My Fat FIRE dreams

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Is FIRE a possibility to lower and middle class households?

TLDR - FIRE reality - who can do it? By when and who cannot do it


Financial Independence Retire Early is a dream that has been taking shape in the broader consciousness in the recent times. Many main stream publications have starting writing about FIRE and and how to get there.

Most of FIRE involves two key principles

  • Save a big portion of your income > 50% typically

  • Reduce your expenses significantly to get there and investing wisely

No surprises there. But can everyone do it and get there? Can this be a reality for everyone?

Imagine someone who is living in a middle class household in India. I would breakdown middle class households further into 3 categories, based on household income per month

  • Lower middle class - 25,000 to 50,000 Rupees

  • Middle middle class - 50,000 to 1,00,000 Rupees

  • Upper middle class - 1,00,000 to 5,00,000 rupees


Scenario assumptions breakdown

  • Investment period = 25 years

  • Compounding annually

  • Annual increase = 7%

  • Inflation = 5%

  • Life expectancy = 80 years


Lower middle class

For someone who is in the lower middle class of the income scale, FIRE is not a reality. Unless they either move out to the next level to middle middle class by increasing their earnings.

Assuming that this household starts at 2000 per month and increasing SIP by 10% every year, you will get the following figures. Impressive isn’t it?

But it might not be enough. Someone with this level of meticulous planning and saving just cannot save enough for FIRE, the household could potentially Lean FIRE or Barista FIRE. But a full fledged FIRE option is unlikely.

Middle middle class

The middle middle class has a little more wiggle room in terms of managing their expenses and potential to save more and cut down discretionary spending. They could potentially make FIRE work for them, if this household starts early and manages to invest prudently.

Assuming that this household starts at 5000 per month and increasing SIP by 10% every year, you will get the following figures.

It looks more impressive, but even this group will struggle to have complete peace of mind during FIRE given their corpus puts them in the lean FIRE category as per my calculations.

Upper middle class

The upper middle class either because of their skills or multiple income in the household are best placed to reach FIRE easier and earlier without significant pain with regards to savings. This group still need to plan well and invest properly to get there but they could comfortably reach FAT FIRE if you start early and play their cards right.

Assuming that this household starts at 12,000 per month and increasing SIP by 10% every year, you will get the following figures.

This groups lands close to the FAT FIRE range because of their earning potential more than anything else. They build a corpus of 4.7 Crores, all these calculations are rather simplistic and makes assumptions around inflation and pay parity. But only the upper middle class can reach this FAT FIRE range without breaking a sweat with regards to their rate of savings.

Conclusion

The simple answer to this problem is upward mobility either by improving your earning potential by climbing the corporate ladder or by increasing your income sources by side hustles and second jobs.

This will lead to overall better outcomes. There are only a few levers that can be pushed, either it is increase your income, decrease your expenses or both. Most importantly save and invest consistently to achieve your dream of retiring early.

Happy investing.