Financial Independence – Retire Early (FIRE) is a movement that strives to redefine how people look at personal finances and their working careers.
The acronym is very self-explanatory, it is a community of people that are looking to become Financially Independent, which will give them the option to Retire Early.
Like many viral communities, it very much started in the US and is slowly expanding worldwide, becoming more prominent in the UK and Australia. It is not exactly reinventing the wheel … save hard and retire well. What it is doing, though, is providing accessible, comprehendible and free content to help you do both these things!
I’m not going to preach FIRE to you, you do you. For those who are intrigued as to what it is or need reminding. Purely subjectively – we can split the definition of FIRE in two. Take a wild guess how…
There is the FI bit, where you aim to gain Financial Independence. Then there is the RE bit, the bit where you retire earlier than the societal average (see: government stated age).
The FI bit
Financial Independence, for most people, is having an amount of savings that would allow you to leave a job that you hate or chance a big pay rise. An amount of money that would allow you to stop working altogether and go travelling, without any cataclysmic impact on your life plan. An amount of money that allows you to pursue a side-hustle or hobby that you wouldn’t feel comfortable enough at the moment, to commit time to.
To achieve this, members of the FI community have very aggressive savings rates. Whilst it is possible for even higher amounts, somewhat standard members of the FI community will save between 20% and 50% of their post-income savings. The amount that you get paid into your bank account on payday.
What this aggressive savings rate means, is that in a relatively short time, you can accumulate a sizeable savings pot. Therefore, allowing you that amount of money which gives you confidence in making any career moves or other life changes.
There are two elements to this savings rate (and they are both afunction of a very simple equation).
Increase your income vs. decrease your spending.
|Savings =||How much you get paid – Your monthly spending|
Let’s say you get paid £1000 per month. Your expenses are £800, then you save the remaining £200. Here you are saving 20% of your pay.
£200 = £1,000– £800
Now let’s say that you strive to get a pay rise (how do you get one? we wrote about here!). You get a pay-rise of a £x thousand a year, which post tax means that your pay check has gone up to £1,200. You still have expenses of £800, which means that you’re saving the rest… £400… which is now 33% of your pay.
£400 = £1,200– £800
You don’t get a pay rise this year. Let’s say you are still being paid £1000.
What you can do, though, is change your expenses. You no longer spend £200 every single month on clothes, you cut that down to £100 for the foreseeable future. Therefore, your monthly expenses are £100 less, £700. Then, you still get paid £1000, so you are saving the rest … which is now 30% of your pay.
£300 = £1,000– £700
This is heavily simplified. Simple is good.
The RE bit
What are we doing this for, after all?
So the RE bit, again, descriptive acronym… is about retiring early. Retiring earlier than the standard age that is dictated by society and our government pension scheme (state pension). At the time of writing, the government pension kicks in for me at age 67 and my personal pension cannot be accessed until I am 55. So my bare earliest is 55.
I don’t want to work flat-out until I’m 55. My non-existent kids will be fully grown up by then!
The idea here, is that by doing the FI bit, you are allowing yourself the option to engage in the RE bit. Besides, who on earth wouldn’t want to have the option of retiring early?
“Wait, J, why do you keep saying “option to retire early”?”
You do you. If you have gathered enough money to retire but you absolutely love your job… don’t quit, you truly love your job. You have the money to allow you to quit whenever you want. This is completely your choice, maybe the FI bit will allow you to explore a real passion that is quite demanding, so you want to earn a bit of money out of it… YOU DO YOU.
The whole point of RE is that you can retire, you can afford to, you’ve saved up enough. If you want to be able to spend loads of time with your kids and never work again after your 40th birthday, you’ve given yourself the option to. If you want to continue boozing your way through the Monopoly Pub Crawl of London, you do you.
A word of warning
Besides, nobody can predict the future and your state of health along the way. Seemingly healthy individuals are not making their retirement age and spent a good amount of their life cutting certain luxuries to enjoy them in retirement. Sadly, you only hear that story when you really don’t want to. If you want to enjoy your life and go on a few too many nights out, erm what are we living for again? #fun over fire
About this blog and our opinion of Financial Independence
I believe in Financial Independence and retiring early, like life, is about balance. Too much of anything is bad for you, though, complete deprivation is too. Save well and honestly; understand that you can never be the age you are again.
I dream about retiring on a daily basis. But the retirement I dream of changes too.
This blog is not going to write about the nth degree of frugality, as that is not our speciality, but it will teach you about:
- How to save
- How to invest
- Where to save
- Where we invest
- Ways to try and have fun along the way (
are we allowed to do that?)
This blog is all about this simple post tone and style. So subscribe or follow our twitter, cheers.
Keen to do some larger reading into FIRE concepts? Try this book! JL Collins is becoming a god of the FIRE community thanks to his work in ‘A Simple Path To Wealth’