SWU Group Upcoming Events

We have several upcoming events. Please click the right-side drop-down box for details and registration.

Borrowing elements of the FIRE approach can certainly do wonders for your finances. Here are five FIRE rules that make sense for anyone looking for more financial stability, now and into the future:

  1. Know where you stand financially

Getting on the FIRE bandwagon starts with calculating your net worth. This includes your savings, debts and assets you already own, such as property or shares. While it might be scary to recognise you’re below zero at the start of a new savings journey, at least you’ll know how far you’ve got to go.

  1. Be clear on what your goals are

While saving 25 times your annual budget, as Mendonsa suggests, may not be the goal you have in mind, it’s still important to have a clear and tangible savings target. Whether it’s for a house deposit, retirement or your kids’ education, knowing how much you actually need to save can help you stay motivated as you track your progress towards your goal.

  1. Get to know what you spend

Paring back spending to save around 50% of your income is a pretty extreme target that’s been put out there by a couple of FIRE bloggers. And if your salary is pretty high, this may not be so hard to achieve. But even if your income is closer to average, being in the know about where it goes is key to cutting back on non-essential spending, and saving that money instead.

  1. Question every spending decision

In her book, Robin talks about resisting the ‘thrall of consumer culture’ and being more aware of how you’re managing your ‘life energy.’ As Robin points out, we spend many hours working to earn while making split-second decisions about spending. By considering how much ‘life energy’ you’re putting into each purchase, you might think more carefully about your consumer habits.  

  1. Invest to boost your potential ‘passive’ income

Once savings start to pile up, you can start to think about your investment options and a strategy that suits the timeframe for your financial goals. However, getting debt-free and having an emergency fund on hand are two goals you should aim to meet before looking at potential returns you can earn from your savings.

The problems with FIRE

This final point highlights a couple of the drawbacks that have been overlooked by many FIRE ambassadors. Most FIRE success stories come from people in high-paying jobs, who make no mention of having debts to settle at the start of their FIRE journey. If you’ve got debts to pay off, or your income is modest at best, then you shouldn’t fall into the trap of thinking that financial independence is just around the corner, if you can tighten your belt a little bit.

Another problem is that the whole concept of planning for the unexpected doesn’t seem to feature in the FIRE manifesto. Health problems, divorce and death are just some of the more extreme things that could mess with your perfect life plan. To the FIRE disciple, personal insurance premiums might seem like a waste of money. But in the greater scheme of things, financial independence is also about protecting your wealth as well as having the discipline to save it and spend it wisely.

The FIRE approach also depends on placing limits on how you live now for the promise of future freedom. Retiring half-way through your life sounds like a fun outcome, but achieving this might make you quite miserable in the meantime. Instead of trading-off a lifestyle you enjoy now to bring forward your retirement, striking a balance between the two might be a better approach.