FIRE – Financial Independence, Retire Early

Working has fascinated me for a long time. Almost everybody works, and a lot too. What I found most fascinating is that most people spend such a huge chunk of their lives at work. 40 hours a week is the standard in our Dutch society, while some work even more. I feel like that is a lot, because there is so little time left for everything else. And so today I want to share a little about a subject I’ve been learning more about in the last couple of years: FIRE.

Winning the lotery

Over the past few years I’ve been asking people: what would you do if you’d won the lottery? The answer is always quite the same: ‘I would quit my job’ or ‘I would work less’. Well, maybe that’s because I live in an area where most people don’t like their job. But I don’t it’s that. I think it’s because work will always be an obligation in our society. These answers always make me sad. We have one life, just one. Some have a longer life than others, but we all have one. For the major part of it, we work. In the Netherlands people work about 40 years, until they are 67. That’s 50% of an average life. But people have so many different dreams! When people say: ‘I would quit my job’ there is always something that comes in that place. ‘I would travel’, ‘I would volunteer’ or ‘I would start studying again’. There are so many dreams, but if you have a mortgage and bills to pay, people are just stuck.

FIRE

This where FIRE comes in, Financial Independence, Retire Early. The basis is financial independence. Now what does this mean? It means freedom! When you’re financially independent, you don’t have to work for your income anymore. Instead, you make your money work for you. It basically means that you save as much money as you personally want (this depends on your lifestyle, but most people who practice FIRE consume less and live more frugal) and make that money work for you in any type of way. There are tons of ways to do this, all you need to have is interest. You could invest in trackers on the stock market market, invest in wind energy or solar panels, invest in microcredit, put your money in a deposit or create a passive income (by writing a book or having a blog for example). There are a lot of ways, but all comes down to making your money work for you instead of you working for money. This way you can retire early, because you already have an income.

It all comes down to making your money work for you instead of you working for your money

Let’s do some math

If you need about 2000 euros a month to make a living, you need an amount of money that gives you 2000 euros of interest each month, or 24000 euros a year. And so, the less you need, the better. 1000 euros a month would mean you need 12000 euros of interest each year to be financially free. Now, don’t think you then need 720.000 in total to retire 30 years early (24000 euros x 30 years). No, there is also such a thing as compound interest. So, if you have 10000 euros now and an interest of 7%, the next year you have 10700 euros. And then that 10700 euros brings another 7% the next year, you’d have 11449 euros. See? This way the amount of money grows exponentially and you wouldn’t think you need as much as you think. There is one very well know basic rule to calculate how much money you need in total, which is called the 4% rule. This means that the amount of money you need to live off is 4% from your total wealth. If you need 1000 euros a month, you would need about 300000 euros in total. If you need 2000 euros a month, you would need about 600000 euros in total.

Freedom

But I don’t want to make this post about numbers (I’ll probably come to that later in different posts). For now it’s about the idea. Freedom! Saving money so that you can be financially free and can do with your life whatever you want. My goal is that when someone would ask me what I’d do if I’d win the lottery, my answer would be ‘I wouldn’t change a thing’ (besides, I don’t compete in the lottery, I invest that money to make it work for me haha!). And no, this is not about being lazy. I am planning on working (maybe even all my life)! I just want to do it on my own terms. I want to be able to say how much I work and where I work. I don’t want to be stuck in a life due to my bills. And I know I am privileged. Extremely privileged. I am grateful for that. Not everybody is able to save and invest. But I want to at least share my knowledge about FIRE on this blog. Maybe it can help. Maybe you’ve never thought about it. I just want everybody to be happy and free. I think FIRE can help with that. Let’s take control!

Yours sincerely,
Romee

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