The FIRE (Financial Independence, Retire Early) movement encourages its followers to save a substantial amount of their income and accumulate assets capable of generating enough passive income for them to be able to retire in their thirties or forties.
FIRE has its critics, but at its heart is a realisation that a frugal and debt-free lifestyle gives individuals more freedom around how they spend their time. The movement is not about not working, but about placing yourself in a position where you can choose when and how you work. As such, some of the principles can be useful, even for those who will probably work from nine to five for most of their lives.
One of South Africa’s most well-known FIRE followers is a blogger called Stealthy Wealth. Below, the Stig of financial blogging answers a few questions about his journey towards financial independence.
Your blog, Stealthy Wealth, tells the story of your journey towards financial independence. You aim to retire in 2030 at age 45. What made you decide to go on this journey?
Towards the end of 2015, beginning 2016, a few things happened. The first was that my wife and I found out we were expecting our first child. There is nothing quite like the imminent arrival of a baby to really make you look at life and your priorities. Secondly, we were about to make the last payment on my wife’s car. That was going to be the last instalment on our short-term debt.
I was thinking I really want the bit of extra money to make a difference in our lives and not just get absorbed in month-to-month expenses. Then around the same time I stumbled across a blog called Mr Money Mustache and that blog details a 30-something year old who retired at the age of just over 30. I really liked the idea of buying back your time by becoming financially independent and that is where it all began.
How did you calculate how much money you need to retire?
I used a concept known as the 4% rule. The long and short of it is that you can draw 4% of your capital to cover your living expenses in the first year of your retirement. Now the math is a little bit complicated but if you rearrange it a little bit it boils down to 300 times your monthly expenses in retirement is the lump sum you would need and then you pretty much have an excellent shot of never running out of money before you kick the bucket.
What percentage of your income do you currently save?
At the moment it is around a third. It does vary a little bit month to month depending on certain expenses that may come up, but I generally try to save and invest as much as I can. It is a little bit on the low side compared to some of the other FIRE people out there, but my wife is currently a stay-at-home mom, so when she returns to work I hope to up that percentage a little more.
What were the main changes you had to make regarding your finances and lifestyle?
I think the two big things that is enabling this goal of mine is the fact that we only have one car. It is a very cheap-to-run, cheap-to-maintain hatchback and it is paid off, and we don’t plan on taking on more car debt for the foreseeable future. We’ll drive that car until it is no longer drivable and then the other big thing is I stay fairly close to my work, so my commuting cost is very minimal compared to what the average South African spends on getting to and from work.
You have been on this journey for a few years. If your investments have largely been in South Africa, chances are returns have disappointed. What does your progress look like at this point?
Like most South Africans who are working I have a pension fund through my company, which, through Regulation 28, does have quite a bit of South African exposure. So the returns over the last four years have been extremely disappointing – but, you know, investing is a long-term game. It is not three to five years, it is 10-years plus in my view. At the moment, I am about 30% behind where I hope to be, but I’m optimistic that going forward and over the remaining years until 2030 that the market will catch up some of the gains that we’ve all been craving and I should hopefully get back on track.
The FIRE movement has gained a lot of traction, particularly in the US, less so in South Africa. Most people struggle to retire and maintain their standard of living at 65. Many people will say retiring at 45 is a pipe dream. Do you think it is a realistic goal?
I think it is realistic. It is going to be challenging, I think it will be – but, you know, even if I don’t make the 2030 part, even if I take an extra year or two, I’m still going to be younger than 50 and it is going to put me miles ahead of where I would have been if I didn’t have this goal at all.
So what happens after 45? How are you going to fill your days?
I’ve still got a few years to figure it all out, but I do have some projects and ideas in mind. I would definitely like to give back to the personal finance community – either through teaching or going to schools, and just trying to increase the dismal financial literacy stats in South Africa so that more people can just be better with their finances, avoid debt and secure themselves a comfortable retirement.