Financial independence is back in style

mark chappel

Mark Chappel

Can you become financially independent as well and maybe even retire early? The answer could be 🔥🔥🔥🔥

FIRE and the papers

The recent announcement by the Duke and Duchess of Sussex Harry and Meghan that they will step back as ‘senior’ royals and seek to become 'financially independent' has sent shockwaves through the British tabloids – from Megxit to my personal favourite ‘Harrivederci’. But the drive towards financial independence is not a new ambition for many. There is a whole movement built around the principle with the aim of helping its members retire as early as their 40s. Meet the FIRE movement.


At its heart, the principles of the 'financial independence, retire early' doctrine are to save as much as you can of your monthly income (between 50% and 70% after tax) and then invest it in low-cost index tracker funds. After saving enough to have a pot that's 25 times your annual spending, then you're ready to become 'independent' and live off the interest gained from your investments – so long as you never take more than 4% of your overall wealth each year in your ‘retirement’.

What will independence cost?

According to the broad principles, if you estimate that you'll need £25,000 a year to get by, you'll need to put aside £625,000. If your living expenses look closer to £40,000 then independence will cost a hefty £1,000,000 – and saving as much as that in just a few years could well be a tall order for many people.

After all, the annual take-home pay of the median UK household last year was £29,400 which would mean, after accounting for the 50-70% savings rate, their expenses would have to be between £8,000 and £14,700 for the whole year. So how can it be done?


The three levers to getting closer to independence

  1. Reducing expenses and save more
    Above and away the most important thing FIRE proponents advise you to do is to reduce your overall outgoings so that you can save more. This principle naturally aligns with a lot of what you might see on personal finance sites like Money Saving Expert, but think of FIRE as turning these up to 11. This can, but not always, include personal mantras to try to only buy food that has been reduced – late-night yellow-sticker supermarket sweeping – only ever buying second-hand clothes (or else mending them), and reducing transportation costs to a bare minimum, using bicycles and public transport wherever possible. Budgeting and saving as soon as you’re paid into tax-efficient vehicles such as your pension or ISAs can also help take some of the stress out of managing your finances.

  2. Find ways to boost your income
    Saving a six-figure ‘independence pot’ through frugality alone could take a long time! There are plenty of ways to earn some extra money and reach your financial goals all the sooner. ‘Side-hustles’ can include a whole host of activities, from starting a blog or crafts business to offering tutoring or proofreading services. Some in the FIRE movement take this to the extreme and even rent out their bedroom through platforms like AirBnB while they sleep on the sofa. From making the most of cashback offers to an almost full-time second job, it seems there are plenty of ways to find some additional income.

  3. Invest, invest, invest
    While most FIRE proponents don’t delve into what exact investments followers should hold, the broad refrain is the same – investing is better than a savings account over the long-term. This is because the power of compound interest means that the gains made by your savings pot will overtake your contributions – essentially, your interest is earning interest! Now of course there is a risk that accompanies investing, the value of your capital could go down as well as up, but over the period of time that you’ll be saving for (and you’ll need your pot to keep growing even when you start taking money from it), investments have offered better returns than the low rates available on savings accounts.

The key thing to watch out for, say nearly all FIRE guides, are your investment costs. If you’ll be invested for over 30 or more years while you’re ‘retired’, the difference between a 1.25% fund cost and a 0.50% cost could tens of thousands of pounds, even hundreds of thousands depending on how much you have invested.

All FIREd up

This is not to say that the FIRE movement doesn’t have its critics. There are plenty of articles which rightly point out that saving as much as 70% of your take-home pay is a lot harder when you take pets or children into account. But taken in moderation, the principles have their basis in popular personal finance tips that have been around for years. Saving even just a little more for the future is never a bad thing and doesn’t ask for quite such austerity in the near term.

Risk warning

Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest . Tax rules for ISAs may change in the future and their tax advantages depend on your individual circumstances.

Please note the information, data and any references in this article were accurate at the time of writing. Please check the date of the content if you’re looking for up to date investment commentary or tax-year related information.