Financial independence, retire early: how to make the FIRE movement work for you

Do you dream of quitting your job, retiring early and living in complete financial independence for the rest of your days? FIRE is a financial movement aiming to help people on any income level do exactly that and more and more millennial women are trying it. Here’s an expert guide on how to make it work for you. 

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Imagine reaching 40, quitting your job and walking away from your desk safe in the knowledge you’ll be financially secure for the rest of your life and never have to work again. It may sound too good to be true, but a financial movement that’s steadily growing in the UK is aiming to help people do exactly this.

The FIRE or Financial Independence, Retire Early movement is a combination of extreme saving, frugality and investing. “The idea is to achieve financial independence, be free from financial commitments and retire early so you don’t ever have to work again if you don’t want to,” says Elizabeth Buko, a financial mentor and founder of Wealth from Little. “And anyone can do it, no matter how much money they earn.”

Many of FIRE’s ideas stem from the book Your Money Or Your Life, written in 1992 by Vicki Robin and Joe Dominguez, which outlines a very severe form of saving and frugal living to achieve these huge financial goals. FIRE has had a big following in the US for many years, but it’s recently begun to gain traction in the UK, and during the pandemic, more young people have been looking into the movement. 

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Lockdown gave people time to really consider their financial situation,” says Helen Forward, a money blogger at Her Penny Potential and a financial expert at saving and investing platform Chip.“Lockdown is also the first time in a long time that people have really had to consider how to survive without having a job or an income, so it’s natural that lots of people are looking to have more of a financial plan.”

FIRE has often been equated with gruelling scrimping and saving, however, this is slowly changing as more people adapt the movement to their needs. “The original FIRE movement got a bad rep because of the very minimalist lifestyle it promoted,” says Helen. “However, the movement’s become a lot more adaptable and it doesn’t necessarily mean not working at all in the future anymore.”  

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Whether you’re thinking about joining the FIRE movement, or you just want to see if it can help you ditch the 9-to-5 and shave off a few years of your expected retirement, here Helen and Elizabeth explain how it works and how you can start doing it yourself.  

What are the key principles of FIRE     

Saving and building a nest egg

The main principle of FIRE involves saving as much of your income as possible in order to build up a nest egg to retire early on.

“The idea is to start in your 20s or 30s and save a huge chunk of your salary, usually 70%,” says Helen. “So, it’s a very aggressive saving and investing strategy.”

The FIRE formula is that in order to achieve full financial independence, you need to have a retirement net worth of 25 times your estimated annual spending. This means, if you want to spend £20,000 a year in your retirement, you’ll need to have a savings pot of £500,000. Once you retire, the idea is that you withdraw 4% of your savings pot a year to live on.

“The average FIRE savings goal for retirement is around £264,000,” says Helen. “That does seem unrealistic if you’re not earning huge amounts, but the movement welcomes absolutely everyone, it’s just about extreme saving and being as frugal as possible.”

Emergency savings pot

The FIRE plan also requires an emergency savings pot. This should have at least three to six months’ of salary in it set aside for emergencies.

Spending wisely

Investing your savings is a key part of FIRE. The idea is to make the most of the money you save by investing it wisely and diversely. This could be in ISAs, tracker funds or general investment accounts.

These investments are usually taken into account when you make your financial plan. “There are a few assumptions around it,” says Helen. “Many assume that their investment returns are going to be 8% and the inflation rate is going to stay around 2-3%. This means it’s down to you to decide what value you need to be saving.”

As part of spending your money wisely, the FIRE movement also encourages people to pay off their debts. This includes paying off credit cards, loans and mortgages.   

How to make FIRE work for you

Create your own realistic goals

“In FIRE they talk about a 10 to 15-year strategy, but that’s FIRE in its traditional sense. Nowadays, it’s more about finding what works for you,” says Helen. “For some people, the goal might not be early retirement, but buying a dream house in a dream location or going on a dream holiday. FIRE could help you get there.”

You can also make the method work for your circumstances. “If you’re earning £100,000 a year, that means you might be able to live an extravagant lifestyle and still end up with a huge savings pot,” says Elizabeth. “If you’re earning £30,000 a year and want to retire early, you can still do that. It just means seeing where you want to adjust your lifestyle, adjusting the age you want to achieve your goal at, or finding extra income from somewhere.”

Following FIRE, doesn’t mean you have to have all your debts paid or own your home outright either. Things like student loans, mortgages or rent can just be factored into your budget.

“It’s just a matter of factoring in any housing payments into your retirement plan so you have all your basic needs met,” Elizabeth adds.

It doesn’t mean giving up work altogether

“It’s no coincidence that FIRE has taken off as entrepreneurship and starting a small business has become a lot more accessible to people,” says Helen. “For a lot of people now, it’s not necessarily about aiming to fully retire. Many people want to move away from the classic 9-to-5 and supplement their income with a side hustle.”  

Where to start with FIRE 

Work out your savings goals and start saving

The first step is to create a budget and give yourself a savings goal. If you’re doing this via the traditional FIRE route this will mean saving 25 times what you’re annual spending will be in 15 to 20 years’ time.

“This might mean you have to factor in paying for schooling if you know you want to have children in the future, or a mortgage if you know you want to buy a house,” says Helen. “So take into consideration how your life will look in 10 years time.”

FIRE specifies that you should aim to spend 4% of your savings and investments a year, so this is a good benchmark to work backwards from to find out how much you’ll need to save.

Once you’ve decided on a future savings goal, the next step is to start creating a budget for right now. “‘Can you start being a bit more frugal?’, ‘What can you cut back on?’, ‘What budget can you work to on a monthly basis?’ These are the questions you should be asking yourself and then you can start mapping out your spending habits and savings,” says Helen.

Investments and multiple income streams

Investing your money in a diverse way is a key part of FIRE. “Having a blend of savings and investments, so you have a stable foundation is essential,” says Helen.

“We should all be saving and investing to get a better return on our money,” says Elizabeth. “It’s important to understand where your money is going and how it’s going to grow, especially if you’re retiring early because you won’t be able to access your pension pot until you are 55.”

“FIRE is all about security and growth at the same time,” Elizabeth adds. “Always diversify your investments and never put 90% of your money into one thing because you never know what’s going to happen and whether that investment will become volatile.”

There’s a lot of information out there to help you invest money wisely from apps to advisors. Helen suggests doing as much research as possible to find out which investments are best for you. “Whether it’s a cash ISA or a stocks and shares ISA, there’s lots of ways you can start investing even if it’s just £5 a month to begin with,” says Helen.

A lot of people embarking on FIRE have multiple income streams in place for when they retire, or to boost their income as they save. “Do aim to have multiple income streams, whether that’s earnings from your investments, skimming off the top of your savings, or having a side hustle,” says Helen.

Getting into the habit of saving

Getting into the habit of saving consistently is one of the most important things you can do. “It’s about introducing savings habits into your monthly budget, whether that’s putting a bit of money aside on payday, or cutting back on your expenses – a small amount goes a long way,” says Helen.

“Having savings of any kind gives you more financial freedom,” says Elizabeth. “Not everyone will be able to save 70% of their income, and there’s no point doing it if it’s going to make you really unhappy because you can’t do things you love, so it’s all about saving in a way that suits you.”  

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