Kindling: first steps in FIRE
We don’t want Havenwards to be a blog focused completely on FIRE (financially independent, retire early), but we’ve decided to start talking more about it as it really informs our world view. We’re very well aware that - like veganism - this is the kind of movement that becomes a trend. A few years ago, the media started to notice veganism and suddenly it’s become the thing to do; FIRE seems to be at the beginning of that process right now. In a few years’ time the media focus will die down, and probably most people who tried it will drop off and walk away, but for a few people, it’ll stick. We’re a bit ahead of the curve and have been aiming towards FIRE for about three years now, so it feels like we’re in a pretty good place to talk about what the FIRE way of life is, and how to take your first steps towards the financially independent life that you want.
So first up, what is FIRE?
FIRE stands for Financially Independent; Retire Early. In essence the movement is made up of people who practice strong financial discipline while they’re earning money; they are savvy with how they save and invest so that they can retire early. For some people in extremely lucrative careers, this can mean by the time they’re thirty (or younger). For most of us, it’s more like in your early forties - so still a good twenty-five years before most people.
Some key articles (and blogs) to read and follow if you’re interested in FIRE are:
The three numbers that can make you a millionaire - by friend of Havenwards, The Escape Artist. He has already very graciously hosted some guest posts from us, so see if you can find them!
Where does it all go? - also from TEA. What can we say, we like his stuff.
What is Hedonic Adaptation and how can it turn you into a sucka? - the big daddy of Financial Independence is Mr Money Mustache
Newsflash: Your Debt is an Emergency - a really key concept, again from Mr Money Mustache
A story of an eff-off fund - not just something that women need to think about, but it’s written from that particular perspective. A really valuable lesson.
How much money is enough? - a really insightful post from all-round inspiration, Ken Okoroafor of The Humble Penny.
And we couldn’t resist coming back to TEA with this classic: The aggregation of marginal gains
These are the people we follow and are really engaged with. Check them out and see if the principles they’re talking about resonate with you. Some of them have a strongly North American focus as that’s where the movement was largely born, but others are more UK-focused for anyone interested over here.
Choices, choices, choices
The point of following this kind of lifestyle is not that you can hot-foot it out of the workplace as soon as possible, if that’s not what you actually want. What it does give you is options. For example, you can focus entirely on getting away from work as quickly as you can. We know several people who hate the workplace and office culture, and are itching to do just that. On really crap days, we sympathise. But for example, C is at the early stages of a career she’s lucky enough to love, so isn’t necessarily all about that quick-fire escape pod. So why is she in particular following this approach?
The big misapprehension about FIRE is that it’s all about retiring early, whereas we would emphasise that it is about choice. Want to drop your hours down so you can spend more time at home with the kids/cats? Cool, having a decent bank of savings means you won’t lose out financially. Do you just want to take three years out and travel the world? Great - having built up a strong financial base means you can do that without having to live in a friend’s garage when you get home. Want to carry on working but lose the sense of pressure that comes with living from pay-cheque to pay-cheque? Financial independence means you get to keep doing exactly what you’re doing, but without the stress. Alternatively, are you keen to pour your heart and soul into that risky but exciting sounding hyperloop-for-gerbils start-up your friends are getting off the ground? You do you - living by financial independence principles gives you the freedom to do that without fearing for your financial stability.
Sounds great, right?
Three things you can do today
So, having read all of that are you still interested in FIRE? Want to get started but don’t know what to do? Boy is this the right post to be halfway through.
1. Think about what you want…
Pour yourself a delicious beverage and sit down with a partner or yourself, depending on your couple-y status, and pull out a notepad to jot down ideas. Your standard journey, assuming no health problems, is working until you’re (at least) sixty-seven, then retiring on your hopefully sufficient pension, topped up by whatever is left of the state pension by then. How many years is that for you? If this is your path, how do you feel?
Talk about what you actually want from life. For example - do you really love working; are you in a career that you find fulfilling and stimulating enough that you want to keep chasing it down for the next thirty to forty years? If so, good for you. For anyone for whom the answer is anywhere from a ‘yes - ish…’ to a flat out ‘heck no’, then you then need to ask yourself what you want to do instead? What are you ‘running from’ and ‘running to’ when it comes to work and life? We don’t often make the time to have these kinds of honest conversations either with ourselves, or others.
Other questions to ask yourself:
Can I do this for another thirty to forty years? What about if I were in my dream job?
When do I want to stop working?
What would I do instead? Is that a worthwhile way to spend that time?
What brings me joy in life? Can I get that while I still work full time?
Would I be happier if I cut my spending by 15% and retired ten years earlier?
Am I going to have enough money when I retire if I carry on as I am now?
Once you’ve asked yourself these questions, and you know that you want to follow a different path, then the next step is to figure out your baseline.
2. Where are you now?
This is a bit tedious, so maybe pour out an even stiffer drink (if alcohol helps you get through this). Go back through your bank statements for the last six months - this is easiest on online banking - and track your spending compared to your income. What do you spend your money on? What is your average month’s spending as a percentage of your income? What is your saving rate as a percentage of your income? For context, most of the UK population doesn’t put anything into savings at all each month, while a 30% savings rate is considered to be very good by the powers that be…
Break it down into broad categories - eating out, trips and treats, drinking, groceries, vets bills (thanks, cat), leisure… whatever categories make sense to you, do a brief but brutal audit of where your money currently goes. There’s a common saying in fitness and weight loss circles that really applies here:
You can’t manage what you don’t measure.
Once you’ve taken the time to have a long, cold look at the current status quo for you, on to the next step…
3. How does that make you feel…?
OK, a lot of this process is about feelings and emotions, but honestly, this is a blog written by a pair of lesbians - did you expect anything less?!
Look at your current state of play when it comes to spending. Is there anything that stands out that makes you feel uncomfortable? Do you feel embarrassed about how much you spend eating out for lunch, for example, or on pub trips with mates? Is the amount you spend on cinema trips, or jaunts at the weekend, or on your phone contract or TV license something that makes you feel a bit squirmy inside? That’s a sign that the amount you’re spending on something doesn’t align with your values.
There’s a powerful concept developed in Robin and Dominguez’ book Your Money or Your Life (Spoilers: you’ll hear about this book a lot in the FIRE community) that makes you look at spending in terms of hours worked. I.e. that new jacket isn’t £70, it’s nine hours in the office. The modernised FIRE perspective looks at habits more than individual purchases, and so we’d say that regular morning latte could be costing you years of extra time in the office. Is it worth that? Simply - what would make you happier? The latte, or the free time.
For a quick, personal example, the other night we spent over £50 at a lovely cocktail bar near where we live. We got to try out making gin (and were told several times that home distilling is illegal in the UK, thank you very much…) and then had a couple of drinks each. It was a reasonable price for the experience we had but it definitely wasn’t cheap or uber frugal. However, this was an experience that we had both wanted to try for several months, it was at a venue we already know that we love, and we had a great time. It was also a delayed Valentine’s Day treat from C to P, so it had that to recommend it. Neither of us feels like that was a bad use for some of our weekly budget, or of the time spent to earn it.
Look at your values. Look at your spending. Think about what you really, really want from life. Does the way you spend your money match up with what you want from the world? If not, think about what you can do to make it align better. If that means saving a little bit more each month, without being excessive, then that’s great. If it means going hardcore and aiming for an 80% savings rate so you can retire in five years, then all power to your elbow!
Patience is powerful
This all comes back to our favourite mantra here at Havenwards: Patience is Powerful. This stuff takes time. For a lot of us, adjusting to a more disciplined approach to FIRE involves radically re-thinking your spending habits, and as we’ve found, it’s taken us both a couple of years to really start to get it nailed. But as you start to save more, you’ll then want to think about what you do with the savings you’ve built up. Check out our fairly no-nonsense guide to investing (and let us know if you want more of that kind of content). Certainly focus on getting six months of your usual expenses saved up - including rent - so you have a strong emergency fund. (For more on that, see our recent post on the five kinds of funds you need to have in your pocket.) At the end of the day, if you don’t want to retire early but you’ve had a go at living by some of these principles, you’re setting yourself up for a much stronger financial future, and that gives you the freedom to choose how you want to live it.