The Benefits and Rules of a Good FIRE
Ben Tutty settles in to examine the flames fanning a very different way of living.
12 September 2023
You know the drill. You’re going to work for almost 50 years until you’re 65 and retire for 20 or 30 (sigh). But what if it could be different?
Financial independence retire early, or FIRE, is a way of living that has enabled many to break free from the traditional 40 or 50-year working life. Glorious as that may sound, there’s no such thing as a free lunch (or retirement) and FIREing can require significant sacrifices. Is it all worth it?
Ruth aka The Happy Saver is New Zealand’s most prominent FIRE fan. She lives in Alexandra with her partner Jonny and teenage daughter and held $422,000 in broad-based index funds as of May 2023.
She’s 49 and Jonny’s 50, but they’re both semi-retired and work two days a week at super flexible, relaxed jobs that fit nicely around their lifestyles. Ruth also blogs at happysaver.com about her journey. When I asked her if she was happy, there was no hesitation.
“What’s not to like? I’m chuffed, sometimes I still can’t believe it. Life should be balanced - and that comes from being able to choose how you live it.”
Hard to disagree with that. But how do Ruth and other FIRE adherents actually make it happen?
Obviously, FIRE requires a chunk of change. To build their wealth FIRE adherents usually do three things:
- increase their income
- decrease their expenses
- invest as much as they can.
Hustles and spending
To increase their income FIRErs might pick up side hustles, rapidly advance in their careers, or even choose the most lucrative career path possible so they can FIRE. They may also be mindful of their spending (and in some cases extremely frugal) to ensure the gap between their income and costs is as wide as possible.
Last of all FIRErs will usually invest 50-70 per cent of their after-tax income into savings and investments, typically broad-based index funds with low fees (Ruth does around 30 per cent). And then when it’s finally time to retire they use something called the 4 per cent rule.
This widely-used rule assumes that if you can live off just 4 per cent of your nest egg per year in retirement it should outlast you. This rule is based on American research so it’s not as proven in New Zealand as it could be, plus some US financial advisers say 3.3 per cent is more accurate in the current economic climate.
To give you an idea of how much you might need: if you were to live off $50,000 a year, you’d need $1.25 million to retire, according to the 4 per cent rule.
FIRE is an amazing concept, with a lot of good ideas to offer, but there’s no denying it’s harder for Kiwis today than it was in the past.
For one, New Zealand’s median house price was around 3.2 times the median income back in 2001. In 2021, it was 9.3 and in 2023 it’s 7.17, according to REINZ and interest.co.nz. That means a mortgage will eat up a much larger portion of your income that might have otherwise been savings and make FIREing more difficult.
The cost of living is also rising much faster than wages and renting for life is more common (which of course makes FIRE harder). Ruth personally benefited from much lower house prices and admits it’s harder now, but she’s confident it’s still possible. It just takes sacrifice.
Like any financial philosophy FIRE is not without its risks and drawbacks, according to James Blair, wealth director at Lighthouse Financial, an Auckland financial advisory. He agrees it’s got harder for young people, but reckons it misses the point.
“Financial independence is not a crazy concept. There’s nothing wrong with wanting freedom, but the hardcore FIRE community will live on maybe 10 to 30 per cent of their income.
“They sacrifice the best years of their life for this magical future. They won’t do as many trips or have those special experiences, just to rush to retirement. I think if you hate your job that much, you’re clearly doing the wrong thing.”
On the flipside Blair draws attention to rising credit card default rates and the popularity of Afterpay. Lots of Kiwis have trouble with living in the moment a little too often and racking up debt that they’ll pay for later. Blair reckons it’s all about finding a balance, a middle ground that works for you, which is somewhere between FIRE and YOLO (you only live once).
“We believe in holistic financial planning. It’s not about more property, more money, more shares. It’s all about what’s important to you and your family. Making short and long-term goals, then prioritising them.
“The reality is everyone wants to achieve everything, but you’ve got to choose and make sacrifices.”
Blair’s way sounds good too. And if you wanted to FIRE, chances are he’d be able to help you make it happen. But he says most of the successful, happy people he knows don’t want to stop working.
“Ideally your identity as a person is tied into something you care about. Working is not linked to income. And while it’s nice to have that freedom, it’s really about finding that match between your passion and your skillset.”
Blair isn’t just talking; he clearly means what he says. When I asked him if he would change anything if money wasn’t an issue he said: “My life wouldn’t look much different. I’ve got an eight-month-old son and a wife at home so maybe I’d spend more time with them and travel a little more. But I’ve got the sweetest job. I get to help people live the lives they want to live.”
It’s not all or nothing
Ruth says Blair has a point when it comes to hardcore FIRE adherents, but most Kiwis aren’t keen on doing things that way.
“Nobody wants to be that person who brings the cheapest bottle of wine to a BBQ and takes half home. The people I meet doing FIRE in NZ are not like that. They’re 30 or 40 and going about life as usual. They’re not miserable.”
For Ruth, FIRE is all about having f$#k you money: the freedom to do whatever she wants. She works two days a week in a friend’s business in a way that fits around her lifestyle and allows her to spend plenty of time doing what she wants to do. Both her and Jonny hang out with their daughter frequently, help out the community and spend more time doing things that don’t make money.
“There’s something to be said about having parents who are present, surely.”
And while she says she’s definitely had to make choices, she doesn’t feel as if she’s sacrificed anything at all. “Some people try and say with FIRE you can have everything, but you can’t. Just like you can’t keep eating chips and chocolate if you want to lose weight.
“With that said, I don’t feel as if I’ve given up anything that I really want. It’s all about feeling content with what you’ve already got. And when you’re always content, that’s when happiness really comes.”
FIRE also stands for freedom
Ruth explains that if you can be content, you don’t need as much to retire as you may think. The oft-quoted figure of $1 million is way over the top for most people, she reckons. You also don’t need to stop work completely; FIRE is more about having the freedom to do whatever you want.
“I personally love working so FIRE for me is continuing to work because I like it. I like the customers and I also love writing my blog. It’s exposed me to thousands of Kiwis who are changing their lives.
“Another Kiwi FIREr I know is a 39-year-old engineer who’s completely stopped working. He lives in Central Otago and occasionally he’ll run bike trails for tourists during the summer because he loves it.”
Ruth admits FIRE may not be for everyone. But with that said, four out of 10 Kiwis are unhappy in their jobs and completely disengaged, according to culture coach Shane Green. Ruth reckons people often stay in jobs like this because they think there’s no other option, when there clearly is.
“What has become of us if we want to spend 40-plus hours a week toiling, usually for someone else. And why is it that if many of us did have more freedom, we wouldn’t know what to do with it?”
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