5 things the FIRE movement has in common with financial planning

24/12/2024

The FIRE movement is a small but growing lifestyle movement. It stands for “financial independence, retire early”, and challenges the traditional path of working until you’re in your 60s before retiring. While the steps FIRE members take can be extreme, it does share some of its core principles with financial planning.

In essence, the FIRE movement involves extreme saving and investing to create a passive income that aims to allow members to retire far earlier than a typical person would. Over the years, several different variations of FIRE have emerged but the goal for all of them is to provide financial freedom which means members can live the lifestyle they want.

Here are five ways FIRE is similar to financial planning.

1. It encourages you to review your spending now

As part of the financial planning process, you will need to look at what your expenses are now. This can help you understand where your money is going and what steps you can take to reach your goals. This may include paying into your pension, adding to your savings, or creating an investment portfolio.

FIRE is an extreme example of this. Members are encouraged to evaluate every expense and purchase they make in terms of the number of hours they’ve worked for it. A common goal of the FIRE movement is to save 70% of your income. This will typically mean adjusting your lifestyle significantly now to secure the future you want.

While both financial planning and FIRE assess what you’re spending now and the effect it will have on your future, financial planning has a greater focus on balance. That means finding a way you can reach short-term goals and live comfortably now, from going on holiday to enjoying hobbies, while still building long-term financial independence. 

2. It puts long-term goals at the centre of your finances

The FIRE movement is all about thinking long term, and setting out your goals is part of financial planning too.

In the case of FIRE, the end goal is typically to retire as early as possible while still ensuring you have enough savings to last the rest of your life. For some members, this means they have a goal of retiring in their 30s or 40s and their financial decisions keep this in mind. 

When financial planning, thinking long term is an essential part of the process. Your long-term goals may include retiring early, but other things may be important to you too. This could be supporting loved ones financially, travelling the world, or moving into your dream home. Financial planning helps you put these goals at the centre of your financial decisions. 

3. It considers retirement early

When should you start thinking about retirement? While most employees will now automatically be paying into a pension, many don’t think about their contributions, or what kind of lifestyle they will enable until retirement is near.

The sooner you engage with a pension, the more likely you are to secure the retirement lifestyle that you want. Even a relatively small increase in your pension contributions while you’re younger can add up. 

You may also find you’re missing out on opportunities for your employer to contribute more to your pension or that changing the way your pension is invested makes sense for you. 

One of the positive things about FIRE is that it encourages people to start thinking earlier about what they want their retirement to look like. 

4. It can provide members with more freedom

Financial independence can give you the freedom to focus on what you want. Having a passive income can mean you’re able to give up work or reduce your hours to spend more time on what’s important to you. 

FIRE encourages financial independence through an aggressive saving and investment programme. Members will often have a significant target in mind when building up wealth, such as £1 million or 25 years of income, and will then manage these assets to take a small income that will last throughout their lifetime. 

Financial planning can also help you secure greater financial independence. A financial plan helps you reach the goals you’ve set out, but it also considers your financial resilience. This can help protect you from financial shocks and provide you with greater freedom. 

By working with a professional, you can have confidence in the steps you’re taking and have someone to talk to if you want to change your lifestyle. 

5. It looks at ways to make your money work harder

With such large goals, the FIRE movement has a strong focus on making your money work as hard as possible to build up wealth and then deliver a passive income. This may mean actively reviewing savings accounts to find those with the highest interest rate, and will often mean investing aggressively. 

Both of these things can help your wealth grow, but it’s important to review what level of risk is right for you when investing. Financial planning can help you balance risk with potential rewards – all with your goals in mind. 

While investments with potentially high rewards can be enticing, they will typically come with higher levels of risk that may not be appropriate. We can help you build an investment portfolio that reflects your risk profile. 

Financial planning can help you achieve financial independence and retire sooner if that’s one of your goals while striking a balance to deliver an income that means you can enjoy your life now. If you’d like to talk to us, please get in touch. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.