  By saving aggressively,  investing wisely,  and minimizing expenses,  individuals can build a nest egg that generates passive income to cover their living expenses.  

There are different types of FIRE investment approaches,  including the LeanFIRE,  FatFIRE,  and BaristaFIRE methods.  Each method has its unique characteristics and requirements,  allowing individuals to tailor their approach based on their goals and circumstances.  

Whether you’re looking to retire in your 30s or simply achieve financial independence,  FIRE investment can be a powerful tool to help you reach your dreams.  So why wait? Start exploring the world of FIRE investment today and take control of your financial future! 

Get in touch with Sustvest today for making an informed financial decision.