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How investing can help you achieve FIRE

Karl 11th Mar 2024 2 Comments

Reading Time: 5 minutes

The Financial Independence Retire Early (FIRE) movement has gained huge traction in recent years.

Loosely referring to achieving a financial status whereby you no longer need to work for a living, FIRE is probably the ultimate goal for those seeking to ditch the typical 9-5.

But how does investing sit within the FIRE movement? And is giving up work in your 40s, or even 30s, a realistic goal?  Keep on reading for all the details or click on a link to head straight to a section…

What is Financial Independence Retire Early (FIRE)?

The FIRE movement refers to gaining financial independence and retiring early. The term was first coined back in 1992 in ‘Your Money or Your Life’, a book which explained the concept of aggressive saving in order to achieve financial freedom.

Yet while the idea of financial independence has been a ‘thing’ since the early 1990s, the FIRE movement didn’t really take off until the 2010s.

Since then, the idea of FIRE’ing has become more and more mainstream, as many are beginning to cotton on to the fact that our financial situation ultimately controls the way we have to spend our time on this planet.

There are now online discussion forums, podcasts, and Reddit groups dedicated to the concept of FIRE (and we’re sure it won’t be too long until there’s an 8-part Netflix series dedicated to the movement)!

How FIRE works

In simple terms, the idea of the FIRE movement is to save a large proportion of your regular income over a long period of time – many suggest saving 50%-70% of your salary is a reasonable target. In addition, many FIRE advocates will also encourage you to pursue profitable side hustles and look for ways to earn passive income to further boost your wealth.

The idea is that, over time, you will save enough to support your everyday expenses for the rest of your life. To put it another way, you’ll be ‘financially independent’ and therefore able to ‘retire early’. Pretty simple, right?

It should also be said that the FIRE movement inspires ambition, which is why you’ll likely come across FIRE-wannabes shouting about their desire to retire in their 50s, 40s, or even 30s –  especially on the likes of Reddit which isn’t known for its modest users!

How much money do you need in order to FIRE?

You may be wondering how much money you need to have saved in order to FIRE and walk off into the sunset.

Well… obviously the more money you can stash away on a regular basis, the greater the impact on your wealth.

Your status as a homeowner or non-homeowner is also very relevant for obvious reasons.

As a general rule of thumb, however, many advocates of FIRE will talk about the ‘Rule of 25.’ Under this rule you’re supposed to calculate how much you’ll probably need in retirement each year, and then multiply this figure by 25.

For example, if you think you’ll need to live on £20,000 per year once you’ve given up work, then you’ll need to have saved up £500,000. (Park aside inflation for now).

Under the 25 rule, it’s assumed your retirement will last for 30 years, and that you earn an average return on your savings. However, if you’re looking to retire very early in life, then you’ll obviously need to save a lot more.

Again, the above is a very rough rule of thumb. To get a figure that’s more accurate to your circumstances the Playing with FIRE retirement calculator is a good place to start.

How can investing help you achieve FIRE?

Make no bones about it, to be on the path of FIRE you’ll need to be a disciplined saver and willing to sacrifice your personal gratification today, for a better life tomorrow.

If that’s you, then you next need to think about what happens to your FIRE savings pot – and this is where investing comes into play.

One of the biggest ways to potentially turbocharge your FIRE retirement pot is to invest your wealth, rather than save.

That’s because while interest rates on savings accounts are high right now, history tells us that returns from investing typically outperform returns from savings accounts, especially in the the long-run.

It’s worth knowing that passive investing, and buying a low-cost index tracker fund, is often a popular option among budding FIREees. With passive, low-cost investing the idea is that you don’t meddle too often with your investments. Instead, you remain disciplined, add to your investing pot regularly each month, and then you’ll (hopefully) see your wealth grow over time. The low-cost element is very important, as high investing fees can eat into your returns faster than you might think.

And don’t forget about inflation. While savings rates are high, this is mainly because inflation is very high right now which has forced the Bank of England to hike interest rates again and again over the past year or so. If and when interest rates fall – perhaps when inflation comes down – then this should be a positive thing for price of equities, and bad for interest rates on savings accounts.

For more on the pros of investing over saving, do have a read of our recent article on the subject: 3 reasons why you SHOULDN’T ditch your investments despite rising savings rates.

Investing: A word of warning

It’s important to note that when it comes to investing, there are no guarantees. The value of your wealth can rise and fall over time – it’s the nature of the stock market.

If you aren’t comfortable with this risk, then aiming to FIRE by stashing your cash in a savings account is certainly an option, though relying on the generosity of banks to provide high savings rates over along period of time is probably wishful thinking!

Is FIRE a realistic goal?

One of the main criticisms of the FIRE movement is that it isn’t an attainable goal for many. After all, if you’re on the breadline and you don’t have any disposable income at the end of the month, or you’ve (non-mortgage) debt, then that’s probably true – for now at least.

Yet it should also be said that FIRE might be a realistic goal if you are fortunate enough to have a decent level disposable income, along with the discipline to save a big chunk of it each month. The desire to grow your wealth through passive income or side hustles is another important attribute which can make or break any FIRE ambitions you may have. Obviously other personal circumstances will come into it too.

If you are looking to FIRE then setting a realistic retirement date is really important too. After all, if you don’t set a date or year to retire, then how will you know when to call it a day?

And even if you are sceptical of the concept of FIRE – or at least your chances of achieving it – then why not give it a go anyway? As the old saying goes… “Shoot for the moon. Even if you miss, you’ll land among the stars.”

To learn more about building your wealth over time, take a look at our article that looks into ways to target £1,000 passive income for life.

And on the topic of retirement, do also take a look at our article that explains all you need to know about pensions.

Disclaimer & Investing Newsletter:

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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.

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Leslie Austin
Leslie Austin
1 month ago

Sounds like I’m a trailblazer. I achieved FIRE in 2005 at age 46. My savings and investments have kept me comfortable since then and until all my various pensions are up and running, which is in just over a years time now. I think a couple of other people did it soon after as a result if my example, so I may have started a snowball in the number of people doing it. Both of the two were childless singletons like me who had the facility to save money.

Leslie Austin
Leslie Austin
1 month ago


Last edited 1 month ago by Leslie Austin

Jasmine Birtles

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