What does this mean in practice? When you think about retiring, you perhaps see yourself in your sixties. In fact, in the UK, the reality is that many of us are looking at retiring aged 67 or 68. Some people have made little provision other than paying into the state pension and face financial struggles, even poverty. Others have planned for retirement and have a decent employers pension on top of the state pot.
Making the right money decisions
But what if you made some key decisions about money in your twenties and thirties that meant you could quit work forever in your thirties or forties? What if you could be free to choose what to do with your time?
That ship has sailed for some of us. Nevertheless I find the concept of FIRE fascinating and have begun to follow some of its ideas so that I can have a better retirement.
But how is FIRE achievable if you are on an average income? Can anyone achieve financial independence if they aren’t millionaires? You do need a decent professional income. However, many FIers have achieved their dream of FIRE on a five and not a six figure income.
Mr Money Mustache is one. He and his wife retired in their thirties to have a family. They achieved this on two very good salaries, it’s true. But instead of living lavishly they set about saving and investing a large percentage of their income so that they could retire early.
Mr and Mrs Frugal Woods are another American family living the FIRE dream. They left their corporate jobs to run a rural homestead. Mrs Frugal Woods, aka Elisabeth Willard Thames, says that frugality enabled this to happen: “My philosophy is that frugality enables you to pursue unusual aspirations and opens up a world of options. Through frugality, my family and I have created a life that we love living every single day–not a life beholden to consumerism or the drive for material perfection or the incessant clarion call for more.” Her book, Meet the Frugalwoods: Achieving Financial Independence through Simple Living is available from Amazon.
It isn’t just a US phenomenon, however. There are also FIRE blogs springing up in the UK. The FireStarter is 32 and working towards retirement in five years.
The key elements of FIRE
There are several key elements to achieve if you want to achieve financial independence and retire early.
Live debt free
Getting rid of debt is crucial if you plan to move towards FI. It’s tricky to save and invest if you are paying off or still accruing debts at the same time. When you get rid of debt repayments you have more cash to invest.
Another fundamental is to spend less than you earn. Many FIers live very frugal lives. However, it’s not necessarily about spending nothing, but more about spending money on things that are important and meaningful to you.
Living within your means is crucial if you want to achieve financial independence. It’s not just about income. Think how many rich and famous celebrities end up with nothing because they splurged it all. To achieve FIRE you need to know where your money is going, to set a budget, to have enough left over to invest.
A healthy income
As I mentioned earlier, you need to generate a decent income in the first place. Most of us aren’t lucky enough to inherit a large pot of money or win the lottery, so this means establishing a good, well-paid career in your twenties and thirties.
Establishing a savings fund
I wrote about the importance of an emergency fund here. This is important for anyone, but if you are aiming for FIRE it is just common sense to have savings for day to day issues.
It isn’t enough to have a good savings fund, though. If you want to achieve FIRE you have to create wealth through investments. Grown your money over time. I am not about to issue advice on investing as it is a subject I have only just started to research. However, my friend Faith over at MuchMoreWithLess is a financial journalist with a common sense approach to investing. Read her advice for the beginner investor here and here.
In order to have something to invest, of course, you need to either increase your income, cut your expenses or, ideally, do both.
Freedom and flexibility
When you read what those who have achieved FIRE have to say, it seems it is not really about retiring early. More about having the freedom and flexibility to follow your dreams. You can work, but perhaps in a job you love rather than one that earns you the most. You can set up your own business or get away from it all on a smallholding. Or you can take time away from work to travel or pursue hobbies.
FIRE will never be possible for those who aren’t earning a living wage – it does require a decent income, even if you are prepared to make sacrifices. There is no doubt that those aiming for FIRE tend to approach it from a point of privilege. Two professionals on a double income have more chance of excess income that a single working parent in a £25,000 a year job. If you are scratching around to make a living or unemployed the concept of FIRE is like chasing rainbows.
So, that ship may have sailed for me, but I can still be intentional with my money to make the best of it. In the meantime, I am passing the ideas to my daughters. Maybe they will achieve financial independence and retire early!
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