Don’t spend big today without thinking about the future; at the same time not sprint into early retirement
Don’t spend big today without thinking about the future; at the same time not sprint into early retirement
Many young and middle-aged professionals in the US are working towards achieving FIRE (Financial Independence, Retirement Early). In this article we will discuss what it takes to achieve FIRE and an alternative called Slow FI (Financial Independence).
Which FIRE?
If someone wants to achieve FIRE, he or she should either save a large chunk of median income or earn a high income and not lead a lavish lifestyle. Note that it is the mid-range pros who are increasingly aiming to achieve FIRE. These individuals therefore need to save a large chunk of their post-month earnings to reach their goal.
You can read success stories online about people who reached FIRE in their early 30s or 40s and how they lived a minimalist lifestyle during their short working years. The question is: are you willing to cut back on your current lifestyle to save more? Lowering power consumption to achieve FIRE means sacrificing the opportunity to enjoy the present in order to have a brighter future. And who’s to say if your investment decisions will pay off to accumulate the cash you need to reach FIRE.
The point is that if you strive to attain FIRE, you expose yourself to a great deal of regret. Why? Cutting off power consumption causes pain. Compensation for this pain is happiness in the future that may not materialize.
And if you can’t reach FIRE, you might regret your frugal lifestyle. Understandably, many versions of FIRE have emerged. In addition to Lean FIRE (the aggressive version), there’s Coast FIRE, where you save aggressively for the first few years and then build your large savings up to the required amount when you retire. In the meantime, roll towards retirement – earn enough to support your current lifestyle. If you read about how some people have retired early, you will surely be motivated. But can it change your mindset to spend less and save more? And even if you amass the cash you need for early retirement, what about emotional readiness?
Have you decided how you want to spend your life in retirement? If not, you may be exposing yourself to a health risk.
Why? Empirical evidence shows that retirees who don’t plan for productive occupations in retirement are more likely to suffer from dementia and other health problems.
Given the problems with Lean FIRE, Slow FI is a growing parallel movement – slow financial independence.
The idea is not to sprint towards financial independence, but to find an optimal balance between enjoying the present and achieving financial independence later than you would with Lean FIRE. Of course, deciding on the optimal balance between present and future happiness is not that easy.
Does this mean you can continue to spend as usual and save 20-25% of your monthly after-tax income?
Not really. You should increase your savings every year. The best way to do this without sacrificing your current lifestyle is to aggressively save from your annual raise; For example, you should save 40-50% of the raise instead of the usual 20-25%. Everyone wants to retire early, but few succeed. And fewer are enjoying early retirement because most aren’t emotionally prepared for a long life in retirement. You should aim for early financial independence, not early retirement, without significantly sacrificing your current lifestyle and happiness.
With financial independence, you can choose semi-retirement to stay employed and still have more free time. You can then gradually transition into full retirement.
The result? Don’t be biased – spend lavishly today without worrying about the future. At the same time, don’t sprint into early retirement like with Lean FIRE. You must try to find your sweet spot. That’s right, you only live once. But be smart with your spending decisions!
(The author provides financial training for individuals to manage their personal investments.)
