Setting their finances on FIRE
Is achieving financial independence to retire early a real possibility for people?
When Mississauga-based CPA Danish Ghazi first heard about FIRE, the movement to achieve financial independence and retire early, he was intrigued.
Ghazi grew up in an immigrant family where money was always tight, so, as his friend explained the concept, he was inspired. He started researching FIRE, coming across blogs by people who had retired in their 30s and wanted to help others do the same.
While some FIRE devotees take frugality and investment to an extreme — with the goal of retiring significantly earlier than others and living off their investments for decades to come — Ghazi said his plan isn’t necessarily to retire early, but to achieve financial independence.
He wants his investments to provide a safety net and provide flexibility to do things like travel with his family.
Ghazi enjoys his job as a CPA, and also has a personal finance YouTube channel, so he isn’t quitting work any time soon.
“It’s all about giving myself that option if I ever need it,” he said.
There are many stories of people who have scrimped, saved, invested and retired early, some as early as 35.
These stories sound idyllic, and their tellers inspirational — do what I did, and you too can have this life. But it’s not that simple.
Finance experts say the concept has both positives and pitfalls.
Ian Calvert, vice-president and principal at HighView Financial Group, said there are different interpretations of the FIRE model, from moderate to extreme.
There are success stories of those who have taken the more extreme route, said Calvert, but it’s important to remember there are certain prerequisites to this lifestyle.
“You have to have … super aggressive savings right out of the gate,” he said. In other words, if you graduate from university with debt, or you don’t have financial help from your parents, you’re starting with a handicap that likely means you will not be able to retire at 35 no matter how aggressively you save.
Jason Heath, managing director at Objective Financial Partners, agreed.
“It’s not attainable for a huge part of the population,” said Heath.
No matter how many times you turn down the latte or avocado toast, you can’t make up for large financial setbacks in just a matter of a few years.
Another misconception about FIRE
the idea that once you reach retirement, the rest of your life will be a financial breeze.
While that may be the case for a lucky few, for most, the discipline that got them there must continue as they are essentially relying on a fixed income for the foreseeable future.
Those who do retire significantly early will miss out on paying into pension plans, noted Calvert, meaning they won’t have the pensions in later life that others do. They’ll also be missing out on their prime earning years, as many people see their salaries and bonuses go up toward the middle or end of their careers.
Heath said the longer people are retired, the more opportunity there is for things to go wrong, whether it’s a stock market downturn or a medical emergency.
Some millennials have been lucky so far in the market or in real estate, but they can’t assume that growth will continue unchecked, he said.
Jessica Moorhouse, financial educator and host of the “More Money” podcast, said it can also be hard on people’s mental health to be extremely frugal, even for just a few years. Her advice? Plan for tomorrow, but live for today.
Heath worries that when people choose “frugality at all costs” in order to reach certain milestones, they make lifestyle sacrifices they will regret later. He knows some people who succeeded in retiring early, got bored and went back to work. Financial independence doesn’t have to be about retirement; it can help people make a career change or go back to school.
As FIRE becomes more popular, more of its followers are realizing just that.
Graeme Falco, a CPA and author of the self-published book “Building Wealth And Being Happy: A Practical Guide To Financial Independence” — and the friend who introduced Ghazi to FIRE — said the community has changed and expanded for the better.
A decade ago, some FIRE bloggers were like “cult leaders,” he said, and followers took the lifestyle to the extreme. The community could be mocking or judgmental of anyone who didn’t have the discipline to do FIRE a specific way. Now, people are more receptive to different interpretations, he said.
Falco doesn’t stop himself from travelling or spending money on things that bring him joy in the short term. His mindset is about finding balance, and building a life he can sustain for a long time.
Falco’s first piece of advice to people who want to implement FIRE realistically is to be consistent with their savings. Rather than saving without a plan, Falco said it’s better to save a small amount every month, as the savings add up over time. He also recommends prioritizing bills and savings or investments before setting aside “fun” money for discretionary spending, as opposed to spending on bills and fun before putting money into investments.
He also lets himself be flexible and recommends people don’t get “emotionally tied” to saving a specific percentage every month.
“Just by thinking about these things, you’ll be way ahead of where you would be otherwise,” said Falco.
Falco recommends thinking long term about investments, including ETFs, index funds and other diversified investments. He’s not in favour of reis lying on stock picking, or focusing only on dividend stocks.
Moorhouse said early retirement is hard to achieve, and does not guarantee a “happily ever after” ending.
The simple math that some FIRE evangelists push is not always the best path, said Moorhouse. People need flexibility and a buffer for emergencies, not a strict rule, when it comes to saving and investing.
“You’ll be more likely to succeed with whatever your goal is if you can be flexible and make changes and pivot when you need to.”
Heath said what the average person can learn from FIRE is the principle of setting financial goals, and aiming to spend less than they make to achieve them.
“A lot of the motivation behind FIRE is really good and can help anybody to achieve their financial goals.”