What is FIRE? (Financial Independence, Retire Early)

So you've heard about FIRE and you'd like to learn more. Here is a quick run-down of what you need to know.

Fire is more than just a financial or investing strategy. It's a lifestyle philosophy that has gained substantial popularity among those looking to achieve financial freedom before the traditional retirement age. Here is who its for:

• Motivated to retire early: FIRE Is appealing to individuals looking to retire in their 50's or even sooner.
• High discipline savers and investors: Since FIRE requires significant discipline and putting away a large portion of your income, you need consistency over a long period of time.
• Able to start saving and investing:  You need to pay down high-interest debt so you can begin to save a significant portion of your income.
• Advice for early-career MDs: If you are early career,  especially with a large student loan and in a  high-cost-of-living city, you may need to focus paying down the debt by maximizing your income (e.g. through loan forgiveness in certain areas, rural service, additional side hustles). 

Here are a few easy tips for getting started:

• Assess Financial Status beginning with a a budget, and calculating your net worth (feel free to ask for our complimentary budget worksheet to help!)
• Set Clear Goals including age for reaching financial independence, and how much you will need (if you're not sure, book a call with us to discuss!)
• Create a High Savings Target. For FIRE, this usually sits between 50% to 70% of your income.
• Invest Wisely by picking diversified index funds such as VGRO, VEQT, XEQT, etc. depending on your time horizon and risk preferences.
• Live Frugally and plan every major purchase as well as things like dining out and grocery spend.
• Generate Additional Income by pursuing a side hustle like consulting.

FIRE can be a helpful strategy for many individuals because it does many things well. For instance:

• Accelerates Financial Independence: By making you more mindful and strategic about your financial situation, it can help you accumulate assets faster.
• Creates Accountability by forcing you to set goals and defining them in tangible ways.
• Encourages a Minimalist Lifestyle which can lead to a more sustainable life vs the consumption driven lifestyle that has grown over the past few decades.
  

FIRE can't work for everyone. For instance:

• Requires high income: To be able to save 50% or more of your income, you need a high income, and that makes it inaccessible for many lower income practitioners, especially when in HCOL cities.
• Market dependence: While you can take all the right steps, a market or economic downturn can affect your returns.
• Quality of Life concerns: The high levels of saving and frugality can diminish quality of life, social interactions and opportunities like family vacations with kids while they are young.
• Potential for shortfall: There is always a chance that savings may not be sufficient to cover your expenses if you have a longer than expected lifespan or unexpected expenses.

• Set a target for timeline and know when you would like to achieve financial independence
• Determine your financial needs and have a clear financial goal to reach your target
• Pay down high cost debt, especially when it exceeds your expected return in market
• Save aggressively, from 40% to 70% of your income each month life a disciplined lifestyle
• Avoid splurges like sports cars and other lifestyle inflation purchases
• Build your financial acumen and become involved in financial decisions
• Invest in ETFs with low management fees, while also offering international and sector diversification
• Continue to refresh your portfolio and monitor it atleast on an annual basis (ideally quarterly)
• Do not let economic downturns or slumps detract you from your long term goals and do not try to time the market
• When you reach your retirement goals, you can safely withdraw up to 4% of your retirement portfolio each year in retirement, without running out of money for atleast 30 years. For example, if you have a $5,000,000 portfolio, at 4% you can safely withdraw $200,000 per year for living expenses.
• The 4% rule is considered aggressive by some for longer retirement periods. You can adjust the withdrawal rate to 3% for extra cushion.

• Depending on how long you withdraw from the portfolio, and the return it is earning, you may still be able to leave a sizeable inheritance to your family.
• The goal should be to withdraw at the same rate, or at a lower rate than the real rate of return for your portfolio.
• Estimates for global diversified equities range from 6% at an optimistic level, vs 3% for a conservative estimate (adjusted for inflation).

FIRE is a compelling approach for those seeking early retirement and financial independence through disciplined saving, investing, remaining frugal and fighting lifestyle creep. It can work well for MDs willing to make significant lifestyle choices to achieve financial freedom.

However, it's also important to consider the potential challenges and criticisms of FIRE, including its feasibility, the risks associated with investment dependence, and the impact on current quality of life.