Are you ready for FIRE?
Not many of us are aware of Financial Independence Retire Early (FIRE) movement in India, which means quitting from their dissatisfying and boring jobs in their late 30s or early 40s to spend more time with their near and dear ones and follow their passions. Nonetheless, there are many who oppose this movement. They believe retirement is not all about finance but also psychology and human nature. Hence, you should consider this before aspiring for the FIRE.
Financial Independence does not mean no work or no earning
Once you have got your financial independence early, it does not mean you will stop working anymore and no earnings. It does not even mean sleep as late as you want. Hence, it is not retirement in the traditional sense, it means working or earning at your own pace and space.
Your spending rate is more important than your income
There are various thumb rules that define our finances. One of them being, that if you have a saving of 10 times of your annual income and retire after that you withdraw at a rate of 6 per cent every year, your money will last forever. For example, if you have an annual salary of Rs. 6 lakh, you can have Rs. 60 lakhs as your retirement fund and can withdraw about Rs. 3.6 lakh every year.
The above calculation assumes that your spending is constant and increases at a nominal rate. Nevertheless, it may happen that your expenditure might increase after some time for various reasons. Hence, instead of focusing on the income it is wise to even give emphasis on your spending pattern. Moreover, your withdrawal should be based on the fluctuation in the market.
Few important questions you should ask yourself
As fascinating as it may sound, there are some tough questions that you should ask and get a satisfactory answer to before jumping the bandwagon.
What is your life expectancy or how long you expect to live? The answer will determine how much more you need to save to stretch through the next 40 to 50 years.
How much is the income that you need to have to invest in guaranteed returns such as PPF, EPF or any other investment in tax-free bonds.
The impact of the stock market movement in your retirement corpus.