I saw a documentary recently called playing with FIRE. It follows a family that have chosen to change their life style and try to
achieve what many find impossible; to retire early. The word FIRE is an acronym and stands for Financial Independence Retire Early. There’s a growing movement that has started where people want to get financially independent, but not at 60 years of age, but rather ASAP, and in this documentary we follow a couple that starts this journey.
They basically have it all, good jobs, a beautiful house by the beach, a nice car.
But what they don’t have is enough time to spend with each other and their family.
They are stuck in the same rat race as all working people, just perhaps with higher living standards and now they want to change to a frugal living where they save up and invest so that they can reach a point where they can live off of their investment without the need to work.
Their goal to reach financial independence is very ambitious and they make several big changes right away. They sell their house and car and move to a place that is much cheaper to live. They also start saving about 50-70 percent of their income each month.
This drastically reduces their time to reach retirement. But in the same time their frugal way of living puts huge pressure on both partners and it seems like they are not very happy, at least not in the beginning.
The principle of FIRE basically comes down to a formula. How much do you earn each month vs how much you spend multiplied with the average rate of return from your investments compounded annually till you reach the point where your yearly return would exceed your needed living expenses.
If you search for FIRE documentary calculator you can check and calculate yourself how long it would take.
So getting back to the couple in the documentary. They basically go from an extravagant life style, buying pretty much whatever they want, living in a big house in a nice location, to living a minimalistic life style where each penny is counted. They are giving up a lot right here right now to live independently financially and have the freedom to choose how they want to spend the their time.
So what is my take on all this ? Basically I think it’s a double-edged sword. You are giving up something now to have something later. It’s a big dilemma, should you give up some of the best years of your life, to make sure you have everything set up for later ? What is the guarantee you will even be alive then, or that the stock market hasn’t plummeted so that all your compounded savings are wiped out ?
For me I took quite a few things to heart when I watched the documentary. Even though I am not aiming at retiring in 10 years, I would definitely like to make sure that I am not completely relying on a job and a steady pay check. I want to create the possibility to at-least partly live off of my investments and also when I retire I will know that I have something besides my normal pension fund.
I have already taken some actions to get better control of my spendings and thus increase my savings. Instead of thinking of a cost as monthly I have started looking at it in a bigger time frame and also thinking what that savings could do if I invested it.
For example I canceled several of my subscriptions. Monthly they don’t look like much but once you sit down and start looking at a longer time horizon it ends up being quite a bit of money. For example I had one subscription that was around USD 15 each month. That’s USD 180 a year or USD 1800 in 10 years. All of a sudden it adds up. It means that if I choose not to spend that money on subscription I could save already 1800. With compounded interest it might be double.
All in all i canceled two subscriptions and some memberships and all in all it will be quite a big saving. I have decided to try to only buy second hand furniture and second hand shoes and jackets. It’s just a fraction of the cost for something new but it’s still usually in very good condition.
For grocery shopping I found a way to link my notes with my wife so we always plan our shopping before we go and only buy what we have on our list which is what we need, not what we want. I don’t smoke but I use a tobacco called Snus in Sweden, it’s around USD 5 for one pack, which last me around 1 day. It comes in a plastic case when you buy it. I found out you can buy online in bulk without the plastic case and it’s a fraction of the cost.
I’m constantly looking for ways to cut costs these days, but I haven’t really found that it’s affecting my living standard or happiness much. Not doing this to the extreme is what I think will make it successful in the long run so that’s my plan, slow and steady wins the race :)
Have you watched the documentary? What do you think about the concept of FIRE?