🔥 What's Your FIRE Number and Age?

Welcome to this week’s Altsights!

The FIRE movement spread like wild fire in India during COVID 🔥

With the market generating abnormally high returns, people started to wonder - Can my portfolio become so big that I can retire early and become financially independent?

However, in the last few months, the situation has normalised. Offices have opened up and the market has sobered up (not quite as much as it should though).

Naturally, not as many people are enthused about FIRE anymore.

But the FIRE movement has been in trend in the West since the 90s. And I believe there is some substance to it ✅

In today's Altsights, I discuss:

➡️ What it takes to FIRE?
➡️ What can help your FIRE faster?
➡️ The FIRE chart

But first, let's properly define FIRE and take it from there.

What is FIRE? 🔥

You achieve FIRE when you have accumulated enough money to meet your regular expenses without your regular income income for the rest of your life.

The corpus you need to accumulate is your FIRE number.

The age at which you accumulate the corpus is your FIRE age.

[Illustration] FIRE with a 10% Savings Rate 🔥

Suppose, as a 30-year-old, your post-tax monthly income is ₹1 lakh and you save and invest ₹10,000 every month - a savings rate of 10%.

The prices of goods and services (inflation), your income and your contribution towards FIRE grow at 5% each year.

Further, your investment grows at 9% on a post-tax basis each year.

For simplicity's sake, let's assume that you have no investments today.

In other words, you need 50X of your present annual income (₹6 crore is 50X of ₹12 lakh) after 38 years to achieve FIRE.

Doesn’t sound exciting now, does it? 🤷🏻‍♂️

Does this mean the FIRE is not practical? Not at all.

Here’s what happens when you increase your savings rate to 20% 📈

FIRE at a Savings Rate of 20% 🔥

Let's retain all our assumptions from the earlier example, except for one thing - your savings rate.

Let's raise the savings rate to 20%.

With this small change, your new FIRE number becomes ₹4.8 crore and your new FIRE age becomes 59 years years.

Now, instead of taking 38 years years, you will take just 29 years to achieve FIRE ✅

Let’s raise it by another 5% to 25%

Amazing, isn’t it?

Savings Rate Matters 💰

If you think about it, your savings rate is probably the only controllable here.

You can't control your salary or the returns your portfolio generates. You can’t control the inflation or taxation of stocks and mutual funds.

The savings rate is the only controllable and fortunately for you, the thing that matters the most.

The FIRE Chart 🗓️

The illustration I used was very specific.

What if you don't have a 1 lakh post-tax monthly income?

What if your savings rate is much higher at 40%?

Not to worry. Here is a FIRE chart that defines your FIRE number as a multiple of your present annual income.

It is easy to see that the higher your savings rate, the faster you will FIRE.

To me, saving and investing between 30% and 40% of your income looks like the sweet spot you should aim for.

Until next time!

Cheers,
Madhu,
Founder, Altcase