It was a pivotal moment in my life. From that point onward, I viewed my money and career choices in a totally different light. And while I wouldn\u2019t consider myself a FIRE advocate today (I\u2019ll probably never retire myself), I\u2019ve continued to learn from the FIRE movement over the years.<\/p>\n
Here\u2019s seven things I think you would benefit from knowing too.<\/p>\n
<\/span>1. What is financial independence?<\/span><\/h2>\nFinancial Independence (FI) is this cool concept where you have enough money invested, that you don\u2019t actually\u00a0need<\/em>\u00a0to work anymore.<\/p>\nA cruder way of calling it is having \u201cF.U. Money.\u201d<\/p>\n
The younger you reach F.U. Money, the cooler it is, because obviously who wants to say F U to their job only when they\u2019re 60? Get there by 45, and it\u2019s a pretty sweet life. Do it when you\u2019re in your 30s, and you can get featured on\u00a0CNBC<\/a>.<\/p>\nWhat really blew my mind about FIRE was\u00a0philosophically<\/em>\u00a0it had never registered in my mind that people could retire young. I always assumed that everyone\u00a0needs<\/em>\u00a0to work till they have white hair and back problems.<\/p>\nThe FIRE movement taught me you could actually FIRE your\u00a0boss\u00a0much earlier in life.<\/p>\n
How to get there? Let\u2019s dive into the math.<\/p>\n
<\/span>2. How much money do you actually need to retire?<\/span><\/h2>\nConceptually, you get to FIRE when:<\/p>\n
Your passive income is more than your expenses<\/p><\/blockquote>\n
So for example, if you have RM 100,000 of\u00a0investments, and get steady returns of 3.5% per year (EPF-like returns minus inflation<\/em>), that would mean your passive income = RM 3,500 per year; RM 292 per month. Obviously not enough for anyone to retire on.<\/p>\nBut let\u2019s say you\u2019ve saved RM 1,000,000 and again get inflation-adjusted returns of 3.5% per year. Your passive income = RM 35,000 per year; RM 2,917 per month. Assuming you\u2019re not the type who eats lobsters for lunch, livable income for a lot of people.<\/p>\n
The interesting thing: if your expenses never exceed RM 2,917 a month, you never touch your capital of RM 1,000,000. You\u2019re living purely on dividends and interest \u2014 truly passive income. And since we\u2019ve already factored in inflation, theoretically you could go on like this forever: with a million bucks in the bank, RM 2.9K to spend every month, and never having to set an alarm clock again.<\/p>\n
\u201cBut what if I want a more luxurious life?<\/p>\n
Here\u2019s a quick formula to estimate how much investments you need:<\/p>\n
F.U. Money = Monthly expenses x 12 x 30<\/p><\/blockquote>\n
So if I want to live on RM 5K a month, I\u2019d need RM 1.8 million.<\/p>\n
\n\n![\"\"](\"https:\/\/static.imoney.my\/articles\/wp-content\/uploads\/2020\/09\/18100409\/Lady-Lying-Down-on-Maldives.jpg\")
Probably more if you want this<\/p><\/div><\/figure>\n<\/div>\n
<\/span>3. Is the math really so simple?<\/span><\/h2>\nAs you can probably tell, the secret to early retirement is keeping your expenses under control, and having lots of investments.<\/p>\n
Depending how you adjust these variables, you can even fast forward your retirement date, for example:<\/p>\n
\n- The \u201ceasiest\u201d variable to change is your monthly expenses. Like in the example above, if you can live on RM 2.9K, one million is all you need. If you can live on RM 2K (caution: this is\u00a0below<\/em>\u00a0what\u00a0Bank Negara<\/em>\u00a0calls a\u00a0living wage<\/a>\u00a0for a single in KL), the number drops to RM 720,000.<\/li>\n
- Percentages matter. In my calculations, I\u2019ve assumed 6% (~average lifetime EPF) returns and inflation of 2.5% per year (past 36 years Malaysian average). If you predict higher returns and lower inflation, you need even less money.<\/li>\n
- Traditionally THE NUMBER most finance people use is 4% a.k.a. the\u00a025x Rule<\/a>\u00a0\u2014 however this is based on US markets and actually designed for traditional retirement: money to last for 30 years. If you\u2019re early-retiring at 35, with 45 years of life to go, a lot more can go wrong.<\/li>\n
- There are other assumptions for the math to work, like inflation and investment returns remaining stable, the world not slipping into a mega-depression, and markets not crashing early in your retirement.<\/li>\n<\/ul>\n
As we\u2019ve seen in\u00a02020, things get messed up every once in a while. There\u2019s no guarantee<\/em>\u00a0having 25 years of expenses will be enough forever. But there\u2019s a big margin of safety built into the calculations \u2014 so FIRE supporters see it as enough.<\/p>\nIn the case of Mr. Money Mustache, both he and his wife saved 65% of their salaries for about\u00a07 years<\/a>\u00a0before retiring. At retirement, they had 600,000 USD in investments, a 200,000 USD paid-off house, and were planning to live on ~24,000 USD a year.<\/p>\n<\/span>4. Managing your desires is key<\/span><\/h2>\nMore on keeping expenses under control:<\/p>\n
If you have expensive tastes, it gets much harder to retire early. As such, you\u2019ll see these concepts show up frequently in the FIRE world: minimalism, frugality, and simple living.<\/p>\n
Sometimes it leads to trite \u201cSave money on expensive coffee\u201d type of advice. Maybe that\u2019s okay for some people, but what about the coffee lovers who appreciate high-quality beans? Extreme views always get attention, but practical, realistic ones lead to long-term success.<\/p>\n
My take is everyone should figure out what brings value to their lives, and spend their money accordingly. You\u2019re not gonna be able to splurge on\u00a0everything<\/em>\u00a0(unless you wanna drown in debt), but you can probably splurge on a\u00a0few important things<\/em>\u00a0while still saving money. The key is to figure out what\u2019s important to you.<\/p>\nPersonal example: I drive an old\u00a0second-hand MyVi, because I\u2019m not big on cars, and I loathe how quickly new cars depreciate. But I\u2019ve spent good money on laptops, music equipment, and gifts for family \u2014 because that shit makes me happy. I also like luxury watches \u2014 so don\u2019t call me a hypocrite if you see me sporting a Grand Seiko one day.<\/p>\n
I\u2019m not a huge fan of extreme frugality because I think artificially suppressing desires leads to bad things. Work with your desires instead. Also, I ACTUALLY LIKE SPENDING MONEY. As long as it\u2019s on the right things.<\/p>\n
<\/span>5. FIRE is hard<\/span><\/h2>\nIs FIRE achievable for most people? Honestly, I think it\u2019s incredibly hard.<\/p>\n
Here\u2019s an average household in Kuala Lumpur, according to the Department of Statistics:<\/p>\n
\n- Mean (monthly household) disposable income<\/a>\u00a0in KL: RM 11,102<\/li>\n
- Mean expenses in KL: RM 6,913<\/li>\n
- Potential savings per month: RM 4,189<\/li>\n
- To retire early (and maintain the same standard of living), your interest income must be at least RM 6,913\/month<\/li>\n
- Assuming 3.5% inflation-adjusted returns:<\/li>\n
- Total investments required = RM 6,913 x 12 x 30 = RM 2.49 million<\/li>\n<\/ul>\n
From my compounding calculator\u00a0here<\/a>, to reach that magical figure of RM 2.49 million, we would need 29 years of saving RM 4,189 every month.<\/p>\nOf course, reality is gonna be different. Perhaps you earn a lot more than average and your expenses are much lower (good job!) But if anything, the math shows how\u00a0different<\/em>\u00a0someone needs to be if they wanna retire comfortably in their 30s.<\/p>\nNote that many popular FIRE bloggers come from highly-paid industries in rich countries, making >75,000 USD per year. And with the rise of remote working, it\u2019s possible to live in a cheaper country (e.g. spending Rupiah in Bali), while still earning powerful US dollars.<\/p>\n
I\u2019m not saying FIRE is impossible; I\u2019m saying you have to be an outlier.<\/p>\n
\n\n![\"\"](\"https:\/\/static.imoney.my\/articles\/wp-content\/uploads\/2020\/09\/18100450\/Young-Family-on-Beach.jpg\")
Sorry not sorry for all the beach pics<\/p><\/div><\/figure>\n<\/div>\n
<\/span>6. Early retirement is not for me<\/span><\/h2>\nThere\u2019s many things I love about FIRE, but ultimately, I\u2019ve realized it\u2019s not for me.<\/p>\n
Although my wife and I make good incomes, our savings rate isn\u2019t extremely high. By my calculations, if I magically maintained my salary and investing rate today, and limited spending to just essentials \u2014 I should be able to retire in roughly 8 years.<\/p>\n
Actually, if I downgraded more aggressively, I could probably do it within 4. But I\u2019ve thought deeply about it and made a decision: I\u2019m happy to work for much longer.<\/p>\n
The truth is, I\u00a0don\u2019t want to<\/em>\u00a0live on a tight\u00a0budget. I don\u2019t want a life where I feel limited by the financial constraints of my self-chosen retirement. Instead, I want one of abundance \u2014 where I can give meaningful money to my parents, support charities I believe in, and splurge on vacations.<\/p>\nAnother important factor: both my wife and I want children.<\/p>\n
A cruder way of calling it is having \u201cF.U. Money.\u201d<\/p>\n
The younger you reach F.U. Money, the cooler it is, because obviously who wants to say F U to their job only when they\u2019re 60? Get there by 45, and it\u2019s a pretty sweet life. Do it when you\u2019re in your 30s, and you can get featured on\u00a0CNBC<\/a>.<\/p>\n What really blew my mind about FIRE was\u00a0philosophically<\/em>\u00a0it had never registered in my mind that people could retire young. I always assumed that everyone\u00a0needs<\/em>\u00a0to work till they have white hair and back problems.<\/p>\n The FIRE movement taught me you could actually FIRE your\u00a0boss\u00a0much earlier in life.<\/p>\n How to get there? Let\u2019s dive into the math.<\/p>\n Conceptually, you get to FIRE when:<\/p>\n Your passive income is more than your expenses<\/p><\/blockquote>\n So for example, if you have RM 100,000 of\u00a0investments, and get steady returns of 3.5% per year (EPF-like returns minus inflation<\/em>), that would mean your passive income = RM 3,500 per year; RM 292 per month. Obviously not enough for anyone to retire on.<\/p>\n But let\u2019s say you\u2019ve saved RM 1,000,000 and again get inflation-adjusted returns of 3.5% per year. Your passive income = RM 35,000 per year; RM 2,917 per month. Assuming you\u2019re not the type who eats lobsters for lunch, livable income for a lot of people.<\/p>\n The interesting thing: if your expenses never exceed RM 2,917 a month, you never touch your capital of RM 1,000,000. You\u2019re living purely on dividends and interest \u2014 truly passive income. And since we\u2019ve already factored in inflation, theoretically you could go on like this forever: with a million bucks in the bank, RM 2.9K to spend every month, and never having to set an alarm clock again.<\/p>\n \u201cBut what if I want a more luxurious life?<\/p>\n Here\u2019s a quick formula to estimate how much investments you need:<\/p>\n F.U. Money = Monthly expenses x 12 x 30<\/p><\/blockquote>\n So if I want to live on RM 5K a month, I\u2019d need RM 1.8 million.<\/p>\n Probably more if you want this<\/p><\/div><\/figure>\n<\/div>\n As you can probably tell, the secret to early retirement is keeping your expenses under control, and having lots of investments.<\/p>\n Depending how you adjust these variables, you can even fast forward your retirement date, for example:<\/p>\n As we\u2019ve seen in\u00a02020, things get messed up every once in a while. There\u2019s no guarantee<\/em>\u00a0having 25 years of expenses will be enough forever. But there\u2019s a big margin of safety built into the calculations \u2014 so FIRE supporters see it as enough.<\/p>\n In the case of Mr. Money Mustache, both he and his wife saved 65% of their salaries for about\u00a07 years<\/a>\u00a0before retiring. At retirement, they had 600,000 USD in investments, a 200,000 USD paid-off house, and were planning to live on ~24,000 USD a year.<\/p>\n More on keeping expenses under control:<\/p>\n If you have expensive tastes, it gets much harder to retire early. As such, you\u2019ll see these concepts show up frequently in the FIRE world: minimalism, frugality, and simple living.<\/p>\n Sometimes it leads to trite \u201cSave money on expensive coffee\u201d type of advice. Maybe that\u2019s okay for some people, but what about the coffee lovers who appreciate high-quality beans? Extreme views always get attention, but practical, realistic ones lead to long-term success.<\/p>\n My take is everyone should figure out what brings value to their lives, and spend their money accordingly. You\u2019re not gonna be able to splurge on\u00a0everything<\/em>\u00a0(unless you wanna drown in debt), but you can probably splurge on a\u00a0few important things<\/em>\u00a0while still saving money. The key is to figure out what\u2019s important to you.<\/p>\n Personal example: I drive an old\u00a0second-hand MyVi, because I\u2019m not big on cars, and I loathe how quickly new cars depreciate. But I\u2019ve spent good money on laptops, music equipment, and gifts for family \u2014 because that shit makes me happy. I also like luxury watches \u2014 so don\u2019t call me a hypocrite if you see me sporting a Grand Seiko one day.<\/p>\n I\u2019m not a huge fan of extreme frugality because I think artificially suppressing desires leads to bad things. Work with your desires instead. Also, I ACTUALLY LIKE SPENDING MONEY. As long as it\u2019s on the right things.<\/p>\n Is FIRE achievable for most people? Honestly, I think it\u2019s incredibly hard.<\/p>\n Here\u2019s an average household in Kuala Lumpur, according to the Department of Statistics:<\/p>\n From my compounding calculator\u00a0here<\/a>, to reach that magical figure of RM 2.49 million, we would need 29 years of saving RM 4,189 every month.<\/p>\n Of course, reality is gonna be different. Perhaps you earn a lot more than average and your expenses are much lower (good job!) But if anything, the math shows how\u00a0different<\/em>\u00a0someone needs to be if they wanna retire comfortably in their 30s.<\/p>\n Note that many popular FIRE bloggers come from highly-paid industries in rich countries, making >75,000 USD per year. And with the rise of remote working, it\u2019s possible to live in a cheaper country (e.g. spending Rupiah in Bali), while still earning powerful US dollars.<\/p>\n I\u2019m not saying FIRE is impossible; I\u2019m saying you have to be an outlier.<\/p>\n Sorry not sorry for all the beach pics<\/p><\/div><\/figure>\n<\/div>\n There\u2019s many things I love about FIRE, but ultimately, I\u2019ve realized it\u2019s not for me.<\/p>\n Although my wife and I make good incomes, our savings rate isn\u2019t extremely high. By my calculations, if I magically maintained my salary and investing rate today, and limited spending to just essentials \u2014 I should be able to retire in roughly 8 years.<\/p>\n Actually, if I downgraded more aggressively, I could probably do it within 4. But I\u2019ve thought deeply about it and made a decision: I\u2019m happy to work for much longer.<\/p>\n The truth is, I\u00a0don\u2019t want to<\/em>\u00a0live on a tight\u00a0budget. I don\u2019t want a life where I feel limited by the financial constraints of my self-chosen retirement. Instead, I want one of abundance \u2014 where I can give meaningful money to my parents, support charities I believe in, and splurge on vacations.<\/p>\n Another important factor: both my wife and I want children.<\/p>\n<\/span>2. How much money do you actually need to retire?<\/span><\/h2>\n
<\/span>3. Is the math really so simple?<\/span><\/h2>\n
\n
<\/span>4. Managing your desires is key<\/span><\/h2>\n
<\/span>5. FIRE is hard<\/span><\/h2>\n
\n
<\/span>6. Early retirement is not for me<\/span><\/h2>\n