Gone are the days when people used to start working in their early 20s and work until their 60s. In this ever-evolving world, the 9-to-5 grind is more of a grind than a happy-go-lucky job. Unlike their parents, most millennials and Gen-Zs can't buy a house because of highly uncertain real estate prices.
F.I.R.E stands for Financial Independence, Retire Early. This movement was introduced in Vicki Robin and Joe Dominguez's 1992 book called "Your Money or Your Life", but it was in the 2010s when it got much-needed traction through social media and the Internet. In short, it's a buzzword for early retirement without drastically compromising on your lifestyle.
Contrary to popular beliefs, this movement is not restricted to North America, but even the South and East Asian countries are also following it. The movement suggests that if you save 50-75% of your income savings and invest aggressively, you can retire in your 40s or maybe earlier. But does it work for everyone? Let's decode.
The Early F.I.R.E. Grind
Imagine you're 22, fresh out of college, with $40,000 in debt, working in an entry-level job to cover your rent, student loans, and some amenities. You never go out with friends, travel for holidays, or buy any gadgets while saving 50% of your salary.
While the above scenario might work for some, many young professionals face "lifestyle inflation" when they get promoted. Office parties, Get-togethers, promotional events, and whatnot, networking is not free. You have to spend money, meet people, and create a high perception of yourself in some careers.
Moreover, if you skip these events or don't upskill with time, you might face career stagnation. Generally, early career investments in experience yield 10-15% higher lifetime earnings, and that's the power of compounding. Like money, skills also compound with time. But when you're stuck in a F.I.R.E. mindset, chances are you'll try to escape from the present and hyper-focus on the future, which can be detrimental to your mental well-being.
The Hidden Risks of F.I.R.E
If you were in school or high school during the 2008 financial crisis, you might be unaware of the dark years. When your stock portfolio goes down, you might have to return to work to save your dreams. The 4% safe withdrawal rule, which saves 25 times yearly expenses, is the foundation of F.I.R.E., but it is predicated on 30-year retirements starting at age 65. By extending it to 50+ years, retiring at 40 increases the risk of recessions, inflation, or medical emergencies.
In the modern ages, people identify themselves with the work they do. When people retire, they generally lose their sense of identity and purpose and often feel bored. Mainly, it's time when Gen-Z is already facing high burnout due to the unstructured jobs. At this point, no plan is truly "future-proof or bullet-proof" when life and market situations can change overnight.
The loss of opportunity costs
If growth is the ultimate motive, time and persistence are the seeds we need to sow. Although early retirement can give a beautiful exit to many employees, not everyone needs it. Skills and network compound with time, and as a result, you grow financially. Choosing the F.I.R.E. path can mean lower salaries in the long term. When you exit a career early, you also miss the learning and experience that can get you better future pay.
Disrupted cash flow because of low income
As a retiree, you are constantly in low-spend mode, with no significant side hustles or investments that grow with experience. It's often a lifestyle problem, as the expenses rise but the incomes remain null or constant. In developing nations, where people chase digital entrepreneurship and ambitious demands demand bold risks, F.I.R.E. might not be a great choice.
What could be the balanced path?
Quite a few young professionals prefer shorter work hours, decent pay and a work-life balance, unlike the previous generations who were ready to work 80 hours a week. Apart from F.I.R.E., there are other ways to fund their lives and prioritize their current well-being over getting burned out. However, every individual has a different financial health and distinct goals, and no one plan fits all. You can start by building an emergency fund for three to six months of your expenses. Once that is done, you must clear your high-interest loans. It reduces your daily stress and gives you freedom to make bold career moves in future.
Instead of keeping all your eggs in one basket, diversification is the future. Young professionals prefer diversified portfolios by mixing index funds, ETFs and bonds to minimise risks. Some even invest in cryptocurrencies and commodities for passive income without quitting their daily jobs. When you spread your investments, you get market gains while competing against volatility. This ensures that your money keeps flowing while you're still on the job.
