On... FIRE

FIRE – Financial Independence Retire Early. The popularity of the movement is largely due to the efforts of Mr. Money Moustache. Of course, financial independence and early retirement is nothing new, I have (and many before me) been thinking about financial independence ever since I started working more than 10 years ago. I must admit by just thinking and without concrete actions, I am not there yet with this ‘FIRE’ thing. Mr Money Moustache retired at 30, therefore I’m definitely too old to beat that record.

It won’t be possible for me to retire at 30 (although I consider myself semi-retired at this point); realistically financial independence in 15 to 20 years’ time would be a viable target. Financial independence and early retirement can mean a lot of different things to a lot of different people. For me, it would mean paying off our mortgage and to have enough in the nest egg generating passive income. So how much would I need? I would refer to the 25x Rule. Of course, circumstances change as you age, so this is just a guideline more than a concrete plan. To simplify, I am also not taking inflation into account.

The 25x Rule is basically your estimated annual expenditure multiplied by 25; and that is the amount you need in Assets (dividend yielding stock, investment property, cash in the bank etc….), with the assumption the assets generate a passive income with an annual yield of 4%. To estimate how much income generating asset we need (to retire), I use the following monthly expenditure assumptions (for 2 pax: wife and myself): -

Therefore, Income Generating Assets required = 39,000$ x 25 = 975,000$. As this is a quick and dirty estimation, lets round that up to 1,000,000$. That’s our target – 1,000,000$ in 20 years’ time (15 years if possible). Achieve-able? I would hope so. You either earn more or you spend less. I would think that my wife is good in earning more while I’m good in spending less; and with that killer combination I’m in no doubt that we can safely retire in 20 years’ time.