F.I.R.E principles: Save more, spend less and invest wisely to retire early

Of late, a trend has been catching up among the GenNext as they are preferring to retire early as they are earning enough money as the IT sector opened new vistas. Many are turning into entrepreneurs and opening Startups to earn crores of rupees. They are not only providing employment, but also saving enough money. But, everybody is not fortunate to earn more and have income at their disposal. So, let's give tips to those who are working nine to five jobs and still want to retire early. They can follow F.I.R.E principles to retire early and enjoy their life sans financial constraints.

Hyderabad: Retiring early is the new buzz in the Hi-tech age as the IT opening new vistas for software employees many are planning for early retirement as there is enough income at their disposal. Earlier, retirement is what most people think of as life after 60 years. They wanted to live a happy life by taking a pension at that age. But, is it possible to make all our dreams come true after retirement? Due to the responsibilities of doing a job or business, one has to stay away from enjoying life to the fullest. What if it is not possible even after retirement? The only solution is to retire early.

There is no particular age for retirement at any age we can retire if we have enough financial resources for the rest of our life. We can happily spend the income from those resources. The term F.I.R.E originated in this order as it means ‘Financial Independence, Retire Early. This means that if you achieve financial independence quickly, you can retire whenever you wish to. Retirement can be taken at the age of 40 if this strategy is implemented properly. Key features of F.I.R.E--you need to save 50-70% of your income, strict financial discipline should be followed while spending and you need to invest your savings wisely--the basis of F.I.R.E. is to save more, spend less and invest wisely. Let's take a look at the math behind this and the calculation behind the F.I.R.E. To understand the calculations behind (F.I.R.E) .. two main questions need to be answered.

First one, how much money do you need to live after retirement? and second, when do you want to retire? The answer to the second question is very simple. Let's focus on the first one. How much money you need to live life after retirement depends on how much you spend per month. This can be learned quickly through the 4% rule. For example, suppose you retire with Rs 5 crore! That means you can use up to Rs 20 lakh a year or 4% means 25 times. That means you need to retire with 25 times the amount of income you spend each year. However, if we adjust our spending to inflation it will increase even more. Also, this money should be invested in investment avenues that earn 7% per annum. Only then the F.I.R.E be will give the intended result.

Let's take a look at each of the three elements in F.I.R.E. You need to save 50-70% of your income every month. This is a lot higher compared to the 15-20 per cent we usually do. It is difficult to save so much for those who have expenses like rent, food, children's education and housing. But, at least it's good to get to the bottom of it or increase your income. That is why it is necessary to work harder than usual. The focus should be on part-time jobs, changing companies frequently for better pay, constantly honing new skills and moving on to higher levels of employment.

You spend only on essentials as well as explore ways to reduce costs. Strict rules have to be followed such as buying a second-hand car, completely reducing outside food and staying away from restaurants, credit cards and entertainment. If you want to enjoy life after retirement, you must avoid such small pleasures! Invest wisely. The ultimate strategy in F.I.R.E is to invest money wisely. As much money as possible should be diverted to higher returns and safer investment avenues. Do not adopt simple methods like savings‌ accounts. Index funds and exchange-traded funds are well suited for investment.

The F.I.R.E method became very popular after 2010. This was followed by some retirees in their 30s. However, most pleasures have to be sacrificed until financial independence is achieved. Moreover, it is a matter entirely tied to the needs, responsibilities and goals of an individual. It is also important to know where to invest for maximum returns. If you implement F.I.R.E principles then only you can retire quickly, or else you have to wait a little longer. So, gird up your loins and get ready to earn more to retire early to enjoy life as there is no tomorrow.