In the West, this idea has crystallised into F.I.R.E., or Financial Independence Retire Early. It’s a movement and lifestyle approach aimed at achieving financial independence and the ability to retire from traditional employment at an early age. The main idea behind F.I.R.E. is to save and invest aggressively during the early years of one’s career with the goal of accumulating enough wealth to sustain one’s desired lifestyle without relying on a traditional 10-to-6 job.
The F.I.R.E. movement emphasises five key principles:
High Savings Rate: Saving a significant portion of one’s income, often 50% or more, is a cornerstone of the F.I.R.E. approach.
Aggressive Investing: Investing in assets like stocks, bonds, real estate, crypto, and other income-generating investments is crucial to growing one’s wealth over time.Frugality: Minimising expenses and focusing on needs rather than wants is essential for both Lean and Fat F.I.R.E. followers.
Passive Income: Creating sources of passive income, such as dividend stocks, rental properties, or online businesses, can help sustain financial independence.Retirement Reimagined: Instead of traditional retirement, F.I.R.E. often involves transitioning to more flexible and fulfilling work arrangements or pursuing passion projects.
The WHY of ‘Crypto for financial independence’
High Returns: The allure of cryptos, for many, lies in the remarkable returns witnessed over the past years. Early adopters who got in early on prominent coins such as Bitcoin and Ethereum have reaped monumental returns. Bitcoin has consistently delivered an impressive average annual return of 155% over the past five years, while Ethereum has appreciated by 460%. Such figures underscore the transformative potential of cryptos in wealth creation and financial autonomy.
Diversification: Cryptocurrencies can be a diversification tool in an investment portfolio. Traditional financial markets may not always correlate directly with crypto markets. So having a portion of your investments in crypto can offer some level of diversification. A 1% allocation is something of a sweet spot. It’s small enough that a market crash would be almost undetectable while still exposing average investors to potentially double the returns they would see without it.
Inflation: Often termed the “silent wealth eroder,” inflation stealthily eats away at the purchasing power of your money. As the years roll by, the rising cost of goods and services can significantly diminish the value of your savings. Consider this: if you’ve set a retirement goal based on a specific net worth today, that figure may not hold the same purchasing power a decade from now. For instance, ₹75 million today will undoubtedly represent a different value in ten years. This diminishing value poses a significant threat to your dreams of financial Independence.
The HOW of ‘Crypto for financial independence
SIP: Regularly investing a predetermined sum in cryptocurrency, regardless of its price fluctuations, helps average out the cost. By purchasing more when prices dip and less when they rise, SIPs offer a balanced approach, especially for those cautious about crypto’s notorious volatility.
New Financial Tools and Systems: The broader ecosystem around cryptocurrencies, often referred to as “DeFi” (Decentralised Finance), offers a plethora of new financial tools. These include decentralised lending platforms, yield farms, and more, which can provide avenues for increased returns on investments.
Passive Income through Staking: Some cryptos offer staking, which allows holders to earn additional coins by holding and “staking” their existing coins in a wallet to support the operations of a network. This can serve as a form of passive income, a cornerstone of the F.I.R.E movement.
Monetizing Hobbies: Crypto-based applications such as Metaverse, NFTs, and gaming platforms have economic value intrinsically built in, as opposed to traditional platforms, whose value is added through payments. This opens the door for creating assets and even experiences with economic worth that can be traded. This is the birth of entirely new economic models, putting creators at the centre and ensuring that any developed IP becomes monetizable.
Tokenization of real-world assets is also gaining attention as a transformative method for wealth generation. Valuable assets can be divided into fractions, enabling broader ownership. During the last bull market, real estate and art projects introduced fractional ownership, allowing affordable access to digital art or metaverse land parcels. This trend presents prospects for wealth if there is sufficient liquidity and resale value in the market.
As the regulatory haze lifts and the tides of traditional finance ebb and flow, the digital currents of crypto surge forward, promising not just returns but a revolution. For those bold enough to navigate these waters, the horizon holds not just a dream of independence but a dawn of unprecedented financial possibilities. Embracing this future isn’t just about investing; it’s about pioneering the next chapter of financial independence.
(The author is Vice President at WazirX)
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)
