Talks of Financial Independence and Retire Early (FIRE) are becoming more popular these days. In most countries, the retirement age is 55 to 60 years.
In countries like America, retirement means nothing. But at the age of 40-45, not depending only on the job, the life style after this age is maintained based on the investments you have made, the name of the theory is ‘Fire’.
Which includes things like increasing savings from income and keeping expenses low as a precautionary part of financial planning. But when it comes to putting the theory into practice, for every cost, the savings are the only thing that can come in handy in the future.
What is the reason behind this revolutionary change? And what are the results of these average investments you make?
How did Fire Theory begin?
Millions of people born between the years 1980 to 2000 are highly attracted to this principle of fire. Jakob Fisker’s book ‘Early Retirement’ reiterates this point.
So, Vicky Robin’s book ‘Your Money, Your Life’ also strongly advocates the theory of fire. Apart from these two books, many advocates of fire theory have put their ideas before people through social media platforms.
As a result, the number of people attracted to this theory has increased.
In foreign countries it is believed that life starts again after 40 years. This idea seems to have fueled the fire theory.
Because many people choose to quit their job at the age of 45 for their favorite career. Because of the investment they made based on the fire theory, they believe that it doesn’t matter if they don’t get paid anymore because the investment they made is enough for them.
What are the reasons for the popularity of fire theory in India?
A long time ago it was believed that the way of working of the present generation is quite different from the way of working of the previous generation. At that time most of the people were used to doing government jobs for decades. But now you will also find less people who have worked in the same company for five years.
At that time there was also an option of pension after retiring at 60 years. Currently there is no such situation. Due to such reasons the fire theory came to the fore. The essence of which is to earn the most while you are working.
Unlike earlier times, nowadays working hours are also in shifts. For instance during office hours you will find traffic jam conditions in cities like Hyderabad, Bengaluru and Gurugram.
Due to such reasons, the idea has become widespread among the present generation that they cannot do the work they are doing now in their old age. So they are attracted by the fire theory that it is better to clean the house only when there is light.
Moreover, the information available now about economic matters was not available in earlier times. Ready information is available including post retirement planning, insurance.
Earlier, investments were made only through company agents. But that is not the case now. Nowadays technical support for all types of financial planning is available on the internet.
Now there are many financial plans, which you can plan according to your needs. It can be said that all this is due to the technological revolution.
What are the main points of fire theory?
Life insurance should be 20 times your annual income. Health insurance should be of sufficient amount for your entire family.
When the employee reaches the age of 45 years, his provident fund should be 25 times the annual family expenditure. Raising such a fund is essential to meet inflation.
Each of your financial goals needs to be backed by a proper investment every month. For which no excuse or exception will work. The foundation of personal financial investing is to give sufficient and equal importance to each of your financial goals without any emotion.
Curb on spending
The main principle of fire theory is to reduce excessive and unnecessary expenses by keeping track of expenses over time. The main idea behind the FIRE method is not to overspend from the savings made from the monthly salary, but it may not be possible every time. So cost reduction should be given priority.