‘FIRE’ is a lifestyle some people swear by. The premise is simple – to earn enough money so that you can comfortably retire early. It requires an entirely different mindset to help you put your money where your mouth is and reap the benefits further down the line. It also requires a clear strategy and good discipline – it isn’t for the faint-hearted who love a pay-day splurge!
So, what is FIRE, and how can you achieve it? Here’s what you need to know to be a successful part of this movement.
What is FIRE?
‘Financial Independence, Retire Early’, also known as FIRE, is something many individuals aspire towards for a more comfortable future. It’s referred to as a movement, in which people are striving towards building enough disposable income to allow them to retire much earlier.
It involves a lot of discipline, where indulgent expenditures are off the table in favour of more frugal means of living. The expectation is to evaluate every expense made, determining out how many working hours were used to afford it. It requires a granular approach to handling your money.
The goal is to save as much as 70% of your income to reach this so a complete change in many people’s spending and saving habits is required. Generally, those partaking in FIRE will withdraw between 3-4% of their savings annually to cover their living expenses once they’ve entered retirement.
While the origins of FIRE are unknown, it gained popularity in the 2010s and was catalysed by popular books, including ‘Your Money or Your Life; by Vicki Robin and ‘Think and Grow Rich’ by Napoleon Hill.
Who is it for?
The younger you start adopting FIRE, the more savings you can build over time. It’s thought that many young working people are giving the philosophy a go. Aggressive saving and investments are an ongoing commitment, and this is best utilised from an early starting point. Some individuals could retire as early as in their 40s. Bear in mind that the State Pension age is currently 66 years old.
How to achieve it
Minimising your spending is a key part of adopting the FIRE lifestyle. This involves a large focus on budgeting and sticking to this – with little to no exceptions. Other actions you could take include opening savings accounts and other methods that will simultaneously build your credit score. By siphoning off money into reputable savings accounts, you can train yourself not to touch more income than you’ve budgeted for. Out of sight, out of mind is the way to keep you from temptation.
When it comes to investments, your risk tolerance should be low. Diversified equity allows investors to gradually build wealth over time, with a lower risk of dramatic losses. The use of credit cards should also be kept to a minimum, in line with the philosophy that spending is not the priority.