F.I.R.E – Is going Very Fast really Good?

Recently, my wife showed me an interesting tweet (link):

• Overrated: How fast you are able to reach financial independence.
• Underrated: How enjoyable is your journey on way to financial independence.

I was like wow! This makes sense.

She was quick to remind me then that she had said something very similar a few years back! J And interestingly, I had even written about this exact idea in a post titled F.I.R.E. = Financial Independence and Retiring Early. So here I reproduce a part of it for context:

…I was trying to talk to her [my wife] about the rationale of early retirement and she said something that hit me like a bullet.

She told me that in order to achieve my destination quickly, I should not screw up the journey.

[in years leading up to that discussion with my wife], I was increasingly becoming addicted to the idea of investing more and more to accelerate my financial independence (or early retirement). This meant that I was quite reluctant in spending money even on things that were worth spending on.

And this was wrong on my part. Goal achievement (atleast this one) should not be at the cost of killing the joy of several-years long journey.

You can continue to lead a ultra frugal life and hoard tons of money when you are 45 or 50 or whatever. But, will you be able to use that money in ways that would have been possible when you were young?

No.

I have never made a secret of my desire to become financially independent as early as possible. But working towards this goal requires sacrifices. You need to defer gratification, curtail unnecessary expenditures, save much more than what normal people do. It’s a tradeoff that is to be accepted in this journey.

For me, financial independence still remains my biggest financial goal.

But will I be stressed and strangulate myself (and not spend money more freely) if I don’t achieve it as planned – i.e. financial independence by 40?

Hell No!

I already made course correction a few years back when I realized this.

I continue to balance the goal of financial freedom with that of spending today on experiences/things that I want.

So maybe, I am not saving as much as I actually can if I push myself more. But that is fine with me even if it means that my so-called ‘early’ retirement will be delayed by a few years. 🙂

Coming back to the original tweet:

Overrated: How fast you are able to reach financial independence.

Underrated: How enjoyable is your journey on the way to financial independence.

Ofcourse fast is quantifiable and enjoyable isn’t. But hopefully, now you understand why it’s worth comparing the two in the context of financial independence.

And let me add a bit of numbers to this discussion to drive home the point better…

Don’t worry. It’s not complex maths. Just simple stuff – understand the basic maths behind financial independence first:

As per a popular FIRE thumb rule, you need a corpus equal to atleast 25* times annual expenses for financial independence.

* – Many say that having 30X or 40X may be a more appropriate and safer approach. But let’s stick to 25X for simplicity and discussion sake.

Now if the X (which is the annual expense) is small, that means you can save more and in turn reach 25X faster.

How?

Read on (and this is important)…

Suppose your annual income is Rs 12 lac. And your annual expenses (i.e. X) are Rs 8 lac. So using 25X thumb rule, you need 25 times Rs 8 lac – which is Rs 2 Cr as the Financial Independence Corpus. And to achieve it, you have Rs 4 lac every year (Rs 12 lac income minus Rs 8 lac expenses) to save for the goal.

Note – Ignore inflation, etc. for simplicity.

Now let’s make the X a little smallER.

Your annual income is still Rs 12 lac. But now, your annual expenses (i.e. X) is smallER at Rs 6 lac (reduced from Rs 8 lac earlier). Now using the 25X rule, you would need 25 times Rs 6 lac – which is Rs 1.5 Cr as the Financial Independence Corpus. More importantly, you now have a higher Rs 6 lac every year (Rs 12 lac income minus Rs 6 lac expenses) to save for the goal.

So the target has reduced from Rs 2 Cr to Rs 1.5 Cr. And you also have a higher amount of Rs 6 lac per year (instead of Rs 4 lac) to save for the goal. Obviously, the time required to reach the target would reduce too. And this is How to really Accelerate your Financial Independence.

Lowering expenses has the double benefit of reducing the target and increasing your savings capability to achieve that reduced target.

Think of it like this – If your expenses are low, you need a smaller corpus to support it for years to come. And a smaller corpus means that you will require a lesser number of years to achieve it. But if your expenses are high, then not only will your required corpus would be high, but it will also require more time and probably a higher saving rate.

And this is the Real Secret of Financial Independence & Early Retirement.

In other words, higher is your savings rate (meaning lower the expenses), sooner can you potentially achieve FI (or FIRE = Financial Independence Retire Early).

In addition, it also prepares you for the worst-case scenario of involuntary Forced Early Retirement which can derail your life.

The maths behind Financial Freedom is such that you can speed up the theoretical goal achievement if you reduce expenses by a lot.

Right? Remember, lower the X, lower will be the target of 25X.

But then, that would mean you are sacrificing your present for the future, which is good to an extent but not beyond it.

We always know how much money we have but we never know how much time we have.

So we should not entirely sacrifice the present. And as the author of the tweet mentioned elsewhere:

You should (also) prioritize how enjoyable your journey to financial independence is rather than prioritizing how fast you can get there.