Over the last month or so since I started this blog, I’ve been exploring some of the world of personal finance blogging. And heck, there are a lot of quality blogs out there.
Some of these are fully-fledged businesses with sufficient traffic to drive revenue from affiliate marketing and advertising, but most of these are personal stories with a few tips for the reader thrown in for good measure.
But perhaps what has surprised me the most is the sheer number of these blogs that focus in on the issue of financial independence and early ‘retirement’. It seems – rather accidentally – I have fallen into a movement to which thousands upon thousands of others belong.
This movement, I have come to learn, is called the FIRE movement. If you’re not already familiar with it, that’s short for Financial Independence, Retire Early. And perhaps unsurprisingly, interest in this approach is growing at a phenomenal rate.
Who wouldn’t like the sound of both financial independence and early retirement? After all, that’s what we bust a gut for over the entirety of our working lives.
But mere interest doesn’t equate to successful delivery of this pursuit. So let’s break it down to its component parts.
What is ‘Financial Independence’?
As I set out my own aspirations for financial independence, I thought a lot about this question. Put simply, financial independence means having enough money to be self-sufficient. That doesn’t mean growing your own vegetables or breeding your own cows, but it does generally mean one of two things from a financial standpoint.
The first option is having a large enough investment pot upon ‘retirement’ to generate sufficient passive income to never have to rely on employment again. This may mean an investment in stock markets that provides a stable or growing dividend income. Or perhaps investment in real estate that provides a stable rental income.
Usually a balanced combination of a range of investments is the advice here. And there are a plethora of options for such an investment pot. But the bottom line is a longer, safer option to securing financial independence.
But, of course, most of us that have woken up and want to get out of the rat race are in a bit of a hurry. So a second option is to generate an equivalent level of passive income streams that are not directly garnered from investments. This might be combined with what the world now calls ‘side hustles’: activities on top of a primary income source to top up income.
It’s a riskier approach to achieving financial independence, which also requires substantial time investment in developing passive income sources. But there is a growing appetite among millennial savers to shortcut the process.
And ‘Retire Early’?
OK, so that’s the self-sufficient and financially independent bit. But what about ‘Early Retirement’?
It sounds nice, doesn’t it? Cocktails on the beach and lying in until 11am. But what does it actually mean to ‘retire’ in the context of FIRE?
Well, in short, whatever the person pursuing FIRE wants it to mean. It means fully-fledged financial retirement for some and it means retiring from the jobs we hate and pursuing our passions for income for others.
Of course, the length of the course and the financial requirements will vary based on how we see our early ‘retirements’. But fundamentally this part of FIRE is really about your vision: about how you see your future once you’ve achieved financial independence.
Where do I fit in?
I’m pursuing financial independence for reasons I set out in my first post on this blog. I want to be free financially to choose a more fulfilling path. And life is short so I want to do this pretty quickly, leaving my corporate career behind about six years from now.
Now, I’ve got all sorts of targets over the next six years to help me achieve this. They’re not a cast-iron guarantee for success and there will undoubtedly be bumps in the road ahead. But all being well, I will achieve my version of financial independence in my desired timescale.
And then I’ll retire. That’s how it works, right?
Well, not exactly. My ‘retirement’ is the end of my time in the corporate world – and perhaps the end of my time in employment altogether. But I will not stop working. No, my approach to financial independence will be a blend of the first and second option I set out above. In other words, I’ll have a balance of investments, as well as on-going projects to secure passive income later in life.
Of course, those passive income projects will require work. There’s no such thing as a free lunch. But the difference with this work is that for the first time in my adult life, the ball will be in my court. I will have the financial flexibility to call the shots on how I use my finite time.
For me, that is the essence of FIRE. It is a pragmatic recognition of our finite time, setting out sensible financial steps to optimise the use of that finite time.