I read an article in The Irish Times about how the Fire movement is inspiring people to plan for retirement. Fire stands for Financial Independence Retire Early. It is a movement that started in the US and has grown in popularity in Europe too. Under its principles, people save large proportions of their salary each year, pay down debt early and look to retire as early as they can, usually in their 40’s.
While we agree to some of their principles, it is not something that we will be advising clients to adopt.
The Millionaire Next Door describes frugality as living below your means and saving the rest. Using capital markets, you can grow these savings to grow your money for use at a later stage.
Under Fire principles, the goal is to save between 50%-70% of income. Unless you are a high earner, being able to save that much money involves a lot of sacrifices and watching every penny that you spend. How much do you want to do that? Forget about those nights out, nice holidays. You’ll be checking prices in the supermarkets to ensure you get the lowest priced items. And it’s not going to end when you reach that magic number. You have conditioned yourself to living on as little as possible, you not going to just start spending. Because you have stopped working so early, you need to make that money last a long time, so you have to continue with extreme frugality for fear of running out of money.
I prefer lifestyle financial planning. That is, reaching the lifestyle that you enjoy and being able to maintain that throughout your life. Yes, it also involves not spending now but it is not to the extremes. We don’t believe in watching pennies, it is about watching the big purchases. Buying a €20,000 – €30,000 car instead of an €80,000 car. Or buying in an area that you can afford and also won’t be looking at what your wealthier neighbours are doing with envy. That is, unless you can afford it!
I talk to so many clients who don’t envisage retiring because they love the work that they do. They may reduce the hours they work but they don’t want to stop. The nature of work is changing so people can continue working past the normal retirement ages.
So while some people are looking to never retire, Fire followers are looking to stop working as soon as they can. Why? Do they not get fulfillment from the job that they are doing? Would a career change not be more beneficial? Earn a lower salary in a job that you love rather than a higher salary in a job you want to retire from as soon as you can.
As Warren Buffett said pick an industry and work with the kind of people that you would select if you didn’t need the money. Never stop looking for the job and colleagues that makes your job feel as if you aren’t working.
A lot of Fire followers start in their 20’s or early 30’s. These are great times to be an adult; the times before school runs and children’s sports take over your life. You have decided to save and work as hard as you can instead of enjoying yourself. Most of us remember all the times we stayed in so we could save for a deposit on a house. Would you want to do that for over a decade or longer?
Then when you do reach your goal and retire in your 40’s. But your friends are still working. Yes, you can enjoy experiences with your spouse, but it is also fun to have experiences with friends too. And then when you do go away at off peak times (to save money), the demographic are the silver headed retirees in their 60’s+.
I don’t see where children fit in. They are expensive!
09 May 2022