What is the FIRE (financial independence, early retirement) movement?
21 January 2022
More and more people around the world are engaging in strategies from the FIRE movement.
In the process, experiences are shared in community forums and in articles on how to increase income, reduce expenses and invest as much of their available funds as possible.
The stated goal is to achieve financial independence as early in life as possible.
What does FIRE stand for?
The acronym FIRE stands for the declared goal financial independence, retire early. However, the movement's supporters are not interested in retreating as soon as possible. Rather, they want to lead a self-determined life - and that can only be achieved if you have your finances under control.
A paid-off home and a secured pension give FIRE enthusiasts the opportunity to decide whether and to what extent they want to work. Others plan to devote themselves entirely to their hobby as early in life as possible.
The good news is that FIRE is not just for top earners. With the open exchange of experiences about one's finances in the FIRE communities, anyone can gain valuable financial expertise. And once you start enjoying planning your own finances, the numbers in your account will grow, too.
How to calculate a FIRE goal?
FIRE users follow two rules: The 25X rule and the 4% rule.
Here, the 25X rule sets the goal. It calculates the amount of savings by multiplying one's annual desired retirement income by 25.
As an example: If you want to have CHF 50,000 added to any pension entitlements from social security funds available annually, the 25X FIRE rule says to generate CHF 1,25 million.
When you then start your "retirement" (which, by the way, many FIRE followers already manage in their thirties), you should only spend 4% from your portfolio in the first year and adjust the following years by the inflation rate. With this and other systems for investing, the earned wealth should last at least 30 years, more likely 50 years and longer.
How to achieve the FIRE goal?
Once the total amount is in place, there is a goal. FIRE supporters want to reach this goal in as short a time as possible - in other words, well before the statutory retirement age, when they are still healthy and fit. The time frame is as varied as the ways to get there.
Once you know how much savings you want to generate in your desired time period, you can break that amount down. Here's an example:
A 30 year old wants to earn CHF 1'25 million within 20 years in order to be financially independent at the age of 50. This means that he or she must accumulate CHF 62,500 in savings annually. At first glance, that seems like a very ambitious goal. But numbers have magic in them when they are linked to a goal. And the FIRE communities do the rest. Here, people exchange ideas in an understandable and open spirit and become real financial geniuses.
Here are a few basic structures for the (quick) path to independence:
Cut spending. Not always, but often, FIRE followers live below their means to save cash. In the process, communities also discuss, for example, whether it makes sense to move to locations with a low cost of living.
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Invest income. Within the FIRE movement, safe investments are recommended so that annual savings deposits can earn interest. There are very different ways to do this, from low-stakes stock deposits to investments in real estate. FIRE supporters make the otherwise dull topic of financial planning exciting. And once you're "hooked," you start being smarter with your money, too.
Increase income. If you have more money at your disposal, you can naturally invest more money and thus save it. Therefore, strategies to increase income are an important topic among FIRE followers. Many follow the strategy of expanding their sources of income. Instead of drawing from one source with a base salary, for example, self-employment can open up multiple money channels.
Numarics users strive for financial independence and to do what they enjoy. This is usually not retirement in a TV armchair, but quite simply the opportunity to pursue their passion and earn an income doing just that.
This is exactly where we come in. As a business operating system, Numarics seamlessly handles the business management part required to run a company, no matter what size. Expenses, revenues and investments are accounted for and reported to the appropriate authorities through the Numarics OS operating system. Valuable financial forecasts are available in real time. Because if there's one thing we know about FIRE, it's that a complete financial overview is paramount to achieving goals.
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