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FIRE here, FIRE there and FIRE everywhere

FIRE here, FIRE there and FIRE everywhere

TLDR: FIRE in the extreme, what happens, how things will change and impact on FIRE

I was having this innocent debate with the Singapore Finance telegram group on a recent CNBC article about “millennials” in the US. The article covered some thoughts from Kevin O'Leary of the shark tank fame on spending money on stupid things.

His take is “Don’t spend stupid amounts on money on things like a daily Starbucks coffee, shoes, jeans and dresses when you still have student loans and credit card debt”. All good and valid points.

If we are to extend this thought experiment to the extreme, what will happen. Let us go to an utopian world where say 75% or more of the population is careful with their money. All of the people in the group are careful with their spending habits. They aren’t necessarily frugal but they are all aiming to FIRE early by cutting out the avoidable expenses and rampant consumerism.

  • They do not go the local starbucks for their daily coffee

  • They make sandwiches from home for lunch

  • They use public transport as much as possible

  • They make their iPhones and Galaxy smartphone last for 4 years before upgrading

  • They cut out social media driven advertisement madness to consume

  • They are cable cutters, but don’t replace their cable connection for HBO or Netflix

  • They stick with a set of required items of clothing, shoes and cosmetics

  • They save aggressively and pay down the student debt

  • They do not take massive credit card debt

  • They buy property within their means not based on future targets

And on and on. You get the picture.

What would happen? If a very large percentage of the population follows this principle or way of life - is FIRE possible?

No, absolutely not. All the stocks and index funds that we FIRE pursuers rely upon to generate the returns for our retirement corpus now and post retirement will fall significantly. Inflation will turn into deflation, consumption driven growth will come to a stand still, all these firms which are reliant on debt driven purchases will see their earnings fall. They will not create enough jobs to employ people. They will actually lay-off more and more workers as it become unsustainable as their target market is shrinking further and further. So the FIRE group will try and further reduce their expenses and it will turn into a vicious circle. This would lead the economy will go into a tailspin, a recession or even worse a complete collapse.

Scary, isn’t it?

Let me put this bluntly, FIRE exists as a movement only because it is fringe movement. If we were to consider the financially prudent FIRE retirees as a percentage of the population I would assume we are much less then 1% of the population. If this movement spreads further and more and more of the population starts to follow FIRE as their guiding principle and starts living frugally, savings 30 to 50% of their income and reducing expenses FIRE itself becomes unsustainable. The percentage at which the scale tips over might even to close to 10% instead of the 75% I used in the example above.

So remember, while you make fun of the stupid neighbours who buy their extremely large house, fancy new cars, daily Starbucks habit and excessive shopping. Those same neighbours and others like them are indirectly funding our Financial Independence and Retire Early dream.

Be thankful that they are stupid and as American politicians state after every mass shooting “Keep them in your thoughts and prayers”.

Financial planning 101

Financial planning 101

How do they work - ETFs

How do they work - ETFs