Save a lot for a few years, invest the money for the long term and stop working at 40 or 50 years old to live on income for the rest of your life. Sounds good, right? Surely, it sounds too good not to think that there might be a catch. This theory is known as the FIRE movement, which stands for Financial Independence, Retire Early. It is not new, but now it is a trend in our country.
“For the vast majority, the application is impossible, it is something crazy,” admits finance expert Begoña Castro, president of the group of financial investment advisors of the Col·legi d’Economistes de Catalunya. “As a professional with more than 20 years of experience, I don’t know anyone who has been able to do it,” the economist makes clear.
This movement emerged in the United States three decades ago, inspired by the book titled Your Money or Your Life (Vicki Robin and Joe Dominguez, 1992), which proposes nine steps to achieve financial freedom. In recent years it has gained followers around the world, especially among young people, attracted by the promise of being masters of their economic capacity and destiny, and not depending on an often precarious labor market.
The avalanche of videos, influencers and supposed success stories that spread through internet networks and blogs have given wings to the movement. “They are advertisements closely linked to brokers and investment in variable income. I find it misleading advertising,” Castro warns.
The keys to the FIRE movement are simple. The first step is to be able to save up to 50% of your income during the first years of your working life. This stage is marked by an austere lifestyle in which it is necessary to make a very significant financial effort and dispense with all expenses that are not essential to live.
If we start from the basis that it is necessary to save half of what we earn, FIRE is basically aimed at people who have had high salaries from a very young age and also personal conditions that allow them not to spend more than half a salary just on rent, for example. example. However, there are those who argue that it is also possible to apply the theory with lower salaries, increasing the retirement age that one sets as a goal.
The second key to the movement is to invest the money saved in the long term, so that the accumulated interest allows one to live on passive income once retired. The idea is to be able to stop working as soon as possible, preferably before the age of 40 or 50. It must be taken into account that you will probably not be entitled to a retirement pension with the method.
Once withdrawn, it is necessary to apply the so-called “rule of 4”: each year you can only spend 4% of what you have saved. It is not, therefore, a method to get rich, but rather a minimalist lifestyle in which you have to be willing to live with little in exchange for not depending on a job.
Castro is skeptical about the promises of FIRE: “It is very difficult for it to be widely applied in society. It is difficult to put theory into practice, because you must take into account many variables: what job you have, what unforeseen expenses you may have, what lifestyle you must lead….”
The financial expert warns that you can make “an approximation and forecast of expenses,” but that it is impossible to “calculate how many years you are going to live and how much money you are going to need,” taking into account that adverse circumstances may appear such as an illness, an increase in inflation or a bank failure. “And if you have a problem in your 60s, you have no room to fix it,” she emphasizes.
“There are not so many success stories, many people fall by the wayside,” says Castro, who concludes: “It is very implausible, it is more of a theory of four enlightened people.”
