Hello, and welcome to The Australian's Money Puzzitive podcast. I'm James Kirby, the World's editor at The Australian. Welcome aboard everybody you know. Occasionally I'm prompted to cover an issue, what you might say, like by public demand. And I can tell you that this fire movement FIRI fire movement, Financial independence Retire Early, that's the acronym. It's been knocking
on my door for some time. Comes up regularly in correspondence, comes up in conversation, and I find people love this idea and it's, you know, a subject of videos and books, documentaries.
For what it's worth, it all goes back.
To a book that came out in nineteen ninety two called Your Money or Your Life. I think sooner or later we might have a fire advocate on the show. But first of all, we're going to have a look at it and examine it really and to see what it is and what are its pros and cons. I wanted to get someone who could really talk about it. I've got the idea guest, of course, it's.
James Gerard of Financial advisor dot com.
How are you, James, I'm doing well. Thanks for having me on James.
I imagine you've had people come up to you on this one. And I've had people. I haven't actually asked you that. Have you had people come up to you and talk about it fire? The fire movement?
Yeah? I have, yes, So that said, can you help me achieve fire?
Yeah? It's interesting, isn't it.
You get a concept that everyone you know. It's like everyone already knows this, but you if you conceptualize something. I was just thinking about this and I was thinking about this thing in Ireland called the Wild Atlantic Way, and so I grew up done around there and it's it's a strip of coast and there was all these towns on it and everyone they're always nice. It's fine. It's all very interesting West coast of Ireland. Everyone of
the tourist level. But absolutely brilliant marketing ploy. Maybe a decade ago or whatever, the Irish Tourism Board came up with this thing, the Wild Atlantic Way.
It never existed, right, no, never heard of it. They just let it up in a boardroom.
And it has been so successful and you meet people and they say, I want to do that. The Wild Atlantic Way. It captures people's imagination. It's the same towns, it's the same roads, but it just managed to get it in a way that people could have this particular focused ambition, and I think Fire is very similar financial
independence retire early. Before we kick it around, we have to explain to people what it is if they don't already know, Like, could you explain the core proposal if you like of what FIORI Fire is.
Sure, I'll try to explain it. In a nutshell. It's basically, most people work from the start, working between eighteen to twenty five. They'll work forty or fifty years, they'll retire, usually in their sixties, and then they'll live thirty or forty years into retirement. That's what happens traditionally. Under fire, it's well, let's accelerate the wealth accumulation park, let's work
for less years and enjoy more years in retirement. So to do that, they're basically sacrificing enjoyment today so that they can retire early and enjoy themselves later. So what that means practically is that they save a lot. They aim to save between fifty to seventy percent of their
their incomes. They try and retire between the ages of thirty and fifty and in terms of how much they try and save up, they go, well, I probably need about twenty five times my annual expenditure, because if I assume that I'm going to make four percent return on my capital, I need twenty five times of my annual expenditure.
There.
So basically, say up a lot of money by being frugal, by working a lot, and then retire as early as you can and then live the rest of your life happy. So it sounds simple in practice, but in reality, less than five percent of people who in back on a fire strategy actually achieve it.
Where did you get those numbers from James Gerard?
The internet?
Right?
You can trust you today?
As my teacher used to say, where did you get those numbers from Kirby.
For various websites academic research papers into the fire movement?
I wonder we'll come back to that. At the moment. It does sound low.
If it was half successful, then what's wrong with that? If someone said I aspired to retire at fifty and I didn't do it till I was fifty seven, Well, you know that's not about achievement. Assuming you want to we'll working one thing. We have to challenge you some assumptions. We assume, folks, that the attraction of the fire movement is this notion that you can retire early and you want it. It would take that as a given, and then it's about how you actually construct this and what
you must do, and I don't want to simplify it. Delayed gratification is a major part of it. Saving, real saving is a major part of it. I was just looking at these sort of three core principles of fire, the fire number, the fire lifestyle, and this idea of protecting your savings, and I'd like to just go through them. James with them in this segment. So they have this key thing where you must figure out how much you'd
need as a retired person. And in a way, again I do not want to be cynical here, but in a way, you don't need anything, right that is, if you've got to retirement days, there's a government pension.
That will pay you.
And maybe it's about how long is a piece of string. But they say, what they say to people is if you want to do this, you have to assume you need it for twenty five years or more, and you.
Needed about four.
You need to take out four percent of your savings each year. To these are American numbers, so they are oblivious if you'd like to our social security system, which would give you a core amount, assuming that you qualify for it or partially qualify for it. But anyway, it runs on this basis that you stack up an amount of money and then you take out a certain amount of that each year.
Their number is four percent. This is the famous fire.
Number, right, So I'll just read out what they have here. If you had a one point seventy five million, if that was your fire number, right, which is the amount you haven't super basically in our world, you'd have to have it in the supersystem, but saved up for your retirement. If you have one point seventy five million was your fire number, using their four percent guideline, this would allow
you to withdraw twenty eight annually. Okay, So that's what it would be when I say, we'll put the pension to one side, but you can probably no doubt you'd be able to supplement this with what your pench and access is. Part I want to make is that's principle in the system already, isn't it, James? If you were a self funded retiree. It just so happens that that is what they demand. Is it by lower that you take out? Isn't it four percent? So is that the
fire number? The fire number being what number you save and then what number you must have from that to live per year? Is that basically the first principle there?
Fire number?
Yeah, that's basically it. The thinking is that if you're earning four percent on your capital, so if you've got it in a term deposit or an ETF portfolio, in the share market and bond and property markets, you're probably going to earn about four percent income, which means that once you've saved up that capital. So if we use around number like a million dollars, you're expected to get
probably about forty thousand dollars per year. And if you can live off that forty thousand dollars per year, you're going to maintain a million dollars and you don't have to work anymore. But as you've alluded to that, there is the government age pension, but that comes in at age sixty seven. You can access your super but that's
at age sixty. So for people who want to embark on a fire strategy and retire in their twenties, thirties and forties, they need to have personal money outside of Super so that they can sustain themselves up until the point where they can access their their super or the government age pension. So one variation of the fire strategy is called a lean fire, and that's where you minimize your outgoing, do your living expenses when you decide to
stop working. So think about moving out into the bush, going off the grid, getting a few chickens, having some solar panels, and minimizing your costs so you know you spending ten fifteen thousand dollars a year, which means that the money that you need to save up isn't as much as if you're living in to Rack, Melbourne for example.
Okay, assuming that majority of our audience are not on have their chickens in a hot in the woods somewhere, they're probably in town. But assume that right doesn't safe assumption, then a point that immediately hits me is our entire saving system is turns on.
Super.
Super is a tax protected vehicle and the catches you must keep the money in there till the day you retire. Sixty is the earliest you can get that tax protected money out and so ironically the super system works against the notion of fire, or certainly against the notion the fire concept of retiring really early forties or fifties.
Is that fair to say?
It is fair to say, yeah, yeah, you accumulate assets in your personal name, you're subject to capital gains tax. You generate that income from the dividends, the interest and distributions on the investments. Again, you're taxed on that as well. So it is harder to retire before the normal retirement age's just due to your money being in your personal name and being taxed at our marginal tax rates, which can be up to forty seven percent.
Yes, exactly, So that's what I'm saying that ironically, folks, system actually wants you to keep working longer than the fire concept suggests. But okay, let's take the second thing now, on fire, the three big principles, right, one was the calculator fire number, another one was commit to the lifestyle, the fire lifestyle, and the third one was to grow and protect your savings. Now this is where I do
get cynical. Okay, So there's this idea spending little as little as you can, saving as much as you can find fine by me. But then there's like they have these sort of like sub notions. They have fire movement approaches that two ways coast and barrista right coast, save and invest much of their money decades before retirement, and then when they hit their fire number, they can coast through retirement because they've fired enough, because they've saved enough.
The second type is the barista. This refers to having a low stress, part time job with flexible hours, and the barista fire advocate typically set a lower retirement front target for themselves and choose to work part time jobs to supplement their income once they hit retirement. Come on, part time barrista, I think you know it's a tough job. That's a hard job, standing there, making coffees for people
and being socially gregarious. But what I'm saying is it's harder than that line suggests to me.
That's not on.
I don't think you could be a part time barrister and finance anything close to a comfortable retirement. I'm under cutting it here, but I have to feel a responsibility to tell people it's not that easy. What do you think about that? As a qualified advisor?
I agree yeah, so that the barista fire is like, save really hard and then stop working full time and then work part time and be a barrista or something like that to cover part of your cost. So you partly live off your savings, partly still work part time. But as you say, that might not be easier, may be stressful, and you may have been better just to stay working part time and pace yourself out a little
bit more. Now, with regards to the fire lifestyle in general, I've gone through the depths of the internet looking at different forums on fire so that your listeners don't have to and I've actually found a few different examples of what people have actually done extreme fire measures with regards to their lifestyle. So if you're like, I'll read out
some of them that I had noted. Okay, So some people they live with their parents into their forties because they don't want to pay rent, they don't want to have a mortgage. Some of them were living in vans, some bought tiny homes. I saw another person who posted that they don't have friends as part of their fire strategy, because friends are expensive. If you don't have friends, you don't have to buy anyone birthday gifts no wedding gifts, you don't have to go out for drinks.
Makes sense, right, exire are extreme examples, get logitic, can't knock them. Yeah.
Another one was this a little bit more contentious. Don't have children because you know, we know how expensive children. And then there's more practical ones. Don't have a car, walk, use a bike, public transport. And then there was a whole section on food, a whole sub fire category on food. So people just living off rice and eggs and pasta, the low cost staples and all the different recipes they could make on that.
Is it all about saving gyms? Is it all about saving Is it no emphasis on building your income?
Well, there's two parts to it. There's the what you can control, and you can really control what you spend. So a lot of people spend a lot of effort on the fire movement on reducing their expenditure so that they can save sixty seventy, sometimes eighty percent of their income. And then the other part is generating your income. Which it was interesting that it's very much an economic decision, a cost benefit analysis when it comes to almost everything
with fire. So, for example, when it comes to your job and your income, the decision around do you go to university if you're pursuing the fire strategy really comes down to how many years is it going to take you to get your university degree. How many years are you not earning income that you could have been earning while you're study in what's the cost of that degree. But on the other side of the equation, how much extra income per hour are you going to make if
you do have that degree qualification. So everything is very thought out with that the fire strategy. And then the last part which will come to is that the investing part. So there is some focus on that as well. But I did see a lot of emphasis around ways to cut down on spending so you can save more.
Okay, I suppose that is reasonable, and so there are certain things to be greatly admired in this far strategy. Not everyone can increase their income, particularly people on salary arrangements, but you can always save that as a lever we can all pull. We can all save more. Every single person listening to this show, including me and you, James, we could save more. I could not have lunch downstairs today, or I can have a smaller one, and I would say, so I have that we all have that power.
We'll be back in a moment. It is very interesting.
It really is the fire concept and we're going to take a look at the most important part, I would think from our listeners point of view, which is that this aspect of growing your income and protecting protecting your income, which they put up very high as a priority. Back in the moment, Hello and welcome back to The Australian's
Money Puzzle podcast. I'm James Kirby Well at The Australian and I'm talking to regular guests of the show and contributor to the Worst Section, James Gerard, who will also be hosting some shows Folks with Stuart Weems in September. When I am taking a holiday, Are you allowed to take a holiday? I bet You're not allowed to take holidays at all. On the fire and movements just plow away week after week, half starved.
See.
I have to stop myself. I have to stop myself under cutting this. It's not fair, okay, and it depends. But as I say, I completely like, I completely admire concepts within this. All I'm actually skeptical about, James, is that they mislead people into thinking that you could retire, that it's easier, that it might that you might be make a terrible mistake, and assume that it is easier to do so. I have often been asked, you know, well, why are you still working? You don't have to keep working,
do you? And it's true, I don't have to. Maybe you don't have to change. Certainly I don't have to. My my family are older than yours. So but it's a question of the lifestyle I want. I could stop tomorrow, but I couldn't live the way I live now tomorrow if I was to be realistic about it. And you can apply that to anyone's life. I think in terms of what's the reality of this, retire early? Assuming you want to write I don't even want to, but I'm
assuming that people want to. Okay, now here's getting down the brass tax Here about what I think is a very important part of it is they talk about how to build income. They begin to passive income. Again, A part of me is going to say passive income. Yeah, but it's never going to have the returns of active income. It just isn't. It certainly doesn't offer the same possibilities, it offers the same return as the market, but it doesn't offer to beat the market, which you can do
if you're active. We'll put that to one side for a moment. So James, before we talk about how they talk about making money, they've got a really big emphasis on protecting yourself, enforcing circumstances, building up three to six months worth of savings. Gee, honestly, that's a very slow way to start building money, rainy day funds and ensuring everything you can think of. What do you think of that central concept?
Yeah, it makes sense. It's prudent. It's good to have that cash buffer there for unforeseen circumstances. It is very sensible. For a large part what the fire philosophy is, it's really just been more frugal in these earlier years and
then enjoying yourself later. So even though I said earlier that only five percent of people is successful in achieving that, the majority of people do get closer to their financial goals because they have saved more, they have worked harder, they have invested better, they have implemented good solid financial
Fundacians like having a cash reserve. So overall it's a good thing, But it's really that degree of how far do you push it do you not have friends, do you know, dive into dumpsters and get out expired food so they don't have to buy a loaf of bread at the local shops. Yeah.
The point is which frugal becomes being mean or miserly from one of a better word, and miserly has connotations, all sorts of connotations, and rarely linked with happiness, which is something you can't really measure. Maybe you do it and you retire at fifty and you look back and you say, gosh, you know, I can't really go to
nightclubs now till four in the morning. And I could have in those days, or you know, I could have sailed around the world, or I could have whatever, played soccer at a high level or whatever, but I didn't because I didn't want to buy expensive boots.
Whatever.
I'm just again playing Devil's advocate here. Okay, So they're big into insurance, and I am not that I'm not big into insurance. I think you should ensure yourself.
WHOA, I would be.
Extremely careful in spending a penny more than you actually need to from an actual point.
Of view passive income. They think that this is the big secret.
I don't think it's a secret. But maybe here's a secret to many people. They still don't realize what ETFs are and index funds. What do you think of this building passive income concept for the average person and the average situation who doesn't have much money, and it only has a very limited amount to apply to wealth building.
So the building the passive income under the fire strategy isn't really any different to how most people build their wealth. They have a bit of cash at buffer, they start to have a surplus every month that they identify, they put that aside, and then they invest that into something, whether that's to save a deposit and then purchase an investment property or a home and pay down the mortgage, or whether that's into an ETF portfolio. The goal is
to grow the asset. So what I observed is that the fire strategies to have more growth based assets in those earlier years to try and get dearly double digit returns.
Okay, interesting, Okay, and then they have the I think the third prong of this is to basically work more side gigs, side hustles, again, which I would completely agree with and I think we probably all of us did at various times in our lives when we wanted, when you're in that early accumulation phase and you just had to get going, that would seem to make a perfect
sense towards financial independence. So having had a look at it all, James and I've had a good look at it all, but haven't met anyone who's a disciple as such. Maybe we have some listenings to the show. I'm really keen to hear from you, folks if you are have tried it, or you've experimented with it, or you've met people who live by it, havn't taken the deep dive, James. If I came to you in earnest and said, I'm
applying myself to the fire concept, I love it. It's going to It's changed my life so far, and I'm really starting to save. What would you say a broad advice to someone like that? What would your instinct be to tell them.
It's really just having balance in your life? What makes you happy? You know, I'll sound a little bit philosophical here, but any of us can drop dead tomorrow. And if you've spent your twenties and your thirties being frugal and almost misily, and then you pass away, unexpectedly. You know, what is your life been. You've been working towards this future that you haven't had. So there's something to say
about enjoying every day as much as you can. But then on the other hand, there's that you need to think about the future as well. So if people are comfortable with their lifestyle while pursuing a fire strategy, So if they're comfortable to work, do extra side gigs, do lots of hours, save more than the average person, be a little bit more aggressive than the average person in
their investing activities, and they're comfortable with that, fantastic. You're probably going to retire earlier than most people and have more passive income than the average person would in retirement. But if you're finding you're not enjoying it and it's really grinding on your lifestyle, well then it's not for you.
Very good.
It's really interesting, isn't it. It's look hats off to whoever came up with the concept. People love the concept. I like the five part financial independence. I reckon that's great. Retirely that's your recall. I imagine it does instill for people who have never really thought about it or review their own situation. I think it's got a lot going
for it. I would just be careful, as James says about overdoing it, because you only live once, or you're certainly only twenty or thirty once, and you don't get those years back, as everyone will tell you when they're older. All right, we'll take short break. We have some great questions back in a moment. Hello and welcome back to the Australians Money Puzzle podcast. James Kirkby here with James
Gerard from a Financial Advice Dot. One thing we should have covered there because Tuesday is very much as an emphasis on property and I see much in the way a property investment mentioned in that in as fire coverage. A lot of it is the US, of course, and property is so much more central to our building than there is, particularly residential property. Did you come across anything on property as such as an asset?
I did. They were. The people were very rational when they spoke about it. It was basically what works out better and when I say better, what means that they can retire sooner under the fire movement. So if they can buy a property in a cheap location, pay off that mortgage over a ten year period. Fantastic they're not having to pay rent, whereas others have figured that, Okay, I'm happy to build a tiny home for fifty thousand dollars and plant that somewhere in a friend's backyard, and
that's fine. That means that I can retire early. I don't need to buy the land and have a proper house. So it really came down to how much they were willing to compromise where they wanted to live as to decide in between a property and then or otherwise just renting under the fire movement. And maybe just one other thing which I wanted to mention about the fire movement is that I actually have a client who pursued it. He worked really hard in his twenties and thirties, and
he retired in his early forties. And he said to me the other day that, look, it's great on paper to retire in your forties, but the thing is that your friends aren't retired. They're working Monday to Friday. So you know, I can go play golf every day, but I've got no one to go play golf with. I can go to lunch every day, I've got no one to go to lunch with. Everyone else is busy and.
He really can live in Sydney and he's retired and he's in his forties.
Yeah, that's right. Yeah, what does he do then?
He's a doctor, so he worked tirelessly, but not just as a GP. He started to buy and grow medical practices, so he built up a very good empire of businesses there and has been able to retire in his foresting.
Interesting, my dad retired when he was sixty, which was early at the time or at this wasnt common at the time, and he lukely loved it and he took to it straight away, and like literally was a model of how to retire. He had a lot of interests outside of work, and he found work very hard in the end because he was in building, which is a tough game, as anyone knows. Okay, now some questions, we'll only get through a few, just James, I might just zone in on one or two.
I really want to get covered. Sally says.
I found your interview with Eliza Owen of Core Logic interesting, but I disagree with her conclusion of oversupply in Victoria based on the number of supply over sold. The supply problem is a chronic problem. I'm very surprised that all of a sudden we have oversupply problem based on auction rates. Okay, Sally, well, Eliza was fairly convincing on that. I think there's a couple of things there. Melbourne is in relative oversupply and
the other states are undersupplied. Melbourne had one hundred thousand more houses built than Sydney, for instance, which is a larger city. So in that, to that extent, it is the stet with relative ulversupply. We probably could examine that harder and have a long debate about it, but that I think would hopefully cover the bases there. Carl asks very simple question Car, at Car, are you generally better off borrowing a million to negatively gear an invest in
a property? Are salary sacrificing salary sacrificing into super? I presume he means jams, we do you reckon?
Yeah, salary sacrifice it into super? You get a tax break. So rather than pay tax at your marginal tax rate of up to forty seven percent, the money that goes into Super gets tax at fifteen percent, or if you eard more than two hundred and fifty thousand dollars, it gets taxed at thirty percent. So there's this benefit, this tax benefit of putting money into super So that's great. The downside is that you have to wait until you're
sixty and retire to access that money. The alternative, which Cayl mentioned is borrowing a million dollars and negatively gearing that so buying an investment property fine, but the risk there is that your gain or loss is magnified because you've borrowed a heap of money. You've put in minimal of your own capital there, and so there's a really big risk that if you get it wrong, you really
get it wrong, and it can. It's ruined some people financially where they've borrowed a lot, bought property and it hasn't gone to plan. So we think about mining towns in Western Australia or Queensland in the past where they want to ride the wave the market's been going up. They buy, unfortunately at the top of the market, and then they see the property drop by fifty percent in
a few years. That follows they're left with debt that they need to pay off over a twenty year period and they've had to sell the property.
So Carl History would suggests you could be better off. What you're really asking is if I gear up on property, well I do better than on geared diversified investments and superannuation. And no one can really tell you that to be fair, you should gear your superannuation to gear against to match
dollar for dollar the geared dollars in property. I think the essential point of which James is making, and by the way, this has never advised its information only is that if all your eggs in one basket, it's not complicated. If all your eggs in one basket Australian residential property, and there's nothing to say that Australian residential property will be a knockout investment forever. It's been pretty good for
a long time and will probably continue to be. But you will go against the basic core principles of diverse lofication which we all sincerely believe in around here at the Money Puzzle. Okay, final question if I can, James, sorry to bounced through this, but it's interesting. I'm going to read out what the reader Kate says, and then I'm going to read out the response from a previous guest, because previous guests have the writer reply just like you
have James. Should anyone come marching in on what you said today so fire people might okay? Kate says, I enjoyed this seems the podcast here in New Zealand. I was listening to some back episodes and I listened to why rental growth is going to weaken? This was from April. It was near the connesty from Rewhit, she says. Kate says, from New Zealand, I was interested to hear Nerida's comment on New Zealand rental market and the anecdote provided that was the opposite of what the data shows.
She said.
The changes met by the government here in stopping negative gearing has seen landlords leave the market. This was what was expected to happen, but data says differently. In New Zealand, it is the law that bonds collected are lodged with Tenancy Servances, a government agency, and they also report on bond data. This is the best record of tenancies in the country and it shows in June twenty twenty one, before the law changed, the number of bonds lodge Worth
three hundred and eighty five thousand. A year later it was three hundred and eighty eight thousand. That is the opposite of landlords leaving the market. So Kate is making the point, Hey, if you remove negative gearing, it doesn't hit the market as badly as men and he say, Nereada, I had to go back, obviously to Newada and say this is what Kate has said. I've sent her your correspondence Kate, and Nereada says, okay, she says it's interesting.
I double checked what Kate is saying is correct about rental bonds. However, investor lending has plummeted, it basically cut in half. So investors are certainly not entering the market in New Zealand like they were. It's also extremely challenging to sell a house in New Zealand at the moment with interest rates.
So HI.
On rental demand New Zealand's extremely low population growth in twenty twenty one and twenty two as a result, there is no additional demand for rental accommodation. The main challenge right now is that it is the least affordable country in the world to be a renter. So and Or doesn't deny what you've said, Kate, as she challenges your interpretation of the data. And we will leave those that
that amazing question hanging out there. If we scrap negative gearing, would it make the market better or worse for investors? Many say it would, and Vida implies that, and Kate implies that the experience in New Zealand hasn't suggested that, using the one criteria being the registration of bonds in the market. Interesting though we'll never know. Part Keating tried it, he only lasted about a year and a half and then he backtracked and put it back in.
And Partkating didn't backtrack on much.
And I don't think anyone We always say we don't know if anybody will go near it here, but perhaps somebody will be clever enough to find a way to look at all tax reform without having themselves voted out of office.
That remains to be seen.
James Gerard, financial advisor dot com and regular contributor, weekly contributor to the Australian Web Section.
Lovely to have you on again.
Thank you my pleasure as always, great.
To talk to you, great to have the questions rolling in. Everybody, do mention us to someone you know mentioned the show. It would be lovely if you did that. I really appreciate that. The email is the money puzzle at the Australian dot com dot Au and the producer today was Liah Samando.
Hope you soon