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23 November 2022 17h25
Source: Banco Carregosa

FIRE: what is it and how far can it go?

FIRE: what is it and how far can it go?



It's time to take a fresh look at financial independence and retirement. Find out what FIRE is and what it can do for your quality of life.

FIRE is a movement that promises financial freedom after a few years of intensive dedication to and careful management of wealth. Find out what FIRE is, what its benefits and risks are, and what you can start doing now so you can declare your own Financial Independence Day.

FIRE: what is it?


FIRE is the acronym for "Financial Independence, Retire Early" and means a movement whose aim is to obtain financial independence, or retirement, before the conventional age (in Portugal, before 65 years and 6 months). The underlying concept is to save and invest between the ages of 20 and 40 in order to obtain sufficient income to be able to retire from that age and enjoy a life without work commitments.

Retirement age in theory and in practice: Portugal is one of the European countries where people retire later in life



Fonte: Eurostat

Reaching the FIRE point means having the freedom to stop working, as the savings and investments made by then will generate a sufficient amount to meet the cost of living. More than retirement, the focus is on achieving the freedom to choose how we want to live our life in the future, without obligations other than those chosen by ourselves – so that we can do what we want, without any financial worries.
The FIRE movement emerged in the 2000s and is attracting more and more supporters all over the world. Portugal is also showing a significant interest in this concept, especially millennials who embrace a lifestyle based more on experiences than material goods. It is therefore in line with a mentality that values conscious and responsible choices, time and freedom.
To calculate your FIRE point, you must multiply your total fixed annual expenses by 25. For example, if your expenses total EUR 20,000 a year, your FIRE point is EUR 500,000. This means that you can stop working when you can raise €500,000. The savings benchmark among FIRE fans is between 50% and 75%, which means setting aside at least half of your monthly income to reach your FIRE point.


What are the advantages and risks of FIRE?


FIRE has several advantages and also some risks. The thrill of freedom is offset by the leap into the unknown and the unpredictability. The advantages and risks of adopting FIRE are described below.

The advantages of FIRE 


When you have been doing the same job for years and working the same hours, the idea of freedom can be seductive. In addition, enjoying retirement while you are physically and mentally able to enjoy it to the fullest can also be an incentive to adopt the FIRE concept. These are the main advantages behind the growing interest in this movement.

Focus on saving 


Saving in itself is positive insofar as it prioritises conscious and intentional, value-based spending. The FIRE model measures individual perspectives on what is really important.
Freedom not to work 

This is one of the most attractive features of FIRE. A large number of people can develop less positive feelings about their work, their bosses and work restrictions. Retiring at the age of 40 gives you total freedom to occupy your time as you please, using your newly found freedom to explore the world and enjoy the best version of life.
Freedom to work 


Achieving FIRE also allows you to give up a high-stress job to embrace another part-time, less hectic and more flexible professional activity. The skills acquired throughout life can pave the way for setting up your own business or attract the attention of a new company that may even offer working conditions more compatible with the lifestyle you wish to have.

Freedom to fulfil a dream 


Projects that you have been nurtured for several years and are just waiting for you to have the time to realise them can thus have the opportunity to be started. Community support, volunteering, personal or philanthropic work or any other project aimed at personal fulfilment can even take up more time than the previous working life.
Increased well-being 

Investing in healthy eating and physical exercise usually takes second place to a busy life with numerous work commitments. Achieving FIRE allows you to dedicate more time to activities that increase your quality of life, with positive consequences to your health, well-being, and relationships with others.

The risks of FIRE 

These advantages do not appear by magic. In fact, achieving FIRE implies an extra effort of saving and a high planning capacity. These are some of the main disadvantages or risks:
Loss of fixed income 


This is the main disadvantage of FIRE. By activating an early retirement, you can no longer count on an active and stable (work) income, as well as on social contributions.

Profound changes in lifestyle 

Saving to achieve FIRE can be very restrictive. On the one hand, the money will rarely be enjoyed and the work may be so intensive that you may not have time to rest. All this can have some consequences, such as stress and deprivation of quality experiences.
Loss of meaning 

Those who want to achieve FIRE must have plans for a new lifestyle so that they are not overwhelmed by a sense of emptiness. Generally, a large part of our identity has to do with work, which can be seen in the way people refer to their profession (for example, "I am a manager”, or "I am an accountant”). This can lead to an identity crisis and a feeling of social alienation.

Underperformance of investments 


When investment performance proves to be contrary to expectations, the source of income can fall significantly, with the risk of ending at a time when it was still needed. However, this risk is expressively minimised with the guidance of financial experts. Banco Carregosa’s experienced and specialised team is prepared to help you cautiously manage your capital so that you can successfully overcome financial crises and times of economic downturn.
Unpredictability of the future 


Even with careful planning, the future is unpredictable. Not only can social and financial structures change, but life itself is subject to the natural unpredictability of chance. Events such as the birth of a child or a serious illness can have consequences that change even the best financial independence plan.  



How to achieve FIRE?

Having weighed the pros and cons associated with FIRE, it is time to carefully plan ways to implement a savings and investment plan to secure more income.
Pay off all debts and top up the emergency fund 

Before you set on the mission to achieve FIRE, it is important to settle any debts, including your house payments, and top up the emergency fund. That way, you will have the foundation you need on which to build your planning to achieve financial freedom.

Save Establish an amount to set aside each month. Ideally, the amount should be between 50 and 75% of your monthly income. To be able to meet this requirement, you can identify and avoid unnecessary expenses and make deep changes to your lifestyle that, in fact, start in the mindset.
Invest for the long term 

Investments in the stock exchange may also generate capital, namely ETFs (Exchange Traded Funds), as they have a more passive investment profile. However, the Investment Funds and Management Models that Banco Carregosa offers may be investment alternatives for you to consider.
Seek expert advice to make an informed decision, taking into account your financial profile.

FIRE security and peace of mind with Banco Carregosa 


Achieving FIRE may seem a very ambitious project, especially for the Portuguese reality, but, with dedication and planning, it is possible to achieve financial freedom in advance. However, the process must be well guided to guarantee a greater probability of success.
So, schedule an appointment with our team of experts to help you set financial goals and objectives. You can rely on Banco Carregosa’s professional and customised monitoring to better capitalise your savings and generate passive income that can be reinvested, thus achieving FIRE in a sustainable way.