Have you heard about the FIRE (financially independent retiring early) movement?
A small group young of Kiwi’s, led by Wellingtonian Nick Carr, are joining a global savings movement where members aim to live frugally and save 25 times their annual income to allow retirement decades early. Even though FIRE is not a new idea, the savings movement has been reignited through the world of social media, dedicated websites which offer members encouragement and savings tips, and even pod casts. However, many FIRE members say their focus isn’t necessarily on retiring early and taking themselves out of the workforce, rather, their focus is actually on gaining financial freedom.
Why 25 times your annual income?
The rule of 25 is used by FIRE members as this number represents a retirement portfolio which could provide a specified annual income and not deplete the capital base – so you don’t run out of money and go broke part way through retirement. For example, if you estimate your retirement spending to be $50,000 per year, under the FIRE rule, you would need to have saved $1,250,000 before retirement.
Methods of saving that NZ based members have implemented include; downsizing to smaller homes in less desirable suburbs, shopping around for better deals on utilities, only eating at home, ditching cars and opting for public transport, sharing homes with flatmates and using budgeting tools to track spending.
The FIRE movement may not be for everyone though and has drawn a few criticisms, such as the practicality of living so frugally as well as the emotional repercussions of constantly obsessing about your spending. However, the most common theme among members, which is usually echoed by many, is to reduce mortgage debt as quickly as possible as this represents a massive step towards financial freedom. Although high house prices across New Zealand can make the goal of eliminating mortgage debt before 50 seem like a distant dream, the right planning, sacrifices and debt management, can help you see that dream achieved a little faster.
No matter your age or the size of your retirement goal, many professionals agree that the best way to get started saving for retirement is just to simply look at your current income and expenditure. By reviewing your expenses you can discover areas where you may be able to cut back on unnecessary spending or better manage debt (both long term and short term) in order to make the most of potential savings.
If you have any questions about the FIRE movement or would like to speak with one of our qualified advisers about planning for your retirement, please do not hesitate to get in touch.