financial independence Archives

The FIRE movement, which stands for Financial Independence and Retire Early, has become quite big in the United States where many people who have achieved FI have turned their hand to blogging, podcasting and YouTubing about the subject with some of their spare time. For many it is their main post retirement activity.

Mathematically achieving FI is simple. Reduce your expenditure save and invest the the money you save into a nest egg. Then wait until the passive income generated by the nest egg is enough for you to live on. So you would think there isn’t much to talk about.

However, it is the psychology of this lifestyle and the fact that it is so counter intuitive and counter culture that make it difficult. As a result the are literally plenty of books, blogs, podcasts, YouTube videos, a documentary movie and even camps and conferences on the subject. It is almost like a cult or religion but it a good way.

The Fire Movement in the UK

Here in the UK things are very different. Whilst there are are a few people/converts, there aren’t many. The quantity of content out there for UK proponents of FIRE is tiny in comparison to what is available to their US counterparts. This is a great shame because it is a message that we need in the UK just as much as our friends in the US. In my last post and YouTube video, I talked about some of the main concepts of the FIRE movement and these apply to the UK too. But the options available to us and laws regarding saving and investing are very different.

Much of this blog and my YouTube channel are going to be devoted to the fire movement but from a UK perspective. However, in this post I want to look back at how it all got started over the pond and how it has grown to what it is today.

Your money or your life: The beginning of the FIRE movement

Most people trace the origins of the FI movement to a 1992 book called Your Money or Your life by Vicki Robin and Jo Dominguez.

This updated version was released in 2008.

In it they lay out the ideas that modern day FIRE movement is based on. That the only real asset we have is our time, the number of hours that we have left before death. This is the only currency that really matters. For the most part we sell our best hours in return for work and spend many of the remaining hours and a lot of the money recovering from the work.

They outline 9 steps to achieving financial and early retirement. Although, they are not necessarily required to be carried out in this order. Rather, you will find yourself continuing to work on all steps right the way up to the day you achieve FI and some of them into retirement as well.

Step 1: Make peace with your past.

Most of us have a bad relationship with money. This is normal in our culture. There is nothing wrong with this. Many people feel ashamed of how they spend their money and this becomes an excuse for not doing any kind of self analysis. Don’t let this be the reason that you put off getting started.

Step 2: Calculate your real hourly wage. Get started in the Fire Movement

Whatever your salary is, it is not the same as what you actually get to spend on yourself. Obviously you pay tax and national insurance, but you will also have other work related costs. Things like travel costs, lunches and drinks at work and work specific clothing. Additionally, the hours you are paid for are not the same as the time you spend on work related activities. Time spent commuting and time spent training studying all need to be factored in. So your real hourly wage is; Take home pay after tax and National Insurance minus all work related costs divided by hours spent at work other work related activities. The number you arrive at is what you actually earn and it will be a lot less than what you think you earn.

Step 3: Track your expenses and convert into hours.

When you know that although the cost of the Starbucks coffee you are considering having is £4 but that equates to having to do another 45 minutes of work, it should become easier to cut down on these unnecessary luxuries and start building your wealth. These hours, the only currency that matters, they refer to as life energy.

Step 4: Ask yourself 3 Questions.

1: Did I receive fulfilment, satisfaction and value in proportion to life energy spent?
2: Is this expense of life energy aligned with my values and purpose?
3: How might this change if I didn’t have to work for money?

Step 5: Chart your money. Motivation for the Fire Movement.

It is easier to understand our situation and see our progress if we can visualise it. If we plot a line for our monthly income and a line for our monthly expenditure, then the space between these two lines is our savings.

Step 6: Spend less.

It is the expenditure line that we have most control over and that we can work to bring down. Frugality doesn’t mean depriving ourselves of luxuries. It is about making sure we get maximum value from our purchases and the things we have use of that cost us nothing.

Step 7: Redefine work.

Once we start getting money working for us instead of working for money, we need to redefine what it means to work. When we don’t need to work for money, our work is how we contribute to our community and humanity. It is the ways in which we leave the world a better place than when we found it. These might be things we make money from but they don’t have to be.

Step 8: Find your crossover point.

The crossover point is when the income from you nest egg is enough to cover your expenses. The point at which you can theoretically stop working for money. You will probably choose not to stop working, especially if you have completed the previous step. But you will be able to be more selective about what work you do. You wont value that work just by how much you are paid to do it but by the contribution that you feel it makes to humanity.

Step 9: Invest

As I said you don’t need to wait to complete all the other steps to start this one. In fact you should probably start this one first.

So it is an important book and it is worth reading. Much of the advice is transferable to the UK especially in the updated edition. However, the Fire Movement is different for everyone. In this book they go into a lot of details for ideas to save money which will not be for everyone.

The fire movement has moved on a long way since 1992 and there are many more books and blogs and YouTube channels that you can read to get inspired. If you are in the UK make sure you are subscribe to my blog and my YouTube channel and let me know what you think of this post in the comments section below.

UK financial independence is not a New Years resolution. I am not one to make new years resolutions and despite the title that hasn’t changed. However, by coincidence I am at a point in my life where I have recently set some clear goals regarding my finances and I am forming a path to achieving them (I hope).

There is a growing movement in the US known as F.I.R.E, which stands for Financial Independence Retire early. The idea is simple; that saving a little more in the short term and investing that money can lead to being able to retire or become financially independent long before traditional retirement age. For those of us living in the UK financial independence is an equally exciting idea and realistic prospect, and may be easier than we think.

The secret of the Rich

It is the secret that the rich have known for a long time. Put your money to work and you wont need to work for your money. Or is it that people who realise this truth inevitably become rich?

Its a dog eat dog world

The truth is that life is tough and the world owes us nothing. Apart from a of our closest friends and family members no one really cares about us, most people only care about themselves. That goes for our people we work with, people we work for and the government. The message that we get from society collectively and the ideas that have become cultural norms are not in our own best interests.

Our employers pay us as little as they can to keep us from leaving.
The government takes as much as they can in tax and waste it.
We are forced to take out pensions which end up being of little value.
What ever is left we are encouraged to spend in its entirety on the things we need.
Then borrow more money to spend of things we don’t need.

My dad was telling me the other day that through his 30 year career, there were several times when he got sick if it and thought about packing it in. Every time his employer came along and gave him just enough of a promotion to keep him enduring the hard work and long daily commute. To be honest, I don’t hold it against companies for doing this. They are in the business of making money and everything they can save they can either pass on to savings for customers to maximise their market share or pass of as profits to shareholders. The thing I have a problem with is that the societal norm is for us to give away our freedom.

Tax; pay what you should, don’t pay more

Most of us pay a huge amount of tax, especially if we are not rich. That may seem unfair and it is but that is a can of worms which I will open in another article.

The bottom line is, if you earn £30,000 per year you will probably pay a little over 20% in National insurance and income tax which will be taken before you even see it. When you spend what is left you pay an additional 20% in VAT and when you factor in duty on things like petrol, tobacco and now sugar, and council tax, you’re probably paying over 50% of your income in tax. I am not saying we shouldn’t pay our fair share of tax, we totally should. But we should be aware of what we pay and the ways we are entitled to pay less. What bothers me is that much of these details are not clear.

Pensions; done right can lead to uk financial independence

Our pensions also take money from us before we even see it for the most part. It is not a necessarily a bad thing. If it was left down to us, most people wouldn’t put money away for their retirement. But even with the tax incentives and employers contributions, the products that most pensions get invested in are terrible. The amount you will end up with at retirement is a shadow of what it could have been if you had invested in simpler cheaper investment products. I have a pension from my employer but they make it very difficult for me to see how much it is currently worth or have any say into how it is invested. That bothers me.

Keeping up with the Joneses

As we go through life we earn more money. So it should get easier and easier to invest more and more in ourselves. But it isn’t. Peer pressure, keeping up with the Joneses and our own distorted priorities make most of us spend all this extra taking on bigger and bigger liabilities like nicer cars or bigger houses or expensive holidays. To me this seems silly.

Work for 40 to 50 years, buy as big a house as you can ill-afford, stuff it full of crap, get promoted to your level of incompetence, and beat those pesky Jones’s at all costs.
From Monevator.com

Unnecessary Debt

It is made even sillier by the fact that as we earn more money banks are even more willing to lend us money so we can all this extra stuff. The truth is that in doing so we end up paying more and more for less and less in return.

Achieving UK Financial Independence

So people living in the UK financial independence is the same as for those in their USA or anywhere else in the world. Its about resisting these bad habits and growing a nest egg. Putting that nest egg to work. And getting it to the point where the income it generates is equal to what I need to live.

It doesn’t mean that I will then stop working and live a life of leisure. That would be expensive and the nest egg probably wouldn’t cover that anyway. What is mean is that I can work on what I want to work on. No one will be able to tell me what to do or where to be. Or when I can and can’t go on holiday.

The maths behind it is simple. There are simple and cheap investments that can conservatively return 5% a year and probably more. Therefore, if your net worth is in an investment like this, you can take out 4% of it each year without it going down. It may fluctuate in the short to medium term but in the long run this will be true.

So financial independence is when you net worth reaches 25 times you annual spending.

I am still relatively new to thinking about this in this way but I am already 41 years of age and I have saved and invested a bit over the years. So I have a bit of a nest egg already. But there is still a long way to go. But I hope to achieve UK financial independence this decade. Here on this blog and on my YouTube channel I plan to share my story with you. So thanks for reading and see you again soon.

Tag: financial independence

The FIRE movement began with this book