We're heating things up with a deep dive into the FIRE movement 🔥
FIRE stands for Financial Independence Retire Early.
At first sight, FIRE seems to just be about retiring whilst you're still young - but deeper down it is truly about financial freedom. It's about having the freedom to do exactly what you want without financial pressures steering the wheel. As such, this movement can serve us inspiration for all of us.
Imagine a world in which you show up to work because you want to be there, not because you have to. That’s the FIRE dream.
THE FIRST RULES OF FIRE CLUB?
1) Save, save, save The way to FIRE is to spend less than you make, way less. FIRE turns our approach to saving and consumption upside down: saving is primary and the residual of that is for consuming. In the most extreme cases, people save up to 70% of their monthly income (!). This level of frugality is not realistic for everyone. The overall takeaway is that by prioritising saving, FIRE forces you to be more conscious around your spending habits. 2) Set a clear goal and make a plan If you decide to fully dedicate yourself to a frugal lifestyle with a laser focus on financial independence, a clear ending date with small goals along the way is crucial as tracking your success. You need to be able to see some tangible progress to stay motivated! The FIRE community has used a “simple” equation to calculate the amount you need to have saved up to be able to retire: the 4% rule.
4% Rule Annual Expenses x 25 = FIRE number.
Once you hit that FIRE number it's said you can retire and can withdraw up to 4% every year from your account for a modest retirement. For example, a household spending £40,000 in per year needs £1,000,000 invested to retire.
3) Invest & Diversify Income Once you save a good sum of money, the next step is to use that money to generate more money. The good old saying money makes money has a very literal application. The way that many FIRE devotees speed up their process is by creating passive income through investments and by diversifying their income.
The FIRE movement is not realistic for many, if not most. We found that most early retirees came from very privileged backgrounds. Many of them are - yup you guessed it - (white) men with high paying jobs straight out of college. That said, we still think that principles of the FIRE community can inspire any single person. So challenge yourself, set a financial goal and stick to it as far as you can - and remember, emotional perseverance and mental compassion are just as important as that trading account.
💪 You can join a community of 918k fully fledged and fledgling FIRE devotees on Reddit where they share their individual stories and tips!
📚 There are a lot of FIRE blogs out there, from J.P. Livingston who retired at 28 to Rita-Soledad Fernández Paulino who in her thirties dedicated herself to a goal of retiring at the age of 47.
🎧 Black Girl Finance featured a special episode with Stella Ewusie from @financiallyfierceuk on the FIRE movement and ISA movement.