Financial independence

Financial independence is a dream we all aspire to achieve. The day when we no longer have to worry about our future expenses and can break free from the rat race seems like a distant yet desirable reality. In recent years, a popular acronym, FIRE (Financial Independence Retire Early), has been circulating in discussions around achieving this goal.

However, amidst the excitement surrounding FIRE, there are several myths that persist in the minds of individuals who have not explored or delved deeper into this concept. In this article, we will debunk some of the common myths surrounding financial freedom and FIRE. Let’s get started!

Myth 1: FIRE revolves solely around a significant financial goal.

FIRE is solely about reaching a specific monetary target Many people mistakenly believe that FIRE revolves around reaching a predetermined financial milestone, such as accumulating 5 or 10 crores. However, the essence of FIRE lies not in a fixed number but in creating a corpus that is a multiple (ranging from 30 to 50 times) of your annual expenses, depending on your age and investment capacity.

For instance, someone with a monthly expense of 50,000 rupees would need approximately 2-3 crores to achieve financial freedom today. On the other hand, an individual with a monthly expense of 3 lakhs aiming to achieve FIRE by the age of 40 would require a corpus of around 16-18 crores. As your life progresses, your expenses will change, and consequently, your FIRE corpus goalpost will shift.

Myth 2: Life is entirely sorted once you achieve FIRE.

Life becomes carefree after achieving FIRE Contrary to popular belief, life does not become a constant state of bliss once you achieve FIRE. While financial worries may reduce significantly, you must still remain vigilant about how your money is invested and whether it will sustain you throughout your lifetime.

Having a slim margin of safety in your FIRE corpus can lead to potential challenges. Factors such as inflation, unpredictable market returns, and unforeseen life events can impact your financial stability, requiring ongoing attention and consideration.

While achieving FIRE brings a sense of comfort, it does not entail lounging on Goa beaches sipping Pina Coladas. Your daily life may remain largely unchanged, albeit with fewer money-related concerns. However, this may differ for individuals who have accumulated substantial wealth well beyond their financial requirements.

Myth 3: Many people are achieving FIRE, and I am a failure.

Many people in India are achieving FIRE, except for me There is a pervasive misconception that numerous individuals in India are achieving financial freedom at an early age, leading many to feel inadequate or left behind. However, statistical evidence suggests otherwise.

Through our interactions with over 5000+ families, both in India and abroad, we have observed that only a handful of individuals—around 5-6—have achieved FIRE by the age of 40-45. These are individuals who have built their wealth from scratch while working regular jobs. Additionally, there are a few dozen families who may achieve FIRE by the age of 50. However, the majority of the population will retire within the conventional 58-60 age bracket, and some may even face financial difficulties during their retirement.

It’s important to recognize that achieving FIRE at a young age is statistically rare and challenging. Instead of feeling like you are missing the FIRE bus, focus on making an honest effort to attain financial independence as early as possible.

Myth 4: Achieving FIRE means, never work again.

FIRE means never working again FIRE stands for “Financial Independence Retire Early.” However, the emphasis often falls on the “retire early” aspect, which is often unrealistic. Completely abstaining from any form of work or activity after achieving FIRE is challenging for most individuals. Humans are inherently driven to stay busy, pursue meaningful endeavors, and contribute to society.

Consider the case of an individual who took an extended break from their job, attempting to simulate retirement. After a few weeks, they realized the difficulties of navigating their daily routines without employment and withdrawing from their corpus for daily expenses. This highlights the fact that expecting never to work again after achieving FIRE is mostly wishful thinking, particularly if you are in a demanding job or fail to find fulfillment outside of work.

In reality, individuals who achieve FIRE often continue to engage in some form of work or pursue low-stress jobs that provide flexibility and allow them to explore their passions and interests. It’s crucial to have open conversations with your spouse regarding your post-FIRE plans, as they may prefer you to continue working for a few more years due to the challenges of adjusting to an extended period of constant togetherness.

Myth 5: FIRE necessitates excessive frugality and sacrifice.

FIRE requires extreme frugality and sacrifice One of the most prevalent myths about FIRE is the belief that extreme frugality and deprivation are necessary to attain financial freedom. Some individuals believe that aggressively cutting expenses and restricting their lifestyle choices will expedite their journey towards FIRE. However, this approach is not necessarily true.

In reality, many individuals who achieve early financial independence focus on increasing their income rather than solely reducing their expenses. While cost-cutting measures do play a role, they have limits, and excessive deprivation is not a sustainable or healthy approach to attaining financial freedom.

Consider those who earn 5 lakhs per month but live a modest lifestyle on 1 lakh per month, saving the remaining 4 lakhs per month through disciplined and intelligent investment strategies. These individuals are more likely to achieve early financial independence than those who earn a lower income and attempt to squeeze their expenses even further.

It is essential to strike a balance. Cutting expenses beyond a reasonable limit can strip away the joy and fulfillment from your life without significantly contributing to your financial independence. Instead, focus on increasing your income, saving diligently, and investing wisely in financial products that outpace inflation, allowing you to create genuine long-term wealth.

Final Thoughts Financial independence and achieving FIRE are admirable aspirations, but it’s important to dispel the myths that often cloud our understanding of these concepts. By approaching financial freedom with the right mindset, focusing on income growth, and making informed investment choices, you can embark on a path toward a more secure and fulfilling future.

These thoughts are based on personal experience and observations. We invite you to share your own insights and thoughts on the topic. Have you encountered additional myths about financial independence within your circle of friends and family? Please share them in the comments section below!

Disclaimer: The views expressed in this blog are for educational purposes only. This is not professional advice. Consult your financial advisor before investing.