❓ What is FIRE and why could you be interested?

You reach financial independence when you can pay for your living expenses for the rest of your life, while no longer receiving a salary. To achieve this, you need to have build up wealth that you can extract money from to pay for these living expenses.

Various studies say that if you have a portfolio of at least 50% stocks you can withdraw 4% (“withdrawal rate”) of that portfolio for 40 years without the risk of the portfolio running out of money.To build up this wealth, FIRE recommends to start as early as possible with consistently saving and investing every month.

💰 How much wealth should I build up to be able to retire early?

A first introduction to the “FIRE number”How much you will need in investments and other savings to allow you to retire early is known as your ‘’FIRE number’’.

How to calculate this FIRE number for yourself? With a withdrawal rate of 4%, you should divide you annual living expenses by 4%. Let’s look at an example together to make this clearer:

• You want to retire from the age of 45 and expect to live until you are 85

• You expect your total monthly expenses are EUR 4,000 when retired

• This means your yearly expenses are: 12 x EUR 4,000 = EUR 48,000

• Then, your FIRE number is: EUR 48,000 / 0.04 = EUR 1,200,000. This means you need EUR 1,200,000 in total investments and savings to retire at 45. With this amount of money and a withdrawal rate of 4%, you would have enough money to cover your expenses until you are 85

If you are planning to have a retirement period longer than 40 years, you need to use a lower withdrawal rate in your calculation. Also, some FIRE experts work with a 3% withdrawal rate, to be conservative!

🏃‍♀️ How to start with FIRE?

FIRE consists of three main principles as foundation: (1) saving, (2) gradually reducing your expenses over time, and (3) investing your money wisely. If you wish to pursue FIRE, it’s important to follow these consistently.

First principle 1️⃣: saving

You have to put aside a large percentage of your income to build up enough wealth. You should start with the highest amount you can save based on your income and expenses today.

Second principle 2️⃣: gradually reducing your expenses

Then, focus on reducing your expenses gradually over time so you can save more. In general, people participating in the FIRE movement put aside anywhere between 25% to 75% of their monthly net income.

The most important thing is to make smart financial choices and avoid unnecessary expenses. Ask yourself questions with each expense whether you really need this or can lower it.

Three examples:

• Eat out and order less: try to cook at home more

• Don’t spend money on replacing something that still works, for example a new car or the newest phone

• Pay attention to the money you spend on groceries and try to reduce that number

But it also means not to spend money when your income grows, for example when your salary increases. This would enable you to save more.

Important note: reducing expenses does not mean you do not get to enjoy a nice dinner at a restaurant anymore. It is about making the choices that are best for you while also making sure you still enjoy life.

Third principle 3️⃣: Investing

The money you set aside: invest it wisely. Investing wisely means choosing investments that have a good long-term return while also being diversified. This can include investments in stocks, bonds, and real estate, among other options. When investing for the long-term, it’s also important to diversify your portfolio and take less risks as you approach your FIRE number.

❓But what about the pension that I am building up already?

One option is to ignore your pension and focus solely on building up enough investments and savings to cover your living expenses until you reach the statutory retirement age. Another option is to include your pension in your retirement planning and consider how it will supplement your other sources of income — then it becomes more specific and personalised.