Financial Independence Retire Early (or F.I.R.E) is a lifestyle movement based on frugality and aggressive investing with the aim of retirement in your 30s and 40s. But is it a movement for you? Let’s find out…
Taken from a concept in the book Your Money Or Your Life published in 1992, the F.I.R.E. movement started gaining popularity in the 2010s.
The main premise of the book is that we should evaluate every expense in terms of the number of working hours it took to pay for it.
An entire industry has been built around retirement and perpetuates the myth that we need to retire at a set age after 45 years of working a corporate job. Well, the world is changing and this is no longer a model you need to follow if you don’t want to.
The goal isn’t modest, and neither is the way you get there… the aim is to save and invest anywhere between 50 - 70% of your income to retire early. Let’s read that again: you’ve got to be able to get by on at least HALF your salary. It’s intense.
The idea is that the higher your income (from investments and savings, not necessarily your day job), the earlier you can reach financial independence, which can be anything from sitting on a beach doing nothing, to working a part-time job with a modest income and spending more time being able to do the things you love.
Errrr, no. Unless you want to that is.
Frugality? Yes. Putting yourself in danger? No.
The aim is to live on less than your means and avoid excessive consumption so that you can put the rest into investments like passive or active stock market portfolios, pension funds, rental income or whatever else you’ve decided upon.
You will also want to have an emergency fund of between 3 - 6 months worth of living expenses that you have easy access to as well as - and this one is the hard one - own your home outright.
This is not to say you need to miss out on the things you love when you are saving for F.I.R.E. The emphasis is on spending money on the things that bring you the most value and make you happiest. So if you love travelling, do it! But try to be as frugal as possible, without it denting your happiness.
As you can see there is no exact formula, just a framework that fits around your life.
The aim of the game is to have amassed approximately 30 times your yearly expenses, or around six figures. After retirement, you withdraw small amounts of around 3 or 4% to cover living expenses and keep the rest.
So, if you figure you want to spend £30,000 per year to live comfortably, you'll need around £900,000 in pensions, investments and savings to be able to retire, whether that’s at 65 or earlier.
It’s not for the faint of heart and requires diligent continual monitoring from the start all the way through. You’ll need to keep on top of budgets, be flexible as costs rise as to how much you will need to spend to live the way you want to live, you need to
It can look like whatever you want it to look like! Whether you want to dump your desk job for a life as an artist or you want to do nothing but sit on a beach and read all the books you haven’t got round to yet.
Most people choose F.I.R.E. so they can spend time doing the things they love, like spending time with family, starting that cake decorating business they always wanted, or becoming nomadic.
The best way to start is to figure out how much you need to retire by using a retirement calculator. This will show you where you are and how far you need to go to achieve your F.I.R.E.
Then, start reading. Research every element of F.I.R.E. - there are books, sites, blogs and podcasts dedicated to exactly this. There are also all sorts of online communities that you can join to learn more.
So, what are you waiting for?