‘Fire’ may let you retire early, but it’s a miserable way to live

    28 November 2019

    With four cats and two children to feed, I’m not very Fire. But then I am not sure I want to be. ‘Fire’ is the ‘Financial independence, retire early’ movement that has proved popular among burnt-out millennials wanting to quit the corporate rat race. It began in America with a 1992 book, Your Money or Your Life, which advised followers to live frugally and simply in order to achieve financial independence.

    One of its biggest proponents is a man dubbed Mr Money Moustache, who describes himself to his 112,000 Twitter followers as a ‘thirtysomething retiree who now writes about how we can all lead a frugal yet badass life of leisure’. He told me that to be truly Fire, I should limit the number of children and pets that I have, as both are expensive.

    But that is not enough. Fire involves extreme austerity, significantly limiting the amount you spend, and saving hard — up to 75 per cent of your income.

    What it promises in return is the possibility of retiring in your thirties or forties. The plan is to build up an investment pot that is 25 times your annual (highly restricted) spend — invested in low-cost stock market investments, preferably tracker funds. So if you can restrict your spending to, say, £1,000 a month, or £12,000 a year, then you should be able to retire once your pot of invested money reaches £300,000. If you spend £2,000 a month, then you need a pot of £600,000, and so on. This calculation relies on academic research that states that you can take 4 per cent of your invested money out of a fund per year and not hurt the capital invested over the long term, even allowing for inflation.

    Simple maths, however, shows how unachievable Fire is for most of us. Let’s assume you are a professional earning a decent salary of £75,000. Take-home pay from that salary is just over £50,000. Assuming you can live on £20,000 a year then you can save about £30,000 which, assuming a compound return of 6 per cent a year, could give you a £400,000 savings pot over ten years — which is getting towards the £500,000 you would need to fund your early retirement.

    However, if you are a professional, you are probably paying off student loans. You might want to buy a home. In practice, most Fire fans ‘retire’ from corporate jobs but still work, just doing something they love in order to cover living expenses. For example, Mr Money Moustache is no longer a software designer, but a carpenter.

    Fire proponents are also big into ‘side hustles’: ways of earning extra money to boost savings, such as renting out a room, teaching part-time, mining Bitcoin, blogging etc. Once ‘retired’, these side hustles can become the main source of income. And this is where it gets dangerous, because side hustles are not always safe and secure forms of income. A Fire blog may earn £500 a month now, but that does not mean it will do so forever. The other big problem is that by retiring from the corporate world, you face erosion of your ‘human capital’: the valuable skills, education and expertise that enables you to earn good money. At some point you may need to earn more, but you will have lost the professional earnings power to be able to do so.

    I am not, then, a Fire fan. But in retrospect, I may have been Fire before the term was even invented. I ‘retired’ from working in the City aged 29 in order to pursue what I really wanted to do: journalism. Unlike my peers, I didn’t buy expensive cars or designer clothes; I put all my yearly bonuses into paying back my mortgage. And so at 29 I had the financial freedom to resign.

    I didn’t have hundreds of thousands of pounds of savings, though. I always knew that I would have to work. There are some lessons in Fire for us all. Firstly, cutting back on consumption is good for the planet, and was the starting place for Fire. Secondly, saving is a habit that UK households have lost. Recent NatWest data shows that more than half of all British adults do not put away any money at all from their earnings each month. Thirdly, thousands of pounds a year can be saved from spending wisely — shopping around and thinking much more carefully about what you actually purchase.

    For me, though, a full commitment to Fire sounds a miserable way to exist. Life is for living and part of that is going out to eat with the family, meeting up with friends for drinks and a chat, going to the cinema to see the latest blockbuster, or having my hair highlighted and cut (£140 in my case). To be truly Fire, you need a family willing to go along with your restrictive lifestyle choice.

    Moreover, I like working. I don’t want to stop. Work is an important part of life. When it comes to it I am more FI than Fire — I value the Financial Independence without the Retiring Early bit.