With the current cost of living crisis ongoing, many of us are beginning to think seriously about our money long-term. In which case, the FIRE movement – and the prospect of retiring with financial security in the near future – is surely appealing to many.
It sure isn't easy, though. The aim of the FIRE movement (which stands for ‘financial independence, retire early’) is to save as much as possible, spend as little as possible and invest money wisely in order to achieve early retirement.
The method dates back to the 90s and the best-selling book Your Money Or Your Life by Vicki Robin and Joe Dominguez. The writers advocate for aiming towards a long, happy and fulfilling retirement – rather than working into your 60s to continue making more money.
One of the most popular quotes in the book, according to Amazon, is: “Endless desire is one of the pitfalls of human nature, and one of the first things you need to cure if you want to get ahead more quickly.”
Unsurprisingly, one of the key elements of the FIRE movement is to live frugally, keeping costs as low as possible. Lifestyle sacrifices aside, it's an even tougher task considering the current cost of living.
But the FIRE movement is proving popular in recent years, as many people realise the benefits of extreme saving in order to reap the benefits later on.
The forum r/FIREUK, for example, is one of Reddit’s biggest British finance related communities with over 149k members. All are aiming to reach FIRE status, though of course, discussions range from success stories to challenges with pensions, childcare, housing and even burnout and stress.
However, it does seem that the FIRE movement is more effective in those with high-income jobs (surprise surprise) – though commenters offer advice on upskilling and working tactically to achieve a higher salary.
Here, we breakdown exactly what the FIRE money movement is, and how you can try it for yourself – with the help of some top financial experts.
What is FIRE?
“FIRE saving is the practice of aggressively saving and investing money to achieve financial independence and retire early (hence the acronym),” says Laura Howard, personal finance expert at Forbes Advisor.
“It involves a combination of frugality, smart investments, and careful financial planning. The goal is to accumulate enough assets and passive income streams (that provide you cash or assets without the input of too much time or financial investment – for example shares, buy-to-let properties etc) to cover living expenses without relying on a traditional job. The FIRE model is designed to achieve greater flexibility in life choices, and potential early retirement.”
What are some of the saving methods associated with FIRE?
“Some key methods in the FIRE approach include living below your means by cutting unnecessary costs and adopting a frugal lifestyle, pursuing additional income streams, promotions or ‘side hustles’, allocating a large portion of savings to investments – such as low-cost index funds, property, or dividend-paying stocks – and minimising your tax liability by using tax-advantageous accounts and strategies, such as ISAs (Individual Savings Accounts),” says Laura.
Is it feasible to aim to retire at 40 using the FIRE method?
This really depends – and it takes a lot of discipline. “Retiring at 40 using the FIRE method is definitely achievable for some but success will hinge on factors such as income, expenses, savings rate, and investment returns. And of course, the earlier you start, the more realistic it becomes,” says Laura.
It's also important to recognise just how much you may need to save – if you retire at 40, you could be looking at a 40 to 50 year retirement to prepare for.
James Norton, head of financial planners at investment management company Vanguard, adds: “Many FIRE investors have traditionally followed the 4% (or 25x income) rule to work out how much they’ll need to accumulate for an early retirement. While it’s a broadly helpful guiding principle, this rule is actually based on calculations done in the 1990s, assuming a 20-30 year retirement. FIRE investors aiming to retire at 40 could be looking at a 50 year+ retirement, meaning the 4% rule is likely to see them running out of cash too soon. In fact, according to our calculations – under the 4% rule, if you retire at 50, you only have a 48% chance of not running out money by age of 90, and less than 36% if you retire at 40. Factor in the rising cost of living and the compounding of investment fees and charges and that figure reduces even further.”
Laura warns: “Regardless of how soon you begin, the FIRE method requires a high level of discipline, dedication and often making significant lifestyle adjustments. It can be hard to forgo the things that your family and friends are doing now so that you can save money.”
What are the drawbacks of the FIRE method?
This saving method isn't for the faint-hearted. “Lifestyle sacrifices are a major sticking point for many,” says Laura. “Living frugally invariably means shunning luxuries and valuable experiences, such as holidays and celebrations.”
She adds: "As with any form of saving or investing, there are also market risks to consider. Returns are not guaranteed and can be volatile. You must see FIRE as a long-term strategy and be comfortable with the fact that the value of your investments could fluctuate wildly.
“Plans can fail, and unexpected life events or changes in expenses can disrupt your FIRE plans. If you go into a FIRE plan with little flexibility, make sure you think about how you’d cope if something happened that affected your timeline or derailed your plan completely.”
But perhaps the biggest drawback is an emotional one, she says. “Pursuing FIRE can be isolating as it may require you to sacrifice relationships with friends or family if your goals don’t tally with theirs.”
Is FIRE achievable for everyone?
Laura says: "FIRE may not be achievable for everyone, depending on individual circumstances. But the pursuit of financial stability and wealth doesn’t require you to opt completely into FIRE or completely out of it.
“So, focus on creating a personalised financial plan that balances your goals, priorities, and lifestyle. Build a ‘rainy day’ fund of accessible cash; if you have debt, prioritise paying off high-interest balances first; and invest in your future through retirement planning - such as pensions, and diversified investments. The key is to find the right balance between enjoying life today and preparing for a comfortable future.”
How to get started with the FIRE saving method:
Set clear saving and investment goals, with realistic expectations. “Spending as little as possible whilst saving aggressively requires an extremely disciplined approach and may entail making some difficult lifestyle sacrifices,” says James. “Sitting down and setting realistic saving and investment goals is the first crucial step for people wanting to achieve the early retirement dream. Since we’re now living longer on average, your retirement goals should account for the realities of an intended 50 years (or more) in drawdown, as well as inflation assumptions throughout this time.”
Ask yourself: is it worth it? “Consider the potential risks and uncertainties involved and what your appetite is for them,” says Laura. “FIRE can work, but as with a lot of things, it isn’t for everyone, so just take time to think about whether it will enrich the life you want or detract from it.”
And finally, put some thought into your personal goals. “Before trying FIRE, consider your financial goals and priorities,” says Laura. “Do you want to retire early to pursue hobbies or a different lifestyle? Is early retirement the only way you can do that? Also, think about your willingness to make lifestyle adjustments, knowing that these can be long-term, and make sure you’re comfortable with the time and effort required for financial planning and investing.”
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