In 2022, 46% more people are searching on Google for the 'FIRE method' (short for financial independence retire early). With costs rising around the world, it's no surprise people are searching for ways to gain more financial freedom, and be able to finish work early, but what exactly is the FIRE method, how achievable is it and do people actually make it work for them?
Financial services provider for immigrants Remitly has put together a collection of tips and advice on how the general principles of the FIRE method can be applied to almost any lifestyle, and help people to achieve a more free life, earlier on - be it at 40 or 55.
They've also enlisted the advice of Jacob A, a 40-year-old International business advisor, who is well on his way to retiring early in 2023 thanks to living by the principles of the FIRE method.
1. Make YOUR Plan
The FIRE method and articles about it generally lay out a guide of what you'll need to save, by when. For example, if you pay off your mortgage and amass a savings pot of £375,000 by the time you're 40, you could have £15,000 available each year for the next 25 years (before claiming your state and work pensions).
This can of course sound daunting to many, especially if you're not working in a high-income job role. However, keep in mind that this is just a guide and an example to put across how the FIRE method can work. This guide can easily be applied to your own goals and spending habits, and over the years, the FIRE method has even taken on several variations to help people with this. The three main variations include:
LeanFIRE: The most extreme and minimalist form of the FIRE method, which is all about saving as much as possible, as soon as possible, to retire early. Requires living a 'lean' life where you live on the bare minimum.
FatFIRE: This method still requires a good plan and healthy saving habits, however, allows for less sacrifices and a less 'extreme' route to retiring early, potentially retiring later than 40, but before your 60s.
BaristaFIRE: This variation goes by multiple names, but is essentially the aim of retiring from full-time work as soon as possible, to take up a part-time role that you may get more enjoyment from. This could include some freelance work or a dream career that is less well-paid than your current role.
Retiring at 40 with £375,000 saved might mean having to save somewhat daunting sums from an early age, however retiring at the age of 55 is potentially more financially realistic, while still enabling you to retire early. These savings goals can also become more achievable by making the right investments or by setting up stocks and shares ISA (essentially tax-free investment savings account where you don’t have to pay tax on what you earn from investments made through the ISA, up to a certain amount). If you are serious about adopting a form of the FIRE method, it's a must to do your calculations, see what your options are and make a clear plan that you can stick to.
Jacob got serious about FIRE in 2013 because he didn’t want his children to grow up with financial stress. When asked about his plans to retire while he runs his own business consulting firm, he shared:
"If everything goes perfectly, I’ll be in a position to retire the day before my 42nd birthday in late 2023. There is a lot of flexibility in that plan, including the fact that I like many aspects of my business so may choose to continue some casual work. For me, FIRE is being liberated from the need to earn money ever again, so you don’t have to quit work forever if some days you prefer work more than watching movies".
2. Be Realistic
Making a plan is your first step in working towards early retirement while making that plan a realistic one is the second. Only you know your spending habits and what you actually 'need'. Due to the cost of living crisis in the UK, managing your finances well has become even more important, so make sure you're not overstretching yourself. You may find you'll only stick to a plan if it's one that works, so it can be better to play it safe and account for costs such as house repairs or veterinary bills for any pets, so you don't have to eat into your savings.
Jacob got earnest about the challenges he faced and the importance of making the FIRE method work for his own personal goals:
"I started my own business, moved internationally twice, have travelled to multiple countries, and invested in 10 rounds of IVF treatment with my wife. Not doing those things would have saved me a lot of money, but there’s no point in being financially free and miserable. Plus those choices have led to other opportunities that have potentially made me far more money than what I might have saved. The challenge is spending money where it is important to you, and not mindlessly spending money elsewhere because everyone else is doing that".
3. Invest Wisely
Whatever your personal plan for FIRE, it's going to require you to be wise with your money. We mentioned above about investments, and this is something that forms a large aspect of what makes the FIRE method work for so many that have done it. Saving often may not be enough, as you may want to be generating income through passive investments.
For many, swapping their standard (and possibly poorly performing) savings account for stocks and shares ISA could be a smart way of achieving this. Many of these ISAs also offer predicted income numbers based on your saving amount, to help you plan for that future, and see that goal number begin to feel more feasible.
As retirement is the aim of the game here, it may also be wise to set up a private pension, which again will come with investment options, to earn interest on what you are saving.
Jacob had this to say:
"Not all of my investment choices have been wise, and I wish I had understood some of the FIRE method and the impact of taxes much earlier in my journey. There are lots of times when I could have had my money work harder for me, especially if I had invested sooner".
4. Spend Carefully
In addition to being wise with where you invest your savings, it’s also important to be mindful of what you spend. Whether you want to live by a LeanFIRE or a FatFIRE plan, being careful with your spending will likely help you in the long run. You may find it helpful early in your planning to sit down with a spreadsheet, and your account history, and lay out what you are currently spending your money on. This will help you to identify areas where you may want to cut back. Figuring out where you are able and willing to go without can be key, especially if you are currently in the habit of picking up a takeaway coffee or lunch each day of the week.
To make this easier and more fun, however, it could be worth considering setting aside a small 'fun fund' each month, which you can treat yourself out of - so it's not all rigid saving 100% of the time.
Jacob shared his own tips about spending, after nearly a decade of adopting the FIRE method:
"Choose where you want to spend your money. It’s not about deprivation, it’s making deliberate choices about what’s really important
Be curious about debt and taxes. When you understand how to make these work for you, your FIRE goals will be fast-tracked
- Prioritise finding a life partner and having a family, if those are things you might want. Adopting FIRE as a couple is like playing on easy mode
- Don’t let perfect be the enemy of beginning. In most countries now you can invest a small amount of money into an ETF for free, and once you start it’s much easier to improve
Write your own Personal Balance Sheet at the start of every month. List all your assets, subtract your liabilities, and watch as your net worth grows over time".
5. Climb the Earnings Ladder
The aims of retiring early, exploring the world, and living the life you please are all connected to financial goals, so outside of planning, saving, investing and spending mindfully, a major help in reaching these goals can be to earn more money. This may mean you can save more, and if you’re a homeowner, perhaps pay off your mortgage sooner by making overpayments.
Simply saying 'earn more money' isn't exactly helpful, but there are many ways to achieve this. This can include:
Taking on an extra part-time role or depending on your profession, doing additional consultancy/freelance work
Moving to a new job with a higher salary
Using your FIRE aims as a catalyst to retrain for a higher-paid profession
Requesting a pay raise from your current employer
Starting a business on the side of your current job. Even if this is selling homemade goods online, this may help to bring in more money and even provide you with your 'fun fund' so you can save the rest of the earnings from your job
