If you have been an active reader on personal finance topics, you must have heard of the FIRE movement. FIRE is an abbreviate for 'Financially Independent Retiring Early'. The movement is slowly gaining popularity among many young executives and professionals around the globe. In this piece, we talk about the thought process behind the FIRE movement and the things that one should be careful about.

Why FIRE?
Most of the executives today have been working hard in tough competition and are in the so-called 'rat's race'. The pay is not bad and most executives are earning well and maintaining a good standard of living. However, most of the executives feel a greater need for personal freedom and balance in life. This is the starting point towards FIRE. In brief, the following reasons can be cited which supports the FIRE movement.

• Good pay from at the start of the career > potential for higher savings
• Married couples having double income
• The uncertainty of the present job profiles in the long-term,
• increased work pressure and internal politics
• Greater opportunities for freelancing
• Rise and maturing of the start-up culture
• Longing for professional independence
• Social acceptance for new work culture /life choices

What does FIRE really mean?
Contrary to what one may perceive, FIRE is not retirement. It is about having the freedom to engage in work of your choice and at your terms. Most FIRE families have to work for money. They are not rich but have enough resources to live a modest life. However, the difference being that the money is not as critical as it was earlier. The families living the FIRE life may have some tough choices to make in their lives. They normally make big cut downs on discretionary expenses and live a modest life.

Steps to FIRE

• Make appropriate plans for pre and post FIRE life
• Work hard for last few years and save as much as possible
• Cut down on all unnecessary and discretionary expenses
• Cut down and eliminate all outstanding debt
• Settle down with your own house (optional)
• Build skills and knowledge required for life post FIRE
• Decide on the appropriate time and resources to make the jump

So when is the perceived right time for FIRE? Apparently, it is when you have adequate net savings to sustain you for at least a decent foreseeable future. This FIRE kitty should be adequate enough to generate enough earnings or cash flow to meet your essential life needs.

Most of the above habits and behaviour related to saving and expenses continues after FIRE. However, the difference now is that the regular pay-cheque is replaced by inconsistent cash flows. Some people may slowly end up doing great on freelancing side, early adequate income so that their FIRE kitty is not exhausted but instead gets getting bigger.

Risks to FIRE:
There are many professionals in India who today start thinking of taking a break from work and/or starting their own business. Ideally, 40 or even 35 years is the new target age for such professionals for building some kitty to start on their own. While it all sounds great and nice, here are a few things that deserve considerable rethinking...

• You / your family has to survive at least the next 30-40 years without regular income!
• There are huge uncertainties on health/medical front which can wipe out your kitty.
• There are personal sacrifices you may need to make for things like personal holidays, cars, demands of your children, entertainment expenses and so on.
• Family support and understanding is crucial for a happy life after FIRE.
• Freelancing and running own business successfully is not going to be easy and will take lots of hard work.

However, everything boils down to what you desire from life and how well you plan ahead. Nothing is impossible and today not everything is measured in monetary terms, though it still remains as important as ever. If you or your children are serious of FIRE, we would suggest that you talk to your advisor first and make a thorough plan.

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If one has to describe the year 2018 for financial markets in one word, it would be 'volatile'. As we have known, markets tend to be volatile in short periods of time and 2018 was not surprise. The year saw both the Indian and the global markets having bouts of volatility. As we come close to this year, perhaps we can draw a few lessons and refresh ourselves of what will soon be history – year 2018.

The year's market fluctuations had multiple reasons. Market volatility also saw it's impact on the investor's returns. The reasons include, weak global markets, US and China trade war, slowing earnings growth, increase and decrease in oil prices , state elections, ongoing tiffs between RBI and the Central Government and so on. The year saw the Sensex at an all time high of 38,989 (29^th August) and at a year low of 32,483 (23^rd March), moving in a range of over 20% during the year. As the year comes to a close, the markets are around 36,100 levels compared to the year's start of at 33813. With all the volatility, the year is still closing on a positive note with an increase of over 6.5%. The graph below will shows how the BSE Sensex has moved this year.

There one thing which has been keenly observed this year and its' about investor behaviour. The intermittent market swings did not dissuade the investors and instead they seemed to have become more mature. There have been incidents when the market didn't over react to a certain news and also bounced back quickly after some knee jerk reactions. One such instance was observed recently on 12^th December when news of BJP loosing all three states and the RBI governor resigning came. When everyone would have thought the markets will tank, the opposite happened and the markets closed much higher for the two action filled days. This showed that nothing is truly predictable in the markets in short term.

The volatility and jolts did affect portfolios and returns.

When one takes a narrow look at the returns for 2018 alone, a lot of portfolios may have underperformed compared to expectations. This is not new in equity markets and hence it is important to understand that in the long term, the effect of volatility is smoothened out as we can see from the broader indices. As investors, we are sure that for our readers, the focus continues to be on the long term investment. Markets will always be volatile, sometimes more and sometimes less, especially in the short term.

Thankfully, the year did see more maturity from investors. Instead of investors shying away from investing in the market, investors continued to prefer the SIP route to investing which actually works best in markets with high volatility. The mutual fund SIP investments in November 2018 rose by 35% to Rs 7,985 crore, from Rs 5,893 crore in November 2017.

Similarly SIP investments from April to November 2018 rose by 48% to Rs 60,457 crore, from Rs 40,780 crore during April to November 2017.

Apart from retail investors, both the foreign and domestic institutional investors have also remained positive about the Indian economy, irrespective of the fluctuations in the stock market.

During the times when the market price of your investments is falling, one should remember the rule of the ace investor Warren Buffett. The rule is, when the market prices of your investments are falling, you should increase your investment more as you can now by the same investment at cheaper rates. The same rule can also be observed in the average price rule. The average rule basically helps you take advantage of the volatility.

Obviously this is considering that you are investing in the right asset class for the right time horizon, keeping your risk profile or portfolio asset allocation in mind.

To end, let us again remind ourselves that the equity markets are bound to be volatile in short periods of time like say one year. Evaluating anything and making judgement over short term is really not in the best interests of anyone. If the markets where volatile, that is how they usually are in short term and are again likely to be volatile for year 2019 as well. As investors, we should just learn from the markets and keep our conviction in long term growth story of India.

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Procrastination is something almost every one of us is guilty of. We tend to put off things till later, make excuses for not doing something we should have prioritised, waste time on social media on doing things which are unimportant. While a little procrastination does not hurt, procrastination with important things can be very risky. We have all suffered because of procrastination, missed deadlines, had to stay up all night finishing up something which should have been done a long time ago, working on the weekends etc.

While the reasons why we procrastinate are deep-rooted in our psychology, we generally tend to procrastinate more with stuff which seems daunting and requires effort and decision making.

One such area is investing.

Most people understand the importance of investment and know that without investment they are taking some huge risks regarding their future, however, they still tend to delay their investment decisions. People think they have enough time and it won't make a huge impact if they start investing later. What one needs to understand is that, they are forgetting the “magic of compounding” and are foregoing their returns by not starting earlier.

The “magic of compounding” is the simple function of money, which explains that not only do you work for money, but your money also works for you.

While one may argue that he or she will invest a higher amount during the later years when they can save more and thus invest more, the growth in corpus will still be different because of compounding. Let us look at the case of Amit and Rohan.

Both Amit and Rohan are of 25 years of age and want to retire at 60. While Amit starts preparing for his retirement by starting at 25 with an amount of Rs 5000 per month, Rohan starts at 35 with Rs 10,000 per month. Both of them invest in funds which deliver a 12% CAGR over long term.

At 60, Amit's portfolio is worth Rs 3.25 crore and Rohan's portfolio is worth Rs 1.90 crore. Even though in a total of 35 years of his investment, Amit invested a total of Rs 21 lakhs and Rohan in total of 25 years invested Rs 30 lakhs, Amit's return is higher because he started earlier and his investment was compounded for 10 more years than Rohan's.

The power of compounding is clear with the above example and it shows that even if we convince ourselves that we will be able to cover up for the time lost by investing more, growth in your corpus will still be lower if you start late.

It is important to remember that difference in corpus amounts will be even higher if one makes high investments since the beginning or invests in portfolio with higher returns.

While we have assumed the return in Amit's and Rohan's case was at 12%, the difference in amounts would have been even higher at a higher return, say 15%. If Amit and Rohan invest at 15%, while Amit's corpus would have grown to Rs 7.43 crore, Rohan's investment would have grown to only Rs 3.28 crore.

One can come up with multiple reasons to not start investing immediately, like you don't save enough or you don't know how to begin with it or you need the money for emergencies, etc etc. One just needs to go to the simple motto we've been taught since childhood, where there is a will there is a way.

Just like at the beginning with everything else, the first step is the hardest and everything works up naturally after that. Even with investing, setting your goal and deciding where to investment might seem daunting at first, but once you take the step and set up a SIP, it all aligns up automatically and there is not much you have to do after that.

Also, if you are thinking, I am already too late, just remember, you are never too late and it's better late than never. You can always figure out a way, especially with the help of a good advisor, who can guide you through with your investments.

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