A few weeks ago I met with a friend for a coffee and a chat about his experience with the FIRE movement.
I asked if he would be kind enough to contribute a guest blog to share his experience, because I believe there will be people who will find his story inspirational.
My friend has been brave enough to take some serious, life changing decisions regarding his finances – and it’s paying off!
Here’s why….
“It seems like the FIRE is spreading!“
What do I mean by that, you are probably wondering?
Well, FIRE is an acronym for Financial Independence / Retire Early.
Financial Independence (FI) is the premise that you have enough passive income generating assets to cover your living costs, making paid work optional.
How good does that sound!?!
The Retire Early bit is more optional, many people want to keep working, but being financially independent certainly provides the platform to follow a passion rather than chasing a career.
People on the FIRE journey are generally following the good financial principles that any competent financial planner would advise
- Pay down and clear bad debt
- Have an emergency fund
- Insure against disaster
- Spend less than you earn and invest the difference+++
.. but they tend to be at the more extreme end when it comes to saving and controlling expenses.
Let me show you what chasing FIRE looks like for me:
My journey began in January 2012. I was tired of working for the big corporate and was looking for something more exciting. So, I quit work and landed a contract working in London (200 miles from home).
The honeymoon period did not last long.
I was away from home Mon-Fri living in the cheapest London hotels I could find. As it got closer to the summer months the hotel prices rocketed and I found myself staying further and further out of town.
This meant a commute… a hot, sweaty, unpleasant commute.
I was pretty miserable, and on that 2-hour daily commute I was looking for something, something better, a different way of thinking about my future.
What did I discover? Mr Money Mustache! A badass, frugal living dude, living in the US who was blogging about how he had quit work at 30! Wow!
I would like a bit of that, I thought.
Around this time I also discovered a UK based podcast called Meaningful Money, by the amazing Pete Matthew.
These sources of information did more than just pass an hour at the end of the each day… they opened my mind to something new.
You see, I always considered myself good with money. I now realise I was careful, but clueless!
I could shop around for the best mortgage rate, insurance quote or lowest APR on a personal loan.
But investing, well that is gambling right?
Debt, well that is OK? It is what everybody does.
Then the lightbulb came on, I had my ‘aha’ moment.
I had been focusing on one end of the FIRE spectrum, the increasing income bit, but not so much on the controlling costs and certainly not on being intentional with my money.
I had put myself at risk of falling into a common trap.
Higher salary = lifestyle inflation, and less time to enjoy the hard-earned cash.
Over the next few weeks, I read, listened and convinced myself that there was a different way.
I quit the contracting life, found a job closer to home again and started being intentional.
I started talking to my wife about what I had discovered, just another of my fad’s she thought at first, but this one was going to stick!
Eliminating debt was the first priority.
We did not have much of it, but the car loan and the few hundred pounds on cards had to go.
At the same time, I learned that you cannot leave free money on the table.
Max out your workplace pension if you can!
I had learned the lessons of tax relief, employer matching contributions and salary sacrifice.
At the same time as clearing the debt, it was important for me to look at outgoings.
Gym memberships that never got used, subscribing to every TV channel SKY offered, subscriptions to wine clubs etc – just who did I think I was?!
My wife proved very supportive. She has always been low maintenance (did I just say that!) and probably the biggest change we made was to go down to one car.
We only have modest holidays and I think the biggest discomfort for her has been the temperature setting of the thermostat!
Next came the Emergency fund, or what I prefer to call the FU Fund (I’ll leave it to you to decide what ‘FU’ stands for).
Get a small amount in place even before all the debts are cleared. You don’t want to be derailed by that car failing the MoT, pushing you back to putting money on the credit card or, even worse, convincing you that the nice shiny BMW (on a very attractive lease) would eliminate these problems.
Now we have 6 months of take-home salary as an Emergency Fund. It buys freedom.
If things at work get out of hand, it puts the power in your hands. And yes, I HAVE used that leverage, and when I did, guess what happened?
I landed a job the very next day and a substantial pay-rise!
Without the Freedom Fund I would have suffered and never realized the opportunities out there.
Instead, I was able to say FU to my employer and carve out a new path.
Get to this point and you are well on your way!… let’s recap.
- You have no unsecured debt
- You have an emergency fund so that you can withstand any small bumps in the road
- You have insured and protected your family in the worst of all situations.
- You have some money going into a pension for the long term
Now that you are FIRE ready… let’s get serious!
What then?
Where you go next is really a personal approach.
Some go the extreme. Frugal to the n’th degree.
Not me, I cut out all unnecessary spending, but I do still believe that life is for living.
So, if you enjoy the occasional Latte or Pint, do it.
If you like to have the odd meal out, do it.
Just live to your values and remember to be ‘intentional’.
For me the mortgage was the big one. Not owing a single penny to anyone and providing shelter and security to my family, is worth more to me than anything else. Mortgage free by 43 became my new mantra.
Thanks to the low interest rates, the overpayments and some good fortune with company stock options, we did it. Last month the last payment was made, and we are free!
So, what next? Invest, invest, invest.
Low cost index trackers split across pensions and ISAs.
The FI (Financial Independence) number is something that all proponents of FIRE track, when your annual income from passive sources exceeds your annual expenditure.
A rule of thumb is to have assets and investments worth 25 times your annual expenses. Based on a 4% withdrawal rate, this should provide enough money for the rest of your life.
Of course, these figures are hotly debated, but to me that is not the point.
A savings rate upwards of 50% of my income for 8 years should get us close to achieving FI.
So that brings me to my new mantra…
Let’s be done by 51
So how about you? Would YOU play with FIRE?
Useful resources:
Meaningful Money – Personal finance podcast and support with Pete Matthew
Mr Money Mustache – FIRE blogger and general badassery
ChooseFI.com – For all the resources you need on your journey
The Escape Artist – for hints, tips and resources on how to achieve FI
Until next time…
If you are looking for a collaborative partner to help you and your family succeed financially, then hit me at planning@claritylfp.co.uk and let’s see if we get along!
Financial Planner | Financial Adviser | Investment Advice | Pension Advice | Insurance Advice | West Yorkshire
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