A quick guide to Financial Independence / Retire Early (FIRE)

This is a two part series. The first post gives you an overview. Part two goes into more detail about how to understand your personal finances better and start saving.

As I said in an earlier post, financial independence is the amount of freedom you have to spend your time doing what is right by you and your community, instead of selling your labour.

What this means is having enough money in savings and investments to pay you a yearly salary, which covers your expenses. These expenses should include what you need (the essentials), and what really makes you happy in life.

To generate a yearly salary to cover your expenses you’ll need to have saved up 25 times that figure.

But that leaves quite a lot of the mucky practicalities unsaid.

So this post is a quick explainer on the path to financial independence. Part two will be more focused on practical tips.

Frugal living

There are two pressing arguments for living frugally.

The first is that if you can reduce the amount of money you need to live happily you will save more and have a smaller target figure to reach.

For example, if your expenses are £10,000 a year then you’ll have to get to around £250,000 in savings.

But if your expenses are £8,000 a year then FI can be reached at £200,000 in savings (25 x £8,000) – and you’ll reach it sooner because you’ll be adding £2,000 more to your stash every year.

The second argument for living frugally is that it makes you happier.

That’s because living frugally is all about asking whether each purchase genuinely adds to your happiness, whether the cost is proportional to the happiness it brings you, and if that happiness could be generated at a lower cost some other way.

I’ll try to give more real life examples of this throughout the blog, but my own experience is that it’s possible to cut your monthly spending by hundreds of pounds through quite painless frugal choices.

I should also say that buying less stuff is much better for the planet.

The fact is, if you don’t start embracing frugality and considering what you spend it’ll take you longer to get FI, and you’ll be living a less ethical life to boot. More detail on how to get there in the next post.

Saving and investing

In the ideal scenario you would have so much money saved up that you can live off it for the rest of your life. Smashing.

But let’s start with a less ideal scenario to explain the importance of investing, compared to bog standard savings.

If you have £10k in the bank and you know you spend £10k a year, then you can afford to take a year off work.

But if you want to live off it for an undefined number of years, say 40+, then you can get extra help from compound interest.

Because you won’t be withdrawing all your money at once, the money that remains in the bank can earn interest while it waits to be used.

Of course, some banks pay hardly any interest at all, and with inflation you may see your savings lose value even faster than expected.

So you need to put your money into something that is likely to earn more than inflation levels of interest.


Practically speaking, to get higher levels of interest you need to pop your money in the stock market.

Of course that is risky a.f. if you’re banking on using it to provide your income in the short term.

But if you’re prepared to leave it in for the long haul, and put it in a fund that follows the general growth of the stock market rather than specific company stocks such as Apple or Coke (don’t worry about this bit for now), it’s pretty certain that it’ll provide a good rate of return for you on average.

In fact, by conservative estimates using historical data, that average rate of return will be above 4%.

So, to go back to our ideal scenario of having so much money that you can live off it for the rest of your life, you would need enough to generate £10k (your living expenses) every year through a 4% return.

That’s an investment of £250k.

To bring this back to frugality and living expenses, the key number you should look at is your savings rate.

If your take home pay is £20,000 and your expenses are £10,000, then your savings rate is 50%. Take your expenses down to £8,000 and your savings rate is now 60%. The additional benefits of this higher savings rate will get you to early retirement in 12.5 years instead of 17 years.

By bringing your expenses down 20% you get to work 4.5 years less.

For more on this topic read Mr Money Mustache:

A quick note on ‘realism’

At this point people usually have two objections:

  1. I can’t live off £10k, I earn £40k already and I don’t feel rich
  2. Well this is grand and all but £250k is a heck of a lot of money to ‘save up’

I’ve added a super quick explanation for each of those two points below.

But for info, the aim of part two of this series will be to provide you with a normal middle-achieving humans guide to getting to FIRE.

In the meantime, you main task is to put out of your mind any idea that this is radical, or extreme – no matter what impression you’ve had from reading about weirdoes who live in sheds and earn £100k a year (I don’t do either and I’m set to reach my number in 10 years).

Realism point 1 – Don’t confuse salary with living costs

  1. I can’t live off £10k, I earn £40k already and I don’t feel rich

Like I say, I’ll go into detail but for now bear in mind that your expenses are likely to be significantly lower than your salary because:

  • Your salary includes taxes, NI, pension contribution, student loan payment (maybe)
  • I’ll bet money that your expenses are higher as someone in full-time work than if you had more free time (weekday lunch, transport, morning coffees, work-sadness-related-takeaway-and-booze-binges)
  • There are many painless ways to reduce your other expenses (actually some of these will even boost your happiness)

Realism point 2 – Saving money doesn’t take as long as you think

††2. Well this is grand and all but £250k is a heck of a lot of money to ‘save up’

  • My own journey took me from saving around £200 a month to over £1,000 without an income boost
  • Compound interest means that once you get to a moderate level of savings they start growing much faster, because they’re generating interest which is then being automatically re-invested alongside your own savings
  • Full ‘early retirement’ isn’t your only option. If you just want to work a day or two less a week, then your investments only need to earn you enough to top up your part-time wage

3 thoughts on “A quick guide to Financial Independence / Retire Early (FIRE)

  1. I’m glad to have stumbled upon your blog. I have been recently reading tons of FI blogs recently trying to learn as mush as I could. I’m new to this idea and none of my friends and family seem to be bothered nor worried about retirement and saving money so I resulted in finding communities online that are into this.


  2. With impending ecological collapse is it valid to assume that economic growth is going to continue? Does this mean a tracker fund is a less safe bet than it currently seems?

    Liked by 1 person

    1. I guess the way to think about this (other than doing what you can to avert collapse…) is to think about what other options you have? You can spend it, which is probably bad environmentally and doesn’t leave you options whether there’s collapse or not. Or you can invest in something else but if the entire stock market is destroyed forever the rest of the economy will probably follow?


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