The FIRE movement, or "Financial Independence, Retire Early", whose adherents try to retire before the legal age of retirement, is gaining in popularity. It started in the United States and as such, most resources online are for an American audience. We explain how you can reach financial independence in Belgium. We particularly dig deeper into investing, a cornerstone of the FIRE lifestyle, as it's our domain of expertise at Curvo.
What is the FIRE movement?
Financial Independence, Retire Early (FIRE) is a lifestyle and financial movement that aims to accumulate enough income to cover expenses for the rest of your life, allowing you to retire early. This is achieved by saving and investing a high percentage of your income byliving below your means to minimise your expenses. The ultimate goal is to live off your savings and investments without having to work.
The adherents of the movement are unhappy with the seemingly arbitrary retirement age imposed by governments. They calculated that it is possible for most people to retire before the age of 67, even if they don't earn a huge income, simply by adopting good financial habits and being in control of their financial life.
What the FIRE lifestyle teaches you
The FIRE lifestyle bases itself on two fundamental principles that will improve your financial life even if your goal isn't to retire early.
The first is about adopting good habits to increase your monthly saving. It shouldn't be a surprise that saving more today will lead to a better financial life for your "future you". Being aware of your expenses and controlling them plays a big part, and it's something you can start doing today.
The second principle is to maximise your savings by investing them in assets that have the highest chance of setting you up for success. It's not about making a quick buck but instead the goal is to invest in a sensible and proven way for the long term.
There's no right or wrong way of doing FIRE
Some people in the FIRE community become dogmatic about the "one" true way of doing FIRE. For some, you're not properly doing FIRE unless you only eat home-cooked meals (preferably something cheap like pasta) and you are willing to cross the city to save €1.87 on that set of 8 batteries.
We disagree. FIRE is a spectrum, and there's no right or wrong way of doing it. Everyone is unique and has their own preferences on what they're willing to change today in order to have a better future. In the end, it's about being aware of your expenses, and being in control of your financial future.
Is FIRE possible in Belgium?
It is, and people have done it. There are definitely easier countries to reach FIRE, but it has benefits that make it particularly attractive:
- A strong social safety net. For instance, Belgian healthcare is affordable and of a high quality. This is an important worry less while you focus on becoming financially independent.
- No capital gains on stocks. Belgium is one of the few countries that does not tax capital gains for investments in stocks. This is a huge advantage because profits on investing compound.
Reaching FIRE in 8 steps
Reaching FIRE can be boiled down to two tasks:
- Save more every month by increasing your income or reducing your expenses.
- Make the most out of your savings by investing them wisely.
These are not very actionable though. The journey to FIRE can be broken down into 8 steps:
- Understand what FIRE means
- Set clear financial goals
- Budget and save
- Good investing
- Generate passive income
- Stay disciplined
- Adjust as necessary
Let's explain each.
1. Understand what FIRE means
The journey starts with educating yourself about personal finance, investing, and the philosophy of FIRE. The more you know, the better decisions you can make.
2. Set clear financial goals
Define what financial independence means to you. This could be having a certain amount in savings, being able to live off passive income, or a combination of both. Determine what your living expenses are and how much money you would need to cover these expenses for the rest of your life.
How do you calculate when you reached FIRE?
To calculate when you have reached FIRE, you first need to determine how much money you will need each year in retirement. Once you have this number, you can use the 4% rule to calculate your FIRE number.
First you need to determine your annual expenses. Calculate how much money you will need to cover all your annual expenses. This should include everything from housing to food, insurance, taxes, travel, healthcare, and any other expenses you expect to have. Don't forget to account for inflation.
Once you know your annual expenses, multiply this number by 25 (the inverse of 4%). This is based on the 4% rule, which suggests that you can safely withdraw 4% of your portfolio each year without depleting it. For example, if your annual expenses are €40,000, your FIRE number would be €40,000 x 25 = €1,000,000.
Note that the 4% rule is a guideline, not a guarantee. Market conditions, inflation rates, and changes in your lifestyle or life expectancy can all affect how long your money will last. It's a good idea to have a buffer and regularly reassess your plan.
3. Budget and save
Create a budget that outlines your income and expenses, and stick to it. Try to save as much money as possible, often upwards of 50% of your income. You can achieve this by living frugally and reducing unnecessary expenses.
This starts with getting visibility into how you spend your money. Track your expenses for a month, for instance through your banking app. Then question each expense: was it a necessity? Did it contribute to my happiness? Can I avoid it in the future?
How much should you save per month to reach FIRE?
The amount you need to save per month to reach FIRE depends on several factors:
- Your desired retirement age: The earlier you want to retire, the more you'll need to save each month.
- Your current age: If you're starting at a young age, you have more time to save and take advantage of compound interest.
- Your expected expenses in retirement: This is crucial to determining your "FIRE number", which is typically calculated as 25 times your expected annual expenses (based on the 4% rule).
- The expected return on your investments: This will affect how quickly your savings grow.
- Your current savings: If you already have substantial savings, you may not need to save as much per month.
In the FIRE community, it's common to aim for a savings rate of 50% or more of your income. However, the specific amount will depend on your personal situation and goals.
For a more specific estimate, you can use an online FIRE calculator. You input your current savings, monthly savings amount, estimated annual return on investment, and desired annual withdrawal amount. The calculator then estimates when you will reach financial independence.
4. Good investing
Investing is a crucial part of achieving FIRE. Typically, this involves investing in low-cost, broad-based index funds. The goal is to build a diversified portfolio that can provide enough returns to cover your living expenses. We'll dive further into this step below, cause good investing is our bread and butter at Curvo.
5. Generate passive income
Many people who achieve FIRE do so by creating passive income streams. This could be through rental properties, dividends from investments, royalties from a book or invention, or any other income that requires little to no effort to maintain.
6. Stay disciplined
FIRE is a long-term commitment that requires consistent effort and discipline. It's important to stay focused on your goals and not get distracted by short-term market fluctuations. Lifestyle inflation, where you spend more as you earn more, is also a danger to be mindful of.
7. Adjust as necessary
Your financial situation, personal goals, and market conditions will change over time. It's important to regularly reassess your progress towards FIRE and adjust your strategy as necessary.
The best part! Once you've achieved your financial goals, you can retire. However, many people who achieve FIRE choose to continue working on their own terms, either part-time, freelancing, or by starting their own business.
Remember, FIRE is not a one-size-fits-all approach and it's not for everyone. It requires sacrifice and disciplined financial management. It's important to consider your own financial situation and personal values before pursuing FIRE.
Now let's dig deeper into the investing part.
Good investing is the cornerstone of reaching FIRE
Investing is one of the most important parts of reaching FIRE. Once you are saving a certain of your income every month, it's crucial to put it to work. For that, a savings account unfortunately won' do. The interest rates are simply too low, and your hard-earned savings run the danger of being eaten away by inflation. As you're saving for the long-term, the financial markets are the best place to make your money work for you. But investing can be intimidating if you just started. In the rest of the article, we teach you how you can start investing in a rational and proven way, without getting tangled up in technical complexities.
Investing with your bank likely won't get you to FIRE
For most, their bank is the one-stop shop for anything related to finance. Unfortunately, they are likely not your best partner when it comes to investing.
First of all, a savings account is not the place to keep you hard-earned savings for the long-term. For the past decade, the interest rate on savings accounts have been close to zero. On the other hand, inflation has been around 2% and is growing, meaning life is getting more expensive by at least 2% every year. So by keeping your money in a savings account, you will be able to buy less and less every year. Your savings are losing their value over time.
To earn a return on your savings, banks offer investment funds. These funds invest your money in stocks and bonds around the world. The issue with the funds offered by banks is that they're very expensive, mostly because they're actively managed. The fund managers try to outsmart other investors, which you pay for by giving some of your return to the bank. Unfortunately, the ESMA (European finance regulators) found out that the majority of them don't succeed in beating the average. When taking into account the hefty fee that the banker pockets, you'll be worse off.
Fortunately, there are ways to invest in the financial markets that bypass the banks and their high fees. In particular, we believe that investing in index funds (or ETFs) is the best way for most to make their money work for them in the long term.
Why index investing works
Investing in index funds is also called "passive investing" because you're not actively trying to outsmart other investors. Instead, you simply invest in as many different companies as possible across the world, thereby earning the average return of the global economy. Fortunately, the world economy has grown enormously over the past 40 years.
The graph below shows the evolution of the MSCI World index since 1979. MSCI World is a bag of over 1,500 stocks from 23 countries (US, Germany, Japan, UK…) and approximates the world economy. A €10,000 investment in 1979 in a fund tracking MSCI World would have grown to €880,000 today! This equates to an average yearly return of almost 11%. This is much better than a savings account! And index investing is also much cheaper than investing through your bank.
The two ways of index investing in Belgium
There are two ways you can start investing in index funds in Belgium. You can either manage your investments yourself, by using one of the many brokers available. A broker is a service that gives you access to the stock markets, enabling you to buy and sell ETFs. By investing through a broker, you have the complete freedom in choosing what to invest in, and how. At the same time, this means you are also fully responsible and it's easy to make mistakes.
Another option is to automate your investments through an app that takes away the complexities of investing and assists you on your journey. This is the problem that we try to solve at Curvo, because not everyone has the time, interest and motivation to dive deep into the world of investing to manage their own investments.
Let's dig into the pros and cons of each option!
Option 1: do-it-yourself
There are several steps involved when setting up your own investments. You first need to choose the indexes in your investment portfolio. MSCI World is one of the many indexes you can invest in as a Belgian resident. You need to choose the right mix of funds that is in line with your goals, time horizon, and appetite for risk. To help you get started, you can inspire yourself from the portfolios that are offered through the Curvo app and that are managed by NNEK.
Then, you must open an account with a broker. The best way in Belgium to invest in index funds is through ETFs. And to buy ETFs, you have to go through an intermediary called a broker. There are several brokers available in Belgium and they differ mostly by cost and ease of use. Our comparison of brokers is a good starting point.
The third step is to choose the right ETFs that implement the indexes in your portfolio. For each index, there are usually several ETFs from different providers you can choose from. It's crucial to pick the right ones though, because the way they're set up can have important tax implications for you. For reference, we recommend you go through our guide on investing in ETFs in Belgium.
Once you bought your first ETF, it's recommended to repeat your investments each month. For most people, investing every month is preferred over saving up a large amount. This strategy of investing regularly is called dollar-cost averaging, or rather "euro-cost averaging" for us. Investing regularly allows you to minimise the risk of buying at the wrong time. By diligently buying every month, you invest no matter how the markets are doing, whether they're low or high.
Advantages of do-it-yourself
There are several advantages of managing your investment portfolio yourself through a broker:
- The allocation of your portfolio is in your hands. You decide what you invest in.
- Cheap. Just like repairing your car yourself is cheaper than having it fixed by a mechanic, managing your own investments is cheaper than having someone else manage them. And the less fees you pay, the earlier you'll reach FIRE.
Drawbacks of do-it-yourself
However, there are also downsides:
- You need to do your own learning. Figuring out how to start and understand the intricacies of index investing in Belgium takes time, motivation and a certain amount of self-confidence.
- Figure out the tax implications. Belgian taxes are complicated and they change all the time!
- Learn how to rebalance. After a while, your portfolio will need to be rebalanced so that it's still in line with your goals and risk level.
- Manual labour and mental effort. It doesn't take too long to calculate and execute your transactions every month, but it's a tedious task that becomes repetitive over time.
Option 2: automated through an app like Curvo
At Curvo, do-it-yourself is how we started. Our founder Yoran spent hours researching and figuring out how to build an optimal portfolio to set him up for financial independence. From this experience, he realised why none of his friends were investing: it's complicated. Managing your own investments successfully takes a combination of interest in the world of finance, a considerable amount of time, and a healthy dose of self-confidence. Especially if you're going through the process alone.
So Yoran and his co-founder Thomas teamed up to build Curvo. Curvo's goal is to make index investing accessible to everyone who wishes to improve their financial future and gain financial independence. And they do this by removing all the complexities involved in investing, so you don't have to worry.
There are advantages to using Curvo compared to doing it yourself:
- No expertise needed. The complexities of investing are taken care of so you don't have to worry.
- The portfolio is automatically set up for you. The best portfolio of index funds for you is built based on your time horizon, financial goals and appetite for risk.
- Secure. The portfolios are managed by NNEK, a Dutch investment firm licensed by the Dutch regaultor (AFM).
- Investments on autopilot. Set up monthly contributions through a direct debit ("domiciliëring" or "domiciliation") and your money is invested automatically.
You can learn more about how Curvo compares to do-it-yourself investing.
The cost is an all-in fee starting from 0.6% per year on your total investments. This may be more expensive than the broker fees when doing it yourself, but you get peace of mind throughout your investment journey.
Learning more about FIRE in Belgium
There's a growing interest in Belgium in the FIRE movement and personal finance, and we're happy to see more initiatives happening with the goal of spreading knowledge and tips.
Joney Talks podcast
We really enjoy the Joney Talks podcast. The host Jonathan interviews interesting guests from the world of personal finance, and you'll be sure to learn something to help you on your journey to FIRE. Our founder Yoran appeared in an episode on index investing in Belgium.
Jonas Vermeulen has a great TikTok channel @firecommunitybnl. Both entertaining and educational, it's a great resource for Belgians wanting to learn more about FIRE.
FIRE Belgium (Facebook)
We learned that FIRE is a movement that's about gaining financial independence. It teaches you important skills that will improve your financial well-being, even if your goal is not to retire early. It's definitely possible to reach FIRE in Belgium, and we saw that index investing is a great way to grow your savings over the long-term, where your money isn't lost to inflation as with a savings account. Investing in index funds is also cheaper than investing through your traditional bank.
There are two ways of doing index investing in Belgium: do-it-yourself or in an automated fashion. It's cheaper and you can FIRE earlier if you do it yourself. However, if you don't have the time to learn the intricacies of investing, why not use something like Curvo instead? It takes away all the complexities of good investing and brings peace of mind. Learn more on how Curvo works.
Questions you may have
How to start with FIRE?
The first step is to educate yourself about personal finance, investing, and the philosophy of FIRE. The more you know, the better decisions you can make. There are many books available that can help get started. Also be sure to check out the podcasts and online communities that we mentioned above.
Can you retire at age 40?
Retiring at 40 in Belgium is theoretically possible but it requires significant planning, saving, and investing starting at a young age. If you follow the principles of the FIRE movement, you might be able to accumulate enough wealth to live off your savings and investment returns from that age onward.
However, if you retire at 40, you wouldn't be eligible for state pension benefits until reaching the legal retirement age of 67. This means you'd need to fully fund your retirement until that age, which could require a significant amount of savings and investments. Also, keep in mind that health care costs can be a significant factor. While Belgium has a robust healthcare system, early retirement may affect your eligibility for certain benefits.
Lastly, achieving early retirement often requires a lifestyle that emphasizes frugality and minimizing expenses. Not everyone is comfortable with or desires this lifestyle, so it's important to consider your own personal goals and values.