F.I.R.E vs F.I.R.M – Which Path To Retirement?
Have you heard of FIRE? Do you believe in it? Perhaps know of someone following it or having achieved it?
For the uninitiated, FIRE stands for Financial Independence Retire Early. the FIRE movement was first mooted in a 1992 book ‘Your Money of Your Life’ co-authored by Vicki Robin and Joseph Dominguez. It took off only 10 years later in the noughties (2000-2009) with the prevalence and exponential growth of internet, giving early FIRE-starters and bloggers a podium to share their experiences, strategies and lifestyle.
True to its namesake, FIRE catches on wildly and has been sweeping across the globe, garnering a huge following and its own devout tribe. The fact that it is gathering so much momentum within the working cohort is testament to its deep and wide appeal – across gender, geography and culture. The rejection of the conventional idea of slogging away at a 9-to-5 job, sucking away one’s joy, life and health until mid-to-late 60’s hit a raw nerve in many.
The hallmark of FIRE in its original and strictest sense is to get off the corporate bandwagon as early as possible by saving aggressively, living frugally and investing the rest. The goal is to save 25-30X of annual expenses, which is the tipping point, ie financial independence! This is when one can retire by living off 3.5%-4% annual drawdown from the retirement chest amassed. Some FIRE devotees supplement this drawdown with a side hustle for the luxe things in life, or simply to have a purpose given their relatively young age.
Voilà, that in a nutshell is the FIRE movement.
While I fully subscribe to the idea of taking charge of one’s own life instead of letting politicians, economists and sociologists dictate retirement age, there must be a better way to determine when to retire than simply as-soon-as-possible. FIRE should not be undertaken just to escape a hateful or stressful job. There are more sensible and less extreme ways to deal with that. For what is worse than a terrible job? A constrained life, and for the rest of your life at that.
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Jumping out of the pan into FIRE is not the only or the best answer. A better goal is to aim to retire well, which will lead to a more rewarding and satisfying living.
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Everyone is gifted a very precious life, to discover and maximise our capabilities and experiences, and to make it as meaningful as we can. I cannot imagine it fun for FIRE devotees to scrimp and save by acutely downsizing their lifestyle to the point of extreme minimalism. Some commonly cited practices include:
- Penny-pinching to sock away 50% of income, some even up to 70%
- Only buy secondhand
- Live simply in a modest (or tiny) home
- Slashing grocery bills to just basic necessities
- Reduce or eliminate habits like Starbucks coffee, alcohol, eating out
- Foregoing pleasures like travel, attending concerts
In this era of YOLO, one should be spreading one’s wings to soar high and far with experience, technology and knowledge as powerful propellers instead of clipping one’s wings to exist in a small cage. For life is fragile – I have friends who passed on before they reach their 50’s.
So instead of F.I.R.E, I opted for a different approach. The end point is the same – personal freedom – but the journey and outcome is starkly different. I would like to share this alternative path for which I term as F.I.R.M:
Financial Intelligence Retire Magnificently. Or Marvellously, Merrily, Masterfully, Meaningfully. You get the point.
The operative words in F.I.R.M are Financial Intelligence.
This is one of the most crucial and important skills, right along values and interpersonal communication, that are needed in life but yet woefully absent from our education curriculum.
OECD highlighted this in a paper titled ‘Financial Education in Schools’:
“Financial literacy is a core life skill for participating in modern society. Children are growing up in an increasingly complex world where they will eventually need to take charge of their own financial future. As young adults learning to live independently they will need to know how to budget and make wise financial choices for everyday living…They will need to manage risks, save for ‘rainy day’, avoid taking on unmanageable debt, and provide for their old age and health care.”
It further adds that:
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“Financial education can make a difference. It can empower and equip people with knowledge, skills and confidence to take charge of their lives and build a more secure future for themselves and their families…” ~ OECD
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We live in a society where it is in the best of our own interest and needs to take responsibility for our own learning because our well-being depends on it. Technology has made it possible for us to learn anything via the internet, often at our own time, pace and within the comfort of home.
There are tons of financial courses on budgeting, saving and borrowing, money and cashflow management, concept of compounding, how to invest, different approaches to stock investments, investment property strategies, importance of diversification, new investment tools such as crowdfunding etc. They come in various formats ranging from books, magazines, financial journals, courses, workshops, Youtube videos, webinars, podcasts and micro courses. And for micro courses, some even lead to micro certification for those so inclined.
Financial literacy has little to do with education or income level. Many people associate financial decisions as difficult and complicated, they become fraught with anxiety and hence tend to shy away from it. This bury-one’s-head-in-the-sand behaviour does not make the issue go away. In fact, avoiding financial literacy delays one’s financial health and overall well-being.
The world is getting more complex with interconnected marketplaces, increasing technology invasion into our every day lives, multi-faceted economic drivers that are constantly changing and moving at the speed of processing chips. The sooner we learn about the forces that influence and impact our lives, the better position we are in to manage and take advantage of them.
The difference between FIRE and FIRM are laid out below:
| ASPECT | F.I.R.E | F.I.R.M |
|---|---|---|
| Goal | Retire early | Retire well |
| Focus | Live frugal, invest surplus | Financial literacy |
| Lifestyle | Minimalism, sacrifices | Learn, financial education |
| Mentality | Life hacking | Investment savviness |
| Strategy | -Scrimp to save money -Trade time for money -4% drawdown in retirement | -Smart money moves -Trade knowledge for money -Lifetime investment income |
| In Retirement | -Limited pension -Possible boredom for the youthful -Possible fund depletion -Return to work? | -Maximise pension scheme -Maximise lifestyle choices -Maintain or even grow funds -Retire for good & in style |
Trade time to earn, sock away money and live in extreme frugality OR seek and apply financial intelligence to live sensibly and invest smartly. Both leads to the same destination, only you can decide which works best for you.
The way I see it, FIRE is retiring from work in a hurry and is akin to diving into the sea to catch as many fish while the tide is high (ie time-based); FIRM is retiring towards something better by applying financial intelligence (ie quality and knowledge-based) and is equivalent to using a fishing rod that casts and catches forever, even throughout retirement if one so chooses.
Simply put: financial intelligence leads to better lives, regardless what age and which stage of life one is in. I totally believe in it, for I am experiencing it.
‘An investment in knowledge pays the best interest’ ~ Benjamin Franklin
On FIRM ground,
Savvy Maverick
