Financial Independence, Retire Early (FIRE)

FIRE stands for financial independence, retire early, which is essentially a movement dedicated to a plan of savings and investments that allows wealth to accumulate ahead of retirement. The goal is to retire as early as possible with all responsible income routed to portfolios that could eventually allow one to retire and live comfortably.

What is FIRE?

If you don’t plan on working until you’re almost 70 (it’s currently 67 in the UK), this is the philosophy you will need to adhere to. It’s worth bearing in mind that while it’s important to save where possible, you should balance your quality of life.

Vicki Robin and Joe Dominguez coined the phrase in the 1992 best-selling book Your Money or Your Life. Millennials are looking to make their money work hard for them and retire early, driven by the feeling that the current (and future generations) have fewer opportunities.

The general consensus is to save up to 70% of a salary each month. I’ve covered how much you need to save to retire early, but you’ll need to roughly save 30x your yearly income. After accumulating such investments, you can safely quit your job and live your life to the max.

How much you need to save

How much you’ll need to save for FIRE is the million-pound question. No, literally. Depending on how much of a lavish lifestyle you plan on having once retired, your retirement savings goal will differ.

How much do you need to invest for FIRE?

Working out how much you need to invest for financial independence and retiring early largely depends on how much of a cushion you’d require. I’ve put together a few scenarios with estimations on how much you’d need to have invested.

Let’s take a target of £50,000 per year. In order to reliably receive the said amount from investments, you’ll need to have £1,650,000 put away in shares. That’s quite the number, but don’t allow it to dissuade you from making plans. You don’t need to reach this goal in a single year.

YearsAnnual TargetMonthly Target
1£1,650,000£137,500
2£825,000£68,750
3£550,000£45,833
4£412,500£34,375
5£330,000£27,500
6£275,000£22,917
7£235,714£19,643
8£206,250£17,188
9£183,333£15,278
10£165,000£13,750
11£150,000£12,500
12£137,500£11,458
13£126,923£10,577
14£117,857£9,821
15£110,000£9,167
16£103,125£8,594
17£97,059£8,088
18£91,667£7,639
19£86,842£7,237
20£82,500£6,875

Taking 20 years to save up to the golden number would require £6,875 each month. This may still be out of reach for many people, but it’s far more realistic. If you’re in your 20s, you could even double the number of years, bringing the monthly figure down to just £3,400. This chart doesn’t take into account the power of compounding.

If you invest £2,000 in your first year into an investment ISA, this can earn you up to £100 in dividends for that year. Then add another £2,000 for the second year and that will increase your dividends up to £200. £20,000 will see up to £2,000 be accumulated into your portfolio before you add any additional funds. Compounding is crazy good for building wealth.

How to get started

So, you’ve learnt about the FIRE movement, but how does one get started? I’ve got some easy steps for you to follow.

  1. Start dreaming. No, seriously. Dream about retiring early and smashing goals.
  2. Clear all your debts. There’s no way you’ll start saving efficiently with debt.
  3. Budget your expenses and keep expenditure low.
  4. Look for additional ways to earn income.
  5. Start using my dividend tracker.

Whatever you do, try and avoid falling into the income inflation bubble whereby the more you earn the more you wish to spend. Save as much as possible and you’ll achieve FIRE.

FIRE resources