FIRE is in fact an acronym for two terms: ‘Financial Independence’ combined with ‘Retire Early’. It is clear that this philosophy was not invented by Internet entrepreneurs. It is based on the assumption that earning more is much more difficult than saving more. 

How does it work?

First of all, people who subscribe to FIRE reduce their expenses to the absolute minimum. By living like misers, they can save a large percentage of their salary. Or rather, invest it. Until, after years of saving, the capital has grown into the required ‘private pension fund’. If you start early enough (or earn enough), you can retire young.

The FIRE fans, many of whom are employees, are shouting from the rooftops how important it is to do financial planning. So far, we agree with them. But they have some principles that do not apply to entrepreneurs like you. For example, they see work purely as a way of making money. The fact that they have a job that does not fulfil them, or that they even hate, is almost a given. Hence, the desire to retire as early as possible.

But working hard is not at all bad if you feel passionate for what you do. And it is precisely this passion that entrepreneurs feel. The same goes for many artists and scientists, but that’s not relevant here. In short: retiring as early as possible is therefore less relevant for entrepreneurs.

Another thing entrepreneurs won’t like is living on a shoestring for years on end, hoping to finally actually start living in an uncertain future. After all, you have to invest to grow a business and maintain your network. But we have solutions, so keep reading…

How much money can you retire with?

Many FIRE enthusiasts use the four percent rule. This rule assumes that you are financially independent if you do not use more than 4% of your accumulated pension amount each year.

That same percentage, based on past results, is the average return on an investment in index funds. The 4% withdrawn will have “grown back” after a year and in theory you can continue to draw on your assets forever.

From this we can deduce that you need to save 25 times your annual expenditure in order to retire. So the real question is how much you plan to spend each year. If you think €24,000 per year is enough, you need to save €600,000. If your lifestyle is more like €120,000 a year, you need €3,000,000 in your portfolio. Looking at the monthly costs, a rule of thumb is that every €150,000 you save will give you €500 per month for the rest of your life.

Different levels of FIRE.

Financial independence combined with early retirement: it comes in all shapes and sizes. In the FIRE community, therefore, different labels are applied. Which one you pursue depends on your income and the costs you expect to incur in retirement.

  • LeanFIRE is, irreverently put, for the poorest of the poor. You live as cheaply as possible during your retirement, which means that you have a smaller amount of money to live on. The extreme example above of the €24,000 annual living expenses could be called LeanFIRE.
  • BaristaFIRE is a variant where you work hard until you reach a certain amount, after which you don’t retire straight away, but start working part-time, for example as a barista, in order to continue to build up AOW and spend some more time on hobbies or charity.
  • FatFIRE is the most interesting version of FIRE in our opinion. This variant is for high rollers like you. Here you expect to spend as much or even more than in the years when you earn the most. Your basic needs are covered, and you have enough budget left over for travelling, socializing and luxury goods, among other things.

How the FIRE crowd builds capital. ‘Savings’ is not the right word. A FIRE disciple invests with the aim of building up capital quickly, safely and easily. This can be done with an index fund or ETF: a basket of shares that follows a certain stock exchange index, such as the AEX or the NASDAQ. There are also ETFs that follow multiple indexes or even the MSCI World Index.

The advantage of such an ETF is that you do not have to ‘gamble’ with individual shares. You follow the prices and receive the dividends of the underlying shares. Because of the diversification, the risk is low and the average return, despite a periodic crisis, is around 7-10% per year.

One of the most popular ETFs in the FIRE community is VWRL, which is the ticker code for the Vanguard FTSE All-World UCITS ETF. This ETF provides global diversification as the underlying stocks are from multinational companies in over 47 countries. Other popular index funds are ISPA and A0RPWH, and the most popular broker is DEGIRO, which has a large selection of ETFs for which you pay no commission.

BUT there is also another solution!

If you are a tax nomad, and you play it smart, you can reduce your tax burden insanely. If you then take care of your own ‘rainy day fund’ and do not count on the most bad investor there is, namely the government, then after a while you will be able to take a sabbatical year now and then or indeed retire earlier than your colleagues, without having to go through life as a ‘miser’. You can then enjoy NOW and still set aside a nice sum.

For more info, as always, one address :

read our fiscal books

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