Is it time to live the FIRE life?
January 17, 2024
Want to retire young? You're not alone. There’s a growing movement aiming to achieve Financial Independence and Retire Early - known as "FIRE".
The pursuit of Financial Independence, Retire Early (FIRE) has gained significant momentum in recent years as people seek to break free from traditional career timelines and gain control over their financial futures. This movement – that’s based on frugality, strategic saving, and mindful investing – aims to enable people to retire decades earlier than the conventional retirement age.
Understanding FIRE Principles
Savings Rate is Key:
Save, save, save. At the heart of the FIRE movement is the concept of maintaining a high savings rate. Advocates typically aim to save a substantial portion of their income – often 50% or more – to accelerate the accumulation of wealth.
Frugality and Minimalism:
Forget that coffee out, FIRE enthusiasts embrace a minimalist lifestyle, focusing on needs rather than wants. Cutting unnecessary expenses allows for increased savings and faster progress toward financial independence.
Investing for Growth:
Strategic investing is a cornerstone of the FIRE philosophy. While the approach will differ between individuals, the strategy usually involves putting money into low-cost, diversified index funds and other investment vehicles. Compound interest is particularly important here, which is why the savings rate is so important.
Is FIRE for me?
Nathan McCabe from TelstraSuper Financial Planning says that it depends on your financial goals, risk appetite, and how disciplined you can be with your money.
"It’s about finding the balance between lifestyle now and lifestyle in the future," says Mr McCabe. "The savings goals you set should be sustainable."
He also raises the importance of setting up an emergency fund to cover any unexpected circumstances.
"You want to make sure you still have access to savings in the event of an unexpected expense, otherwise you might face some hefty financial penalties for accessing your investments early."
Can super form part of a FIRE strategy?
Even if you’re not ready to commit to all the FIRE principles, thinking about your super early can lead to several advantages – including setting you up for an earlier retirement.
"Super benefits from the magic of compound interest, so when you put money in early, you're making interest on interest for longer," says Mr McCabe.
For example, if you have $100 to invest and it earns 5% compound interest each year, you’ll have $105 at the end of the first year. For the next year, you’ll be earning 5% on $105 instead of the original $100.
Mr McCabe says starting to contribute early can also help you get more money into your superannuation as annual limits apply.
“For many people, there’s good tax advantages in having money in super, so getting more money in there earlier could make a difference when you do decide to retire.”
Looking for financial freedom?
You may need some help. TelstraSuper members can access simple financial advice about their TelstraSuper account over the phone at no additional cost – it's part of your TelstraSuper membership.
There's also options for more comprehensive financial advice through TelstraSuper Financial Planning. Please refer to the Financial Services Guide for details.
If you’re not a member, TelstraSuper is open to everyone and you can join today.