Difficulty
FIRE (Financial Independence, Retire Early) represents a movement whose followers want to achieve financial freedom and possibly retire long before they reach the official retirement age.
The foundational principle of financial freedom lies in accumulating wealth so that it can generate passive income covering all your expenses over a long period of time. The steps toward reaching this goal are quite simple – spend (much) less than you earn and invest the rest.
Work to earn money first (typically for 10 to 20 years) and let the money work for you afterwards. If your take-at-home pay is € 3,000 and your investments are able to generate the same amount, then you do not have to go to work anymore and you are financially free.
Buy Time Instead of New Clothes
Today’s materialistic society is addicted to consumption and going against the tide is not always easy. Advertisement is omnipresent – buy new outfit (does year truly have 52 seasons?), phone or computer, go on at least 4 vacations each year, and by the way, isn’t it time to buy a new car again or to renovate your apartment?
On the contrary, the fans of FIRE reject constant consumption that often leads to debts. Every useless instalment can prolong the time needed to gain financial freedom by years.
FIRE emphasizes investing in experiences and spending time according to one’s preferences, rather than material things. Even if you abstain from many modern conveniences, you will still live a better life than the nobles from a century ago. Therefore, the FIRE movement has a lot in common with minimalism and environmental protection.
Nowadays, a big portion of consumption of the developed world does not satisfy the basic needs but fights boredom, exhaustion from the everyday routine or helps to escape from reality.
" The three most harmful addictions are heroin, carbohydrates, and a monthly salary.”
Nassim Nicholas Taleb
If you can escape from the vicious circle of spending, running into debt and increasing your expenses, you have almost succeeded. When you are happy with your life, you do not need to always seek for distractions and entertain yourself with buying new stuff. The less money you need every month, the less dependent you are.
What Is the Cost of Freedom?
In order to achieve financial freedom, the passive income from your investments needs to cover all your expenses. The 4% rule is used to calculate how much money will you need for that. It says that you can annually safely withdraw 4% from your investments and not deplete (outlive) them.
Thus, if you need € 3,000 every month, you will have to save up € 900,000€ (4% of 900,000 € is € 36,000 a year, or € 3,000 a month)). You get to the same number if you multiply your expected yearly expenses by 25 (€ 36,000 * 25 = € 900,000).
Is € 2,500 enough for you? In that case you will need €750,000 in your investment portfolio (25 * € 2,500 * 12 months). Our algorithms can also help you to calculate your target amount.
If you insert € 750,000 into our investment planner and you want to reach it in 20 years, you will see how much you need to invest on a monthly basis or in a one-time deposit.
Do you pay 20 € every month for Netflix or HBO? It is alright, but you will have to save €6,000 more for the expense to cover itself. A second car that costs 400 € a month (gas, insurance, lease plan) would need € 120,000 and so on.
Where to Find the Money?
Everything is possible on sufficiently long horizon. Do you turn €100 into one billion? No problem. You only need to invest it in stocks… and wait for 187 years. Compound interest will deal with the rest. Everything is possible. Theoretically, you could make a billion from one cent. However, if you want to achieve your goals before the Sun devours the Earth, you need to cut your expenses and speed up.
There are no limits to cutting your expenses and increasing your income. If financial freedom is your goal, you can move to a smaller apartment, use public transport or cycle instead of driving or work even more. There are a lot of options.
Redefining What Retirement Means
Retirement doesn’t have to mean mandatorily withdrawing from your retirement savings starting from an age, which the politicians agreed on.
If you want a decent life, you will have to create it for yourself. You will eventually be independent from work, but certainly not on your own terms.
The whole world in your portfolio – simple and cost-effective ETF investing
Families could once live off one income. If they could do the same now and invest the second income, they could reach financial freedom in 16 years. Life would then no longer be just about how to save for one vacation a year. Your whole life would be one big vacation.
Frequently Asked Questions About Financial Freedom and Early Retirement
1. What is FIRE and how much do I need to retire early?
FIRE means building enough investments to live off passive income. The 4% rule says you need 25 times your annual expenses. Monthly costs of € 3,000 require a € 900,000 portfolio.
2. What is the fastest way to achieve financial freedom?
Spend less, invest the difference consistently. Every expense you cut reduces your target portfolio. Eliminating a € 400 monthly cost means € 120,000 less you need to save.
3. What is the best way for Irish investors to start saving for retirement?
If you want a comfortable retirement in Ireland, opening a PEPP (Pan-European Personal Pension Product) with Finax is one of the smartest moves you can make. PEPP comes with PRSA-equivalent tax relief, thus making saving for retirement cheaper. It is built on low-cost global ETFs, fully portable across the EU, and managed automatically. The sooner you start, the less you need to put in each month.
Secure a comfortable future and take advantage of the European pension benefits
