#Financefridays - Should we save more, as a plan to retire early? Is the FIRE Movement a life hack?


I recently saw a post that stated we get to retire when we are 67 and our life expectancy is 78, so we get 11 years to enjoy our life. Now that sounds very sad, (although there are some that love their job, and are living a life full of purpose, and may never retire from their purpose). However, what if you were told you could actually retire in 10-12 years in order to have more time for your purpose, yourself, and family, depending on how frugal (minimalistic) you are willing to live.

As a maths teacher, the maths of the FIRE Movement sounds amazing. Live on 46% of your net income (after-tax), and invest the remaining 54%, in index funds (
click here to learn more about index funds and passive investing). ‘After 12 years at a 7% rate of return, your investments will have grown to 25 times your annual cost of living, and you’ll be able to live off them forever’.

The picture I saw went on to give an example of a worker whose net income was £3,138 per month. She would then save/invest £1,694 a month, into index funds (remember index funds are low-risk investment funds that have been proven for years to offer a higher return than savings accounts and bonds). She would then live on £1,444 a month. Now this sounded great, except with this example your salary would be £53,081 a year (studies suggest it can also work with £40,000).

The FIRE Movement is traditionally for middle-income earners with the aim to simply spend less, invest more, while you also try to increase your income. However, there are principles that anyone can apply, and you should not dismiss the idea just because like me, you may have children and your paying for their sports or drama clubs. In addition, if you were a young parent, you may have made wrong financial decisions, and are paying off debts, and therefore saving anything is hard, let alone 50% of your take home pay. However, where there is a will there is a way.

Essentially, if we were to break the FIRE movement down, this is just about planning to get more income, spending less, and saving more. Even if you can’t do it now, what if you could give your children or other family members a better strategy than just working till they are 67? What if you could help your 20-year-old child to retire at 30, and have time to really think about their purpose, generational wealth, and playing real-life monopoly.

A key principle of the FIRE movement is to get to a position where you have 25 times what you spend in a year, not what you earn, ‘if you can get by on £10,000 a year, you need £250,000. If you need £40,000, your target is a cool £1 million…. the more you save, the faster you will get there.’ Studies suggest, If you save 10% of your income, it will take you 51 years to get there, if you save 15%, you can decrease the time by 8 years. If you save 50% of your income, you can get to the 25 times your spending goal in 17 years. If you save 75%, you can get there in only seven years.

The FIRE movement, started around 1992, with the book called ‘Your Money Or Your Life’ (published by Joseph R. Dominguex, Monique Tilfors, and Vicki Robin), the author (Joe) died in 1997 and therefore, the book only became more known through the rise of the internet and blogs in the early 2000s.

Another key principle of the FIRE movement is the 4% rule, which was taught by 3 professors in 1998 at Trinity University in Texas. They suggest, if you keep your money in stocks and shares, you can live off the money with a withdrawal rate of 4% a year. Warren Buffet, a financial guru also advocates being safer when investing using index funds/ETFs.

It is important to note there are fees with these, and this is why many prefer Vanguard which at times only charges 0.06% a year compared to some that can charge as high as 1.5%. ‘The minor difference adds up over time – if you invested £100,000 and it grew 6% a year for 30 years, you would have £374,532 with annual fund charges of 1.5%. If the fund charged 0.06%, you would have £564,676. That’s £190,144 more, purely due to charges’.

Critics suggest, a 4% withdrawal rate, is assuming inflation is 3% a year, and it is also assuming the index funds can give you a return of 7%, and it may not be guaranteed in your future and in your 40s and 50s that it will be possible to live off 4% a year. Other critics state, your family may not understand why you’re living so minimalistically, and you may struggle to find a life partner who shares your values. Other critics also state that there are not even index funds that still give 7% return.

However, studies have shown that Vanguard has maintained higher returns than 7% in the last 15-20 years. VIGAX (Vanguard Growth Index Fund Admiral Shares) has given an 8% return since inception. VLCAX (Vanguard Large Cap Index Fund Admiral Shares) has given a 9.5% return since inception). VTSAX (Vanguard Total Stock Index Fund Admiral Shares) has given a 7.5% return since inception). VIMAX (Vanguard Mid Cap Index Fund Admiral Shares) has given a 9.8% return since inception). VSMAX (Vanguard Small-Cap Index Fund Admiral Shares) has given an 8.6% return since inception).

Critics also suggest that people will not want to live frugal/minimalistic in their 20s, they would want to be adventurous and travel the world, and it is also for people with no children, and who have low mortgages and higher salaries. However, there are key principles that can be learned or applied, even if you don’t apply FIRE to its fullest potential.

The Fire Movement shows:

1) You can take control of when you retire if you plan. And you can help your children change the game, and therefore, generations to come.

2) What you need for your spending in a year is more crucial than what you make a year. Reducing what you spend, gives you more power and control.

3) Following the fire model can help you to not just retire early, but can help you to buy a house early, or to have more income to invest in other ventures such as start-up companies, or crypto (
click here to learn about all asset types), that essentially could create a higher return on your investment and get you to financial freedom sooner.

4) Retiring early is not not only about having no boss and nothing to do, it can be about even making more money to help financial freedom, such as having time to write that book, or create that product, that will then generate passive income, or to learn about money, to then be able to play real-life monopoly.

5) Life satisfaction does not have to be when you are old. We don’t have to be wild and free in our 20s. When we could essentially retire early and have life satisfaction in our 30s, and 40s, and even 50s, rather than our late 60s.

Be sure to check out last week’s post, which mentioned some cool apps that can help you save, and new strange saving methods by clicking 

Did you know the concept of even retiring is only a few centuries old? Before not only was life expectancy very short (before our 40s) but you were also more seen as a machine that should just keep on going until you no longer work, and then need to be replaced. Often your offspring would take over.

Studies suggest, most people that have managed to retire early did so by increasing their income with side hustles and/or building an investment portfolio. They also, therefore, had to find a way to have free time, as many find they are unable to work extra after their normal working hours as children take up their time. Being organised (
click here) and being disciplined and having self-control (click here) is essentially for retiring early.

What do you think about retiring early?


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