The FIRE movement (Financial Independence Retire Early) is already popular in the UK and huge in the US. It was a term coined in the early – mid 90’s and stemmed from a book by Vicki Robin called, Your Money or Your Life. Robin met Joe Dominguez, a former wall street financial analyst who retired in 1969 at the age of 31. He had saved 100,000USD, around 699,000USD in today’s money and was travelling South America without needing to work again.
This friendship lead to them experimenting and living frugally and simply. Only needing a fraction of the money spent by an average household.
The FIRE movement became even more popular in or just after 2010, maybe inline with the release of Jacob Lund Fisker’s book Early Retirement Extreme.
Also read: Retirement Planning: how to begin preparing for retirement. The steps to take before retirement
What is the FIRE movement?
Robin is linked as the inspiration for the FIRE movement, a lifestyle movement with the goal of gaining financial independence and retiring early. It’s a simple, but not easy concept, where you stop spending so much money on ‘stuff’ and you save that money over and above frugal living expenses and invest it and buy assets with it: property, shares, bonds, index funds etc.
And you just keep going like this until you have enough to cover your annual living expenses and a 2% – 3% buffer for inflation and market downturn. You use the passive income from your investments to cover your lean annual living expenses.
Is FIRE possible for everyone?
It’s been widely criticised that it’s only for the rich or people with highly paid jobs. And not feasible as everyone has different lifestyles. But the factors or math around it is simple, your saving rate is determined entirely by how much you take home each year and how much you can live off.
Naturally, financial freedom will be achieved a lot quicker by someone that is able to save 50% or 75% of their salary.
Saving and investing enough money to be able to live and be time rich.
So, the common tried and tested rule with FIRE, over many market scenarios, is the 4% rule.
While peoples saving rates will be different, the principle is if you need £40,000 per year for annual living expenses, you need to times it by x 25 and this gives you your total, so, £1,000,000.
£40,000 x 25 = £1,000,000.
With a diverse investment portfolio, the average income is 6% – 7% p.a.
You draw only 4% p.a. (£40,000) to live off – and never anymore from this pot, because the 2% – 3% difference is to allow for inflation.
The reality of FIRE and what people do when time rich
While also criticised for what the movement could do to the economy, if everyone retired at 30, the reality is, achieving financial freedom and stopping work at any age before 55 can be considered early.
It is also rare for those people that achieve FIRE at 30 to actually retire, and it is more a time rich status they claim, meaning it buys the freedom to work when they want to, consult in their field, teach, write a book, start a blog or vlog, help charities and fund raise.