Achieve Your FIRE Number Little Early with Bonds and Fixed Deposits
Imagine, you are living in a lavish home, enjoying a mug of a lip-smacking coffee with your beloved, without worrying about rushing to work or completing targets and being assured that you have enough to serve your needs, lifestyle and responsibilities.
And all of it while you are only in your 40s…!
Yes. You read it right. This may be the dream situation for many but after retirement in the late 50s or when 60. But all of it in the 40s seems like a joke.
But what if we told you we were serious?
Early retirement may seem a tall tale for most who live with a conventional approach. However, for many others, it is a practical commitment they make to themselves, probably in their early to late 30s or early to mid-40s. If you’ve been one among the latter and thinking of retiring early to have more time to taste the fruit of your hard work and investments, we welcome the FIRE revolution!
FIRE stands for Financial Independence and Retire Early. It transcends the traditional ideology of retirement at 60. As the name suggests, it involves achieving financial independence and retiring early with an excellent and sustainable financial standing.
However, the question is, is FIRE a practical thought in India? Or, is it merely a wave that will hit the rocks of practicalities and break down? We don’t think so. As far as people invest wisely and diversify their investments, we feel FIRE is practically viable.
What is the FIRE Revolution?
The FIRE revolution started in 1992. It emerged when authors Vicki Robin and Joe Dominguez used the term in their book, named Your Money or Your Life. The book makes readers think about their money and value and what they would trade to earn money.
Many people mistake financial independence for being rich. Rather, it is about having what you need and having it enough. It is about being financially secure and having enough to help you break free from the shackles of your routine. Essentially, it also includes spending with a reason and only when needed, instead of being a spendthrift.
Thus, people who wish to achieve FIRE work towards earning enough to cover their needs and live as comfortably as they are today without requiring to work. They aim to accumulate adequate wealth to retire early, preferably in their 40s or early 50s.
Types of FIRE Retirement Variations
Let’s look at some types of FIRE retirements.
- Fat FIRE: It is for people living a conventional lifestyle. They aim to save more than the average earner but without degrading their current living standard. Such a retirement usually requires a high remuneration and saving more regularly and extensively complemented with intelligent investment strategies.
- Lean FIRE: Achieving lean FIRE retirement demands strict adherence to minimalist living and saving extremely, thus living a restricted lifestyle.
- Barista FIRE: Barista FIRE refers to quitting the regular job but working part-time to save more and live a life that’s less than minimal.
6 Tips to Achieve FIRE
While we now know what FIRE is and its various categories, let’s see how to achieve it.
Establish Your Financial Goals:
At the outset, set your retirement age and the money you need to accumulate to support your post-retirement inning. You can use FIRE calculators to compute the value you need. However, you should ensure you use a realistic inflation rate while calculating the amount you should save during your working years.
Optimize Savings and Investments:
Save and invest as much as possible to achieve the early retirement goal. Ideally, you should save up to 50 per cent of your earnings every month, out of which a substantial amount should go to bonds, fixed deposits, mutual funds, etc. You may also avail of various pension plans that can help you build a steady retirement income.
Monitor Your Expenses:
Some expenses are inevitable. However, you can still lead a good pre-retirement life without spending lavishly. Accordingly, you should create a strict budget and monitor expenses. Identify unnecessary expenses and see if you can reduce them substantially over a while if not eliminate them. Good if you could do the latter, though.
Create Income Sources and Increase Your Income:
If your existing income isn’t good enough to make appreciable savings, you should look at augmenting your income or multiplying your income sources. You may do so by investing in bonds (earn periodic interest which you can save), changing your existing job, or working part-time (freelancing in a profession other than your job), etc. The more income sources, the higher your earnings. That way you can save more while requiring to do little or no adjustments to your existing lifestyle.
Track Your Progress:
Conduct periodic checks to identify areas requiring improvement, adjustments, changes, etc. Stay updated with the micro and macroeconomic conditions and inflation rate, and make investments that help you keep up with the inflation rate and the economic circumstances to have enough after your expenses, inflation rate increments, etc. In some cases, you will also have to make some lifestyle changes.
Plan for Financial Exigencies:
Financial emergencies may come without an intimation. Hence, you should plan for financial emergencies. If you don’t, a major financial exigency may undo all your progress and corpus you’ve earned. Accordingly, plan for contingencies with enough funds to support your lifestyle and survival while ensuring they don’t interfere with the FIRE plan.
FIRE – Pros and Cons
FIRE may excite and interest many. However, like every other ideology or thought, it has its unique pros and cons, including the following.
Advantages of FIRE:
Some pros of FIRE include the below.
- Early Financial Security: With early financial security, you will have adequate money to cover your expenses and lifestyle without doing a conventional job.
- Reduced Stress: When you have enough money to support your present and future lifestyle and responsibilities, you won’t have to wake up to report to the office, commute and cut your way through heavy traffic, or complete targets.
- Spend Life on Your Terms: Achieving financial security early in your life can help you spend more time with your family and dedicate more time to yourself. Life is much more relaxed with an excellent bank balance and financial security.
Disadvantages of FIRE:
FIRE also has some cons, including the following.
- Unachievable with Meagre Income: If your income barely meets your needs, achieving FIRE may not be practically possible.
- Early Retirement Can be Boring: For many, only having money isn’t the objective. They need a daily dose of work that requires stepping out, meeting people or working in front of the computer. Such people may not resonate with the concept of FIRE. They’d prefer to work until they can.
- Potential Risk: FIRE also has a risk associated with it. Financial emergencies of any sort where you end up spending a substantial portion of your savings can let all your efforts down the drain, ruining your FIRE endeavours.
How Can Fixed Deposit Help Achieve FIRE?
Fixed deposits are a conventional yet reliable form of investment. They involve depositing a considerable amount as a one-time deposit in a bank for a pre-determined period. The bank then pays you periodic interest. You may choose to receive the interest monthly, quarterly or annually. The higher the deposit, the greater the interest.
The interest you earn can become a source of steady income that can add to your savings arsenal while keeping your principal intact. After the fixed deposit matures, you can choose to reinvest the initial deposit to continue receiving interest or else invest it in some other option. Fixed deposits also provide the flexibility to withdraw the principal partially or in full to serve an emergency need. The more fixed deposits you create, the more sources of income (through periodic interest) you create.
Thus, if you are in your 20s or early 30s, you may want to begin with smaller sums from your monthly salary and save it as a fixed deposit. Thanks to the Indian banking system. It allows you to invest in various fixed deposits, some of which compound your interest, thus enabling you to earn on your savings and also on the interest that you earn from your savings. Consulting a banking expert can help you make the right choice.
However, you should check all the fixed deposit terms and conditions carefully and make a rational choice based on your financial requirements.
Benefit of Bond Investments for FIRE
Another potentially beneficial investment option is bonds. Bonds are fixed-income debt securities that corporate companies or governments issue to fund their objectives like infrastructure development, project completion, market expansion, etc.
As the investor, you lend money to the entity as a debt, thus becoming the bondholder. On the other hand, the issuing entity commits to pay periodic interest and repay the principal amount upon maturity. Accordingly, you create an additional, fixed and predictable source of income for yourself, out of which you save or reinvest.
Bond investments are usually considered relatively safe. Nevertheless, you should make an informed investment decision after a careful and comprehensive study of the issuing entity. Ratings play a significant role in determining a bond’s investment worth. Bonds rated BBB and above are usually considered safer. You should check the yield of the bond before investing in it and calculate the approximate amount you’d earn on your principal throughout the bond’s tenure. It will help you plan your finances appropriately and augment your savings, while at the same time maintaining your current lifestyle.
Conclusion
While achieving FIRE is understood, one should also live in the present and keep unreasonable compromises at bay. Life isn’t only about money and your objectives. It is also about the people you love and care for. Hence, saving excessively only to retire peacefully at the cost of the joy of your loved ones may not always be the way to go!
Instead of saving aggressively from your current income, you should focus on creating a source of income through investment options like fixed deposits or bonds. Thus, you can very well work your way towards FIRE and at the same time, offer a decent lifestyle to your family.
As for bond investments, sign up with AltiFi and explore the latest bond listings.
Disclaimer: The contents in the article should not be construed as tax or financial advice. Readers should seek advice from their tax or financial advisor before making any investment decision.