FIRE, or Financial Independence, Retire Early, is a fast-growing movement of people looking for a different way in life.

Saving a high percentage of your earnings allows you to retire significantly earlier than traditionally possible. The percentage of your earnings which you save is known as your savings rate. A popular target is to aim for the 50-70% savings rate bracket, allowing you to retire after roughly 9-17 years of work.

This opens a whole world of opportunities for the rest of your life.

So how could you possibly save so much?

If you’re new to the concept of FIRE, savings rates of 50-70% can seem ridiculous. However, once you dig into the detail it makes much more sense.

It is very straight forward to calculate your savings rate. It is simply a factor of:

1. Your earnings 
2. Your spending 

What is left of over from your earnings, once your spending is subtracted, is saved. You then divide your savings by your earnings (net of tax etc).

Savings / earnings = savings rate

For example:

£20,000 / £40,000 = 0.5 – i.e. a 50% savings rate.

Once you have amassed 25x your annual spending, thanks to the “4% rule”, you are officially financially independent. Your portfolio can sustain your spending indefinitely. Congratulations!

It really is as simple as that.  

For the vast majority of people, the best place for these savings is in index tracker funds. These trackers follow the performance of global stock markets.

Enough has been written elsewhere about the details behind these numbers. One of our favourite examples is Mr Money Mustache’s The Shockingly Simple Math Behind Early Retirement. As such, we will move onto some of the more ‘emotional’ aspects involved in achieving FIRE.

Let’s have a quick look at the two factors mentioned above. 

Earnings 

As you earn more money, you will be able to save more, increasing your FIRE fund at a quicker rate. We all desire that next pay rise and it can often feel like “everything will be fine, if only I can get that next pay rise/promotion/job offer”. It is a human instinct to always want more and this is the root of most people’s downfall. They see a pay rise and immediately increase their spending accordingly, assuming this will bring ‘more happiness’. After all, your happiness is directly related to how many shiny things you have, right?

In our experience, quite the opposite is actually true. Reducing spending can be addictive and bring a much more simplistic joy and happiness. If you can learn to appreciate what you do have and not let lifestyle inflation take over, you will be much better off – both financially and emotionally!

Spending 

Most people can make the biggest gains in the spending department. Reductions in spending have a double whammy effect. Not only can you increase the current amount you are saving, but you also reduce the FIRE fund needed to sustain your retirement.

For example, let’s assume someone spends £20,000 per year. They would need the following FIRE fund to sustain this spending in retirement:

£20,000 x 25 = £500,000

However, if they can reduce their spending by 10% to £18,000:

£18,000 x 25 = £450,000

So initially they have reduced the total amount needed to fund their retirement by £50,000. Great! But they have also increased the rate at which they are saving (an extra £2,000 per year).

These double whammys can quickly snowball and have a huge impact on your potential retirement date.

A new way of doing things

The suggestion that there is another way to live your life comes as a shock to many people. The vast majority of us grow up fully indoctrinated in the system. We are forced to attend state school and sit in a classroom for hours on end listening attentively. It is no surprise then, that most people end up doing this, in a very similar fashion, upon entering the workplace.  

• 

• 

If you’re spending all of your salary there is no way out of this cycle. You will inevitably work until you no longer can.

With auto-enrolment now in force in the UK, employees (assuming they don’t commit financial suicide by opting out) will at least be saving 8% of their salary into a pension scheme. However by our calculations, this will still require around 56 years of work before retirement can be achieved – yes 56!!

This does ignore state pensions etc, but considering recent political shenanigans, we don’t think it is wise to rely on this existing in the future! Pensions are very prone to political meddling.

Mainstream Media Exposure

Over the last few years, FIRE (Financial Independence, Retire Early) has dramatically risen to fame. The likes of MMM, Go Curry Cracker and The Escape Artist have been regularly making mainstream media. We are even seeing fairly regular FIRE-related stories on the main BBC pages at present.

This media exposure of course has positive effects. It introduces many more people to the concept that they don’t have to ‘do as they’re told’ their whole life and are in fact in control of their own outcomes. However, alongside this, there will always be numerous critics of the FIRE approach. This can be seen in any comments section related to FIRE (don’t feed the trolls)! This brings us onto an important point:

FIRE is not for everyone!  

This is often overlooked by many in the community and only fuels the fire (or not as the case may be!!) of the critics.  

We believe those who vocally criticise the FIRE community fall broadly into 2 camps.

Firstly, there are those who have evaluated their options. They are aware of their spending but still happy working for the vast majority of their lives to pay for it. This, too, is a valid way to live! For these people, it of course makes little sense to focus so much energy on saving. It would still be sensible for these people to save more than the average to keep their options open.

The second camp are much more intriguing. These are people who are fully indoctrinated in the system. They feel like they are being attacked when told there is another way to do things, because the notion of working until your 60’s is so ingrained in our society. This leads to a fight or flight response. For some, this takes the form of angry comments or statements like “I don’t want to live like a hermit!” or simply “that’s impossible for a (insert random job title)!”. You just have to see the comments on any FIRE related article for numerous hilarious examples! Alternatively, others will simply bury their head in the sand and carry on regardless.

Hopefully all of the media attention will at least make more people aware of FIRE. Those in the second category above may have an extreme immediate response, but eventually it may sink in. It’s very easy to be critical of something that isn’t ‘normal’ but we have learnt that it really pays to question everything!

What does FIRE mean to you?

The beauty of pursuing the FIRE journey is that it is different for everybody. Starting on your way to FIRE really makes you evaluate what is important in life. This, of course, is different for everyone.

We first discovered FIRE around 3 years ago and have been devouring blogs, podcasts and books on the subject ever since. In our next post we will talk about what FIRE means to us and our current plans for the future.

Why not leave a comment and let us know what FIRE means to you?