Financial Independence, Retire Early. Sounds pretty good, doesn’t it?
But the FIRE movement isn’t all about living the life of luxury. In fact, its proponents champion living the simple life, typically saving as much as 70% of their income – rather than splashing the cash – to allow them to realise their goals.
Choosing FIRE may be quite extreme, but that doesn’t mean there aren’t things to learn from these frugality experts. In fact, choosing to adopt some of their principles may help the rest of us achieve some of our own goals sooner, and experience a taste of financial independence as a result.
Little luxuries and frivolous purchases are the antithesis to a FIRE mindset. Instead, the idea is to focus on buying just what you need and nothing more. One good strategy is to force yourself to wait at least 24 hours before splashing out on new items. Over that time, you should be able to assess whether it’s really worth spending your money on.
Living lean is all about forcing yourself to make the sensible decisions when faced with a choice between spending and saving. It may mean forgoing nights out with friends (or convincing them to do something cheaper), postponing your holiday or finding other ways to cut costs.
Save as much as you can
All of this self-discipline should hopefully translate into surplus income, which can be funnelled straight into savings. As mentioned, FIRE advocates aim to save more than half of their income, often achieved by moving to a lower cost of living area or seeking promotions while simultaneously avoiding lifestyle creep (this means keeping monthly outgoings the same even once you are earning more).
The savings pot should be put to work, so once you’ve set aside an emergency fund covering roughly six months of expenses (food, bills and rent/mortgage), you should put the rest of your savings into an investment account.
Prioritise debt repayments
We’ve mentioned before that debt isn’t always a bad thing: it can be a useful tool to help you manage your finances while simultaneously owning the things that you need. However, for those looking to retire early, its important to pay down any debt – including a mortgage or car loan as well as things like credit cards – as quickly as possible. The idea is to make your fixed outgoings as low as possible, as this will ensure that the money you have saved and invested stretches as far as possible.
This isn’t just wise for those seeking early retirement. Anybody looking to ease their monthly financial burden should start by focusing on getting rid of outstanding debts.
As with all things, there’s a balance to be struck here. Not all of us want to forgo life’s little pleasures, even if it means the possibility of leaving work early. And many people get pleasure and meaning from their working life. However, the principles behind FIRE make for good financial sense, even if you pick and choose which parts apply to you.