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 really sad. We have one life, just one. Some have a longer life than others, but we all have one.
For the biggest part of our lives, 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.
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 in a sustainable and ethical way (I’ll come to that later). 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.
Making money work for you
There are tons of ways to do this, all you need to have is interest. But! I have one very important criterium: the investments need to be sustainable. You could invest in sustainable 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 with 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 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 300.000 euros in total. If you need 2000 euros a month, you would need about 600.000 euros in total.
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)! However, I 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.
Right now, in 2023, after thinking about a lot this post I wrote a few years ago, I honestly don’t know how I feel about FIRE anymore. I mean, am I okay with people making a living from investing? I think the answer is yes, in our current capitalistic system, but there are many criteria I have. As I said, these investments must be sustainable and ethical. If you make money off of transitioning our society to one that runs on renewable energy, great. Then you’re contributing. But if you make money from Bitcoins, trading on the stock market, investing in oil, setting up a drop shipping business, you’re doing the absolute wrong thing.
Right now, I am also figuring out whether I am against our global stock market or not and soon I will write a post about this. I mean, yes, we need investments for certain transitions. However, we could also do this through crowdfunding. The stock markets we have right now are not adding any real value. The people working in it could be doing something else that would actually matter. My short answer right now would be yes. FIRE can be done in an ethical and sustainable way in the current, capitalistic system we live in. Otherwise it should not be done.
Is FIRE the solution?
But another thing I would like to add is: is FIRE really the solution to our problem? I think it’s not. A basic income would be the solution if you’d ask me. Right now, freedom is possible for the few that achieve FIRE and that is not fair. Everybody deserves freedom and the right to choose what they want to do with their lives. So right now, I choose to save money to become FIRE, but that is maybe not really fair.
I believe that I should donate as much money as I can, that I should be an effective altruist. But because I feel stuck in capitalism, I also want FIRE to be my back-up, assuring my freedom. But this is reducing the money I give to charities (which is 7% of my income right now). So in our current system FIRE can be okay, but we need a basic income, this way we don’t need FIRE anymore, at all.
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