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Fired up for financial independence

Millennials are often accused of living for the present and wasting their money on smashed avocado. So it may come as a surprise that younger Australians are at the vanguard of a growing movement committed to the old-fashioned virtues of thrift and saving, but with a modern twist.

Whereas the mantra of the Baby Boomers in the 1960s was ‘turn on, tune in, drop out’, their adult children also want to leave the rat race, but they want to do it with a substantial nest egg to allow them to pursue their dream lifestyle. The new mantra is ‘Financial Independence, Retire Early’, or FIRE for short.

The FIRE Brigade

The fundamentals of the movement come down to three lifestyle changes – living frugally, increasing income and investing the surplus – that they believe will help them achieve FIRE.

It’s a movement that rose to popularity with millions of Americans and is now gaining popularity in Australia

The godmother of the FIRE movement is Vicki Robin, the co-author of Your Money or Your Life. Robin suggested to her readers that they consider the ‘hours of life energy’ a purchase entailed. For example, a person earning $60,000 a year who is contemplating buying a $30,000 car should ask themselves whether owning the vehicle is a reasonable trade-off for six months of their life.

Robin’s book came out during the pre-GFC consumption frenzy and failed to have much impact. However, over the last decade or so, increasing numbers of individuals and couples in their twenties and thirties have embraced its core message about stepping off the consumerist treadmill.  Robin together with Joe Dominguez have updated and revised the book this year (2018).

FIRE blogs and websites are largely devoted to money-saving tips such as trade your car for a bike, be content with fewer, cheaper items of clothing and forget about eating smashed avocado on toast at cafes. FIRE enthusiasts are also highly motivated to increase their income by working smarter, studying or starting a side business. When it comes to investing surplus income, they are also actively engaged with a preference for income-producing assets such as property and bonds and dividend paying stocks.

Fuelling the FIRE

It’s not clear what has drawn so many Millennials to the idea of achieving financial independence earlier in life than their parents. It’s possible that the GFC had the same kind of impact on them as the Great Depression had on their grandparents. It’s also conceivable Millennials have less interest in flaunting status symbols than preceding generations. Or it could simply be the case that Millennials value freedom and autonomy and want to escape from ‘work’ to enjoy life.

Being Millenials, technology is central to spreading the FIRE message. There’s an online hangout of around 8,400 Australian FIRE fans on Reddit (fiaustralia) where people share articles and links. There are even Australian FIRE celebrities, such as ‘Aussie Firebug’. While remaining anonymous, Firebug has revealed he’s in his mid-twenties and determined to achieve financial independence by no later than his mid-thirties. He defines this as: “Having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses.”

While its adherents skew towards the young, people of any age can embrace the FIRE philosophy. Many older Australians with modest super balances are doing much the same things as FIRE devotees, albeit out of the fear of having to keep working past retirement age rather than the hope of quitting their job in their thirties.

A timeless approach

Despite its recent arrival, the FIRE philosophy is essentially a modern makeover of some timeless financial wisdom. Work hard, spend less than you earn and invest the surplus in assets that will grow your wealth and produce income when you retire.

It could be argued that 26 years without a recession and access to easy credit has made many Australians too relaxed about living within their means. If that’s the case, the FIRE movement could be the spark we all need.

Just a note – I’m not a financial planner, so I’m not authorise to give financial advice, but I figure a strategy that helps people become financial independent and retire early has to be worth a look, so if you’re interested in the concept, make a time to have a chat with the professionals in the BMO Financial Solutions team who can assist with budgeting, investing and protecting your wealth.

 

(i) https://www.reddit.com/r/fiaustralia/

(ii) http://www.aussiefirebug.com/about/

This article is general in nature. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your particular investment objectives, financial situation and individual needs. Principal Wealth Management Pty Ltd trading as BMO Financial Solutions ABN 53 109 336 601 is a Corporate Authorised Representative of McPherson & Associates Pty Ltd Australian Financial Services Licence (AFSL) 229883. McPherson & Associates Pty Ltd and its Authorised Representatives do not accept any liability for any errors or omissions of information supplied in this article.

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Megan James

About the author

After growing up on a cotton and grain property near Dalby, Megan went on to complete her Bachelor of Business, and spent more than 12 years in Brisbane and Newcastle working in public relations and communications roles in Govt-owned, private and consulting businesses across a range of industries including energy, health, property development and charity before returning ‘home’ to Dalby. READ MORE


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