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Millennials embrace FIRE movement in a bid for financial freedom

By Charlotte Ricca
October 28, 2019, 10:43 AM GMT
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    As the FIRE movement takes hold, a growing number of millennials are practising economical living and extreme saving, with the aim of retiring before they’re 40. Here’s how you can do it

    Millennials embrace FIRE movement in a bid for financial freedom

    A group of maverick millennials are challenging stereotypes about their spending and saving habits by investing in a personal finance programme called FIRE.

    The FIRE movement (Financial Independence, Retire Early) is dedicated to economical living and extreme saving, with the aim of retiring in your 30s or 40s. Which, frankly, doesn’t sound like the typical behaviour of your average 20-something.

    According to the Office for National Statistics, 53 per cent of 22- to 29-year-olds in the UK have no savings. It’s a similar story in the US, with a report from the National Institute on Retirement Security revealing that two-thirds of millennials have not put a dime aside for retirement.

    However, followers of the FIRE movement are bucking these trends and eschewing everything you thought you knew about the Buddha-bowl-munching generation. These are a group of serious savers with one thing on their mind: financial independence.

    How to retire early

    So exactly what is Financial Independence, Retire Early? And how can you achieve it? Charlie Reading, CEO of Efficient Porfolio, explains: “To be able to retire at 65, you need to save around 10 to 15 per cent of your monthly income, although this is dependent on your personal situation. The FIRE movement suggests saving at least 50 per cent, working on the basis of a safe withdrawal rate – the amount you can spend during each year of retirement, without worrying about running out of money – of 4 per cent.

    “Someone on £30,000 earns about £2,000 a month after tax; if you are putting away half of that, to still have that same £1,000 a month to live on after retirement you would need to end up with a capital sum of £300,000, at a withdrawal rate of 4 per cent per annum.

    “If you saved £1,000 per month and made a return of 5 per cent above inflation –via investments – each year, it would take you around 16 years to hit a FIRE goal.”

    The 4 per cent rule was established by the Trinity Study – a nickname given to an influential paper called Retirement Spending: Choosing a Sustainable Withdrawal Rate. Written in 1994 by three finance professors at Trinity University in Texas, it has since been updated and suggests a more generous withdrawal of 7 per cent.

    What is Financial Independence, Retire Early?

    FIRE first gained popularity in the United States, thanks to a 1990s newsletter called The Tightwad Gazette, whose strapline was “promoting thrift as a viable alternative lifestyle”. Another inspiration is the book Your Money or Your Life, written in 1992 by Vicki Robin and Joe Dominguez. The main ideas behind FIRE originate in this best-selling book, which offers advice on how to live on a fraction of the money spent by the average household.

    The movement has since gained traction online, through blogs, podcasts and discussion forums, and now has a worldwide following. Your Money or Your Life has been revised to meet the swell of interest, while the likes of Mr Money Mustache (aka Peter Adeney) receives 1.5 million hits to his blog every month.

    The Canadian-born blogger retired from his job as a software engineer “simply by living a lifestyle about 50 per cent less expensive than most of our peers and investing the surplus in very boring conservative Vanguard index funds and a rental house or two”.

    With depressing statistics from the Resolution Foundation stating one in three millennials in the UK will never own a home, it’s hard to imagine many can simply buy a “rental house or two”. So is this movement only for the privileged few?

    Charlie Reading doesn’t think so: “By no means is this for high earners. If someone on a modest wage can work out how much they need in retirement and plan accordingly, FIRE can be achieved, albeit in a much longer timeframe. Compound growth can seriously impact your savings, so it’s not something that should be instantly dismissed.”

    Living the dream

    The reality is, these ambitious millennials don’t need to save enough to live on, wage-free, for the next four or five decades. FIRE isn’t about financial planning for retirement (despite its name) ­– it’s about saving enough so they can quit their day job and pursue the career they’ve always dreamed of.

    “Most people will never fully retire. Instead they’ll work on projects they are passionate about and can carry out on a flexible basis, from anywhere in the world,” says Reading.

    “This could lead to a huge spike in technology-rooted companies, including apps, e-commerce websites and advertising on social media. Industries that physically need people – such as agriculture – could suffer, but the economy as a whole will see a shift in what is profitable. We will see far more self-employed individuals, who work from home, rather than the traditional large corporations dominating the working landscape.”

    Adeney is a perfect example of this – he now works as a blogger and financial adviser. He says FIRE isn’t about giving up work, it’s the “complete freedom to be the best, most powerful, energetic, happiest and most generous version of you that you can possibly be”.

    Financial independence offers freedom

    Andy Bell (not his real name) agrees FIRE is about freedom. Inspired by Mr Money Mustache, the 36-year-old engineer achieved financial independence and quit his job two years ago, after saving £800,000 and paying off his mortgage. Bell’s wife, who is expecting their third child, is also just about to leave her job as a project manager, where she earned £27,000 a year.

    Despite her relatively low income and a growing family to fund, Bell says he found it easy to hit his target.

    “I’ve always been frugal – so it just happened naturally,” he says. “My earnings built up from £40k to around £100k over 10 years and I saved throughout. By the time I’d heard of FIRE I was already halfway there.”

    However, Bell has no plans to retire and has since set up his own business.

    “People don’t spend 15 years mastering their craft and then turn off the tap,” he says. “Financial independence has given me the chance to do what I’m more interested in. So I set up my own analytics business and now I focus on what I like doing, which is managing data and not dealing with management.

    “I’ve already had an offer to buy my company, but I love what I do – it’s fascinating. So why would I want to stop?”

    It takes a certain kind of brain – and a very driven individual – to achieve financial independence before the age of 40. And after years of planning and preparing for their future these millennials have little interest in playing bridge or pottering in the garden.

    “It’s not about the champagne lifestyle, where it’s boom or bust,” says Bell. “The 4 per cent rule is about steady growth and optimising where your money is going – it’s very calculated.

    “And who is interested in that? Mathematical, analytically-minded people. This is why FIRE attracts ambitious people working in software, engineering, analytics, statistics or economics.”

    With such a motivated, money-orientated group of entrepreneurs seeking financial freedom – and not retirement ­– perhaps FIRE should be rebranded LIFE: Live Independently For Ever.

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