The F.I.R.E Movement Help You Retire Sooner Than You Think?

Retirement is a bit of a conundrum, isn’t it? It’s something many of us look forward to, and dream of being able to enjoy sooner rather than later. But, with the financial backing you need to be able to retire comfortably, whether you’re on a relatively high or more modest income, dreaming of early retirement can seem like a pipe dream! And that’s where the F.I.R.E. movement comes in.

Whether you’re determined to retire as soon as possible or simply after a few tips to boost your pension savings, the principles the F.I.R.E movement’s devotees follow can help you achieve your retirement goals. But what is the F.I.R.E. movement and what are its principles? Let’s find out.

Before we jump in, remember that we at CredAbility are not financial advisors. This article simply explains the principles of the F.I.R.E. movement and how its devotees follow it. It isn’t us telling you what you should be doing with your money!

What is the F.I.R.E. movement?

Standing for Financially Independent, Retire Early, the F.I.R.E. movement is a set of principles that help you achieve financial freedom, instead of relying on your income from work to fund your lifestyle. While it started out as a way to help people achieve the specific goal of retiring way before usual retirement ages – in their 30s and 40s – the focus of the F.I.R.E. movement has shifted over the years more towards the financial independence side, and learning how to amass enough wealth that your choices aren’t limited or dictated by what will fit around the need to work to earn money.

The principles of F.I.R.E.

Have a goal

Before you start implementing the principles of the F.I.R.E. movement in your life, you need to know why you’re doing it and have a goal. Are you aiming to retire in the next five or ten years, or before you hit a certain age? Is your quest for financial freedom about being able to cut back the hours you work, without also cutting back your lifestyle? Or, do you want to be able to quit your job to pursue a career that’s perhaps not well paid, but is something you’re passionate about?

When setting your goal, making it SMART can help you with all the things you need to think about to make sure you get what you ultimately want in a realistic and achievable way. A good example of a SMART goal for someone following the F.I.R.E. movement could be:

“By the time I am 45 years old, I want to have £500,000 in savings so that I can reduce my hours and work three days a week, then retire completely before I turn 55.

Why is it SMART? It’s:

• Specific – this person knows exactly what they want, and when
• Measurable – because it’s about reaching a financial savings goal, you can easily measure whether you’ve reached it or not, and track your progress
• Achievable and realistic – this sense check you perhaps can’t see, but if you’re satisfied that your goal is both achievable and realistic, it means you’ve done your homework to make sure you’ve covered all your bases!
• Time-bound – this goal has a deadline date: an age milestone

Spend less, save more

Spending less and saving more is the foundation upon which the F.I.R.E. movement is built. The strictest devotees of the F.I.R.E. movement spend as little as 30% of their monthly incomes, saving the other 70%. How do they manage to spend so little? By being extremely frugal, and we mean extreme. Strict devotees of the F.I.R.E. movement don’t spend a penny more than they absolutely must – on housing, bills, transport or other essentials, and treats are pretty much non-existent. How far you want to go cutting your spending is up to you, and how much of your current lifestyle you think you could manage without. Perhaps you start with a few small changes to cut costs and save more money, and then ramp it up. The more of your spending you can cut and save instead, the quicker you’ll reach your financial goal.

Stay out of debt

Avoiding credit is another fundamental principle of the F.I.R.E. movement, because paying interest on borrowed money is money you could be saving towards your financial independence pot! But, avoiding credit completely may not always be possible, or even the best idea, especially if part of your goal involves buying a home or investing in property. Unless you’re planning to pay for everything in cash, you’ll need a mortgage to fund any property purchase, and to get a mortgage, you need a robust history that demonstrates you’ve used credit before and have handled it well.

To keep on top of your credit history and stick to the F.I.R.E. principle of avoiding paying interest, look for 0% interest deals, where you can spread the cost of your purchases without paying anything extra, as long as you make all the payments you need to, in full and on time, and clear the debt by the end of the 0% period.

Increase your income

If you earn more, and don’t spend the extra, that’s even more you can pile into your savings. Increasing your income according to the principles of the F.I.R.E. movement can take many forms. It could be researching what salary you can achieve at different seniority levels in your chosen career path and working out your own plan rise up through the ranks and reach the top. It could mean starting over and re-training in a job with higher earning potential once you gain experience.

Or, it could mean finding other avenues to boost your income alongside your existing job. Perhaps you kick off that side hustle you’ve always been thinking about to earn some extra cash. Or, maybe – and ideally, if you’re following the F.I.R.E. movement’s way of doing things – you find a passive source of income that can top up your savings without requiring much focus or effort from you.

Invest your savings

If you’re following the F.I.R.E. movement, what you do with your savings greatly impacts how quickly you can reach your goal and financial independence. For most people, the amount your savings grow by earning interest or appreciating in value is as important as the amount you stash away. With interest rates painfully low for savers and likely to stay that way, investing your savings in stocks and shares could be a better way to get your money working hard for you, in two ways. First, if you invest wisely, the shares you buy should be worth more by the time you sell them, so you’ll get back more than you put in. Secondly, depending on the companies and funds you choose to invest in, you may receive dividend payments, which mean you make money while keeping your money invested, and have yet more to save.

Of course, investing your money is not without risk, and it’s entirely possible for you to lose money as well as gain it, and you should always seek advice from a professional financial advisor before making any investments.

How much do you need to be financially independent?

Because everybody’s spending is different, the amount you need to have saved up to be able to declare yourself financially independent and ready to give up work is pretty much unique to you. But, typically, devotees of the F.I.R.E. movement are aiming to save 25 to 30 times what they usually spend in a year. So, we’re not talking small numbers here. According to the latest ONS Family Spending Report, the average household spends £30,571 a year. Multiply that by 25 and you know roughly where your savings need to be for you to declare financial independence: upwards of £750,000.

Our take on the F.I.R.E. movement

We think the F.I.R.E. movement is a solid set of principles to help you save, learn a lot about your money and how to make it work its hardest for you, and potentially reach enormous savings goals relatively quickly. It encourages you to set a goal, live frugally and save smartly to achieve it. Every time you’re tempted to spend, you can ask yourself “Do I want this more than I want to be able to quit my job and still have a nice life?” If the answer is no, then you keep that money in your pocket!

The downside, of course, is that you can end up sacrificing a lot to your frugal ways and may come to resent the number of treats and social occasions you miss out on in pursuit of your goal. So, we think the F.I.R.E. movement works best when you follow each principle perhaps not to a tee, but in the spirit that it was intended. Cut your spending, but not to the extent that the money you’re saving is costing you disproportionately in the joy you get from life. And remember, don’t just take our word for it: do your own research and seek independent financial advice, particularly around investments, if the F.I.R.E. movement is something you’re interested in.