Short for ‘Financial Independence, Retire Early,’ the F.I.R.E. movement provides a method of approaching personal finance to secure your future sooner.

Through the years, more and more people have been wanting to get out of the so-called “rat race’’ sooner, in pursuit of a richer, more balanced life. This yearning has given rise to the concept of F.I.R.E., which stands for ”Financial Independence, Retire Early.” The term was introduced as early as the 90s by authors Vicki Robin and Joey Dominguez, in their book Your Money or Your Life. But the concept has gotten a boost in recent years from millennials who want to learn how to achieve a more balanced life and, crucially, how to retire early.

In the Philippines, the concept became more known during the pandemic, and gave birth to the F.I.R.E. Movement Philippines Group. “At first, we just wanted to share with our friends and family,” shared group founder, Kenneth Reyes-Lao. “But slowly the group evolved and more people wanted to join. I guess the pandemic also pushed people to think more about their finances,” he mused. 

Today, what started as a small chat group of family members, has become a Facebook Group with over 9,000 members, sharing their own experiences, knowledge, and tips on increasing your savings and how to retire early. 

The F.I.R.E. Formula: How To Retire Early

The F.I.R.E. method works based on two formulas: The Rule of 25 and The 4% Rule.

The Rule of 25

The Rule of 25 simply requires you to compute your annual expenses and multiply it by 25. The sum equals the amount you need to retire and support your retirement for the next 30 years. 

For instance, if you spend PHP50,000 monthly or PHP600,000 annually, then you will need PHP15 million in savings to retire. (600,000 x 25 = 15,000,000). 15 is known as your F.I.R.E. number. 

From here, you can decide at what age you want to retire and plan how much you need to save annually to reach the target. Say you’re currently 25 years old and plan to retire at age 55. This means, you need to save PHP500,000 every year to have PHP15 million in 30 years, or by 55 years old. (15 million / 30 yrs = 500,000)

The 4% Rule

The 4% rule on the other hand, simply means you can only withdraw 4% of your savings annually to make sure it will last for 30 years of retirement. Unlike the Rule of 25, this formula accounts for inflation, or the rate of increase in the prices of goods and services over time. 

Say you withdraw PHP600,000 the first year, you will add the increase in the inflation rate for every succeeding year. If the inflation rate increased by 1% the following year, your spending budget will increase to PHP606,000 (600,000 x .01 = 606,000).

The F.I.R.E. Journey

Given the numbers, it’s apparent that how to retire early is not an easy feat. In fact, most F.I.R.E practitioners save up to 70% of their income and turn to a minimalist lifestyle to achieve their goal. 

Reyes-Lao shared that he and his wife made their own drastic lifestyle change way back in 2015. As young professionals living and working in BGC, Reyes-Lao and his wife got tired of the rat race and the cost of maintaining their lifestyle.

“There was a realization, is this the rat race? Our salaries are just consumed by the rent, food, and the higher expenses. Then we thought of the lifestyle we would have with children,” he said. The reflection pushed the couple to relocate to Davao, where the cost of living was much lower. Reyes-Lao started a cacao business, while his wife continued to work in a corporate job to augment their income. Slowly, their business continued to grow, until she was able to join him this year.

Despite the business expansion, they have maintained a minimalist lifestyle, consistent with the F.I.R.E. method, for several years now. They seldom shop and have reduced their possessions. They still dine out occasionally, but try to reduce their expenses to mostly needs, and a few wants. And they have also opted to continue renting while investing their funds back into growing their business, rather than spending for their own house.

If you can’t be as strict with your expenses, don’t worry. Reyes-Lao explained that there are no cut and dried rules; it all depends on your own personality and investment strategy. He suggested specific guidelines to help make F.I.R.E. more achievable:

1. Be honest about your expenses.

Reyes-Lao advised to take a good, hard look at your expense habits and consumption. Do you often shop online? Do you always have food delivered? Are you always at the mall? Once you’re able to identify your consumption pattern, then you can make changes, as well as monitor your expenses. 

“That’s the biggest determinant in achieving F.I.R.E.,” he said. “The bigger the expense, the higher the F.I.R.E. number. But once you identify the expenses that could be cut off, you will see how drastically you can cut short the journey.” In his case, the decision to relocate to the province easily cut their household expenses and his F.I.R.E. number by half. 

2. Be creative in thinking of ways to make more income.

It is common for F.I.R.E. practitioners to have several streams of income or side hustles to have more money for investments. They also constantly educate themselves about finance and investments.

3. How to retire early: Just get started.

Reyes-Lao advised that even if you’re beginning later in life, or your F.I.R.E. number seems unachievable, what’s important is to start. “If you try and you achieve some success, even if you fall short of the F.I.R.E. number, you’ll still have something better than what you have now,” he said.