FIRE starter

[Mia85]

This is a thread for discussing FIRE (Financial Independence Retire Early) and supporting each other in planning for the future.

For anyone new to FIRE, the idea is that you live significantly below your income and invest the surplus, usually in low cost funds. The aim is to amass enough that you can live off the returns. At that point you are finanically independent and you are free to spend your time as you wish (which might include working if you want to do that).

There's a huge amount on the internet about it. Lots of news stories e.g. here and here One of the main gurus of the movement is Mr Money Mustache and his website is a good starting point www.mrmoneymustache.com

A lot of the FIRE discussion out there seems to be very US based and/or men in their 20s with no kids trying to retire extremely young so I though it'd be great to talk here and hopefully find likeminded people.

I really don’t understand the posts about wanting to pay off the mortgage ASAP and overpaying. I get the psychological aspect of being mortgage free can be priceless but it really doesn’t make financial sense when interest rates are so low. If you really want to follow FIRE, you would be investing to make returns larger than mortgage interest rates ( which is very easy as the latter is so low) and then pay off the mortgage at a later date with a lump sum with extra cash to spare and you hadn’t had to live as frugally the whole time

We'd invest as well, but I think it's just the psychological aspect of being debt-free and owning a house outright. If you had everything invested in stocks and shares/crypto, it could crash just at the time you wanted to cash out and pay off the mortgage. We'll probably balance between investing some and overpaying some each month, overpaying is just a lot less risky.

@Redcart21

I really don’t understand the posts about wanting to pay off the mortgage ASAP and overpaying. I get the psychological aspect of being mortgage free can be priceless but it really doesn’t make financial sense when interest rates are so low. If you really want to follow FIRE, you would be investing to make returns larger than mortgage interest rates ( which is very easy as the latter is so low) and then pay off the mortgage at a later date with a lump sum with extra cash to spare and you hadn’t had to live as frugally the whole time

I know what you say in principle is absolutely correct.

But with so little time and even less Knowledge 'investing' is really scary. I have a few thousand leftover each month after all bills are paid. Its straightforward to aim to pay off mortgage and I wish I could be bolder with investment.

Any tips to educate myself?

@1940s it really pays to take a bit of time each week to learn more about investing. Honestly it’s not hard to make 20% per year on your investments when you know what you’re doing and it’s also not hard to learn. Read How to Own the World by Andrew Craig- it’s an excellent start then read The Gone Fishing Portfolio. Set up tracking accounts on Hargreaves Landowne app or another simulation to play around with stocks before putting money in. You will get the hang of it quickly. Learn a bit about crypto and just do the major coins if you don’t have time for anything else

@1940s Listen to the Meaningful Money Podcast. There are plenty of episodes about investing that will teach you. He talks about multi assets funds a lot. A lot of people in the FIRE community invest in the Vanguard Global All Cap fund or similar as a set and forget investment.

@Redcart21 I know overpaying the mortgage isn't true FIRE and could mean that we won't get as much back as investing. For us, it's the psychological aspect, and an aversion to high risk with big consequences. I have also suffered a big income drop in the past and plan for a repeat of that. Overpaying allowed us to move house, we wouldn't been able to afford to otherwise. We both play with investing, DH more than me but only what we can afford to lose.

I have the Trading 212 app, it's great and fees are very low, it's good for very small scale investing. I only invest tiny amounts as I don't have much time to look into it. Some are great performers, up 80-175%. Others are down 20-40%. Thanks for the book recommendations.

Can anyone recommend the best way to get into crypto? I don’t want to put much into it, more just for interest. I am doing most of my Fire-ing with pension and multi asset funds

Would second the recommendation for Meaningful Money podcast.

@Lemming20

Can anyone recommend the best way to get into crypto? I don’t want to put much into it, more just for interest. I am doing most of my Fire-ing with pension and multi asset funds

Would second the recommendation for Meaningful Money podcast.

Apparently, if you want to actually own the coins etc the best place is Coinbase. If you just to invest a bit of beer money then you can use some of the challenger banks, but I think they own the coins and it just appears as one of your pots? I currently have £30 with Revolut, and I know you can buy from eToro too.

@Redcart21

I really don’t understand the posts about wanting to pay off the mortgage ASAP and overpaying. I get the psychological aspect of being mortgage free can be priceless but it really doesn’t make financial sense when interest rates are so low. If you really want to follow FIRE, you would be investing to make returns larger than mortgage interest rates ( which is very easy as the latter is so low) and then pay off the mortgage at a later date with a lump sum with extra cash to spare and you hadn’t had to live as frugally the whole time

Redcart21 I completely agree with you and this is the approach that I have taken so far. I'd also add that people tend to ignore the impact of inflation when focusing on reducing the term of their mortgage and so neglect the fact that the relative value of the amount saved is likely to be much lower if the result is to remove payments in 15/20 years time. So in principle I completely agree with you.

I mentioned up thread that that I've had an unexpected inheritance that will probably allow us to pay off the mortgage next year (20 years early) and I've been surprised by how attractive that seems given everything I've said so far and I'm trying to analyse whether there's a good reason for that. Partly I think it's because there's a difference between simply reducing the term of the mortgage (but still having years to go) and paying the whole thing off. The latter puts you in a much more secure position and probably has the benefit of allowing you to be more risky with your investments knowing that you are not effectively gambling the house! The related point is that I've seen a surprising number of people go through unexpectedly serious problems in midlife. FIRE planning brings a nice illusion of security in that I can look at a spreadsheet and see the years planned out. But of course the reality is that no-one knows what's round the corner either for the stock market or life.

That said I can see that the probability is that you are much more likely to build wealth by investing rather than paying down cheap mortgage debt at the moment so I am still very torn (and have a year or so to decide)

@Mia85 if I was expecting a big inheritance, I think I would partly pay a lump sum off the mortgage and invest the rest. I know that goes against what I said above but I believe in having something to show what your family helped you with eg school fees for kids or my house. Your situation is a bit different.

Investments all depend on age and risk. My investment strategy will change as I get closer to 58 (when I want to be mortgage free and retire from the rat race), and so will be more risk averse the closer I get to that age (more bonds and bitcoin, far less equities and altcoins). Yes no one can predict crashes, but a well diversified, global portfolio across multi assets will weather the storms. I also take regular profit. My aim is to get to £1m in my ISA by the time I’m 40 so if I don’t get there, I’ll have enough time to think of plan B!

@Lemming20 Coinbase is probably the best place to start, if you're interested in altcoins or more regular trading then I think Binance is quite good, or Etoro

I knew I wanted to be financially independent before I had ever heard of FIRE, so to me it made sense to get rid of my biggest debt and I still hadn’t heard of FIRE by the time it was paid off. Mortgage rates were higher then, maybe about 5%, but it does feel very good not having one.

I suppose I could remortgage and invest that money, but somehow that just seems crazy.

It feels like forever since I have posted, but I have been exhausted trying to get our holiday let finished, only we may now end up renting it out to a friend as it would be less stressful and they are very quiet and we aren’t used to noise living so rurally, only noise from animals! Either way we hope to have it ready in the next two months, at that point we will be financially neutral on the day to day household bills, food and my car costs. It would not enable holidays or savings towards a new car or big ticket items.

So that is pretty positive, having a friend in there will also make it easier to sort out the outside stuff and the building next door which will also be renovated (next year and probably the year after). This will then provide the income to travel and live well.

With my pension I overpaid another £149 made up of survey money, premium bonds wins and claiming back an overpayment of my student loan. Which I paid off as I was fed up of it and yes I know this goes against advice, but I am now completely and utterly debt free and it was worth it.

@Redcart21 a million in a S&S ISA is an amazing target for any age let alone 40and makes me feel my target is only a E minus grade 😳

Our pension overpayments will ramp up again when the rent starts coming in as that will going to our pensions or ISAs.

Hello all. Great thread, thank you for starting it.
I 'retired' at 50 (now 55). I was able to do so because:
a) I had a solid income stream from a rental property in zone 2, owned outright - this brings in an annual income not far off the UK median
b) I have a good pension (civil service) which kicks in at 60 - I started this at 23, very good decision.
c) I have one child
d) I have a very supportive husband, 5 years younger than me, with four times my income, and he's got my back.
e) although we still have a mortgage, the LTV is small and the monthly repayments are a low percentage of our income. We make overpayments and my goal (DH is more relaxed about this) is to get shot of it in 4 years.

I make my income and our joint account go a long way. My costs are still quite high, because DS is still in education and I will pay his rent and contribute towards his living costs while he's still getting established. I've stripped down a lot of expenditure, but I do love beautiful interiors and I am spending (carefully, but many people would say unnecessarily) on the house. I want to make this one really lovely and properly FINISH it! - I've not managed/wanted to do this before with previous homes, and this is important to me.

Despite my moniker, I have spent pretty freely over the years - education, nice holidays, cultural stuff, reinvesting in the rental property, time out of the workplace to do different things - which I am happy about. It's important to bank good experiences, especially as a family. I would not have stopped working if my income couldn't continue to support these personal goals. I have stripped out a lot of expenditure, watch my budgets like a hawk, and every pound has it's job.

I have built up a modest (about a year's income equivalent) in investment funds and I'm working on replenishing my cash buffer. Once I've done that I'm going to drip feed £100 per month into a Vanguard S&S ISA and see if I can do the same for DS. I opened a LISA for him when he turned 18 to help build a deposit for a property, and I"ve managed to max it out for the first two financial years.

I see my role as building financial independence for me, but also to facilitate it for my family. My parents came from poor backgrounds, but worked overseas in order to be able to save to buy a house (first in their respective families to do so). They've never earned a lot, but been frugal down the years and hope to pass on what they have managed to accumulate to their children (basically a small house and some cash savings). I want to continue to build from where we are now so that I can give my son a decent leg-up and he can attain security, independence and maybe take a few more risks at an earlier stage than I did. This is what wealthy, secure people do, and that is how I aim to live and for him to live! I talk to him a lot about money, and he's a saver and a grafter, as well as knowing the value of spending on good experiences.

@Tightwad2020 very inspirational I think you have a very balanced attitude to living and saving. I’m hoping to replicate similar (financially secure without sacrificing experiences and living).

@Dashel one persons target can’t be compared to another’s. Just participating in this thread and educating oneself about financial freedom is a step ahead than most of the population (sadly!). I started investing at 18, and we are very lucky to have a high household income which means we can set high targets.

@Tightwad2020 thanks for your great post. I also agree about living your life and finding that right balance. I buy anything I want for myself and spend freely on experiences, but I’m very careful with my money eg ensure I get amazing deals for luxury holidays.

I hope I didn't sound smug, I meant to illustrate the degree to which a good deal of this is luck - the family you are born into, the number of your dependants, the point at which you were able to enter the housing market, having a supportive partner. no-one getting chronically sick.

Getting educated about the choices you have, so you can maximise your luck as it were, is something I came to relatively late, and I'm keen not to have my son repeat that mistake (my parents didn't talk about money, probably because there wasn't very much of it). I really like the FIRE movement for that reason, even though in their terms I"m very much a FIRE-liter and a FIRE-later.

I was pretty chaotic and clueless about money (and pretty much everything else, tbf) in my 20's, and lived precariously in many ways. But I did always have work, I didn't have a credit card until my 30's, and I joined a good pension scheme early - the power of auto-enrolment helped! I'd have had to make a decision to opt out. Budgeting came later, I'm ashamed to say, and really focused, intentional spending and saving later still.

We have just moved house and we are just adjusting to some new and unexpected expenses.

It is very tempting to buy a few things for the house rather than putting money into my pension... but I am trying to stick with it.

I have a LISA and a pension - I opened the LISA when I was on maternity leave as I couldn't put as much into my pension but since then I have made it a challenge to save into both. Does anyone have an opinion on which is better?
I am a basic rate taxpayer and I cannot salary sacrifice at work.
So, the amount of tax relief is the same going in but there is potential for tax to be paid on the way out of the pension. I know there are inheritance tax benefits for the pension but it would go to my husband anyway. Currently, I think I will be able to get my pension at 58, 60 for the LISA without penalty. I like knowing that I can get to the LISA if the shit hits the fan, the pension just seems very tied up.
We do have other rainy days savings and so I shouldn't need to touch the LISA.

Hello Fleur. I"m not a LISA expert, I opened a cash LISA with Newcastle BS for DS with a view to helping him save for a house deposit.

Is your LISA a stocks and shares one? (Long term, pension, makes sense)
Does the government provide the same 25% contribution to a stocks and shares LISA?

If you can't make extra contributions to your workplace pension, a stocks and shares LISA seems a very good way of saving, getting a contribution to boost your own input, and the growth is tax-free on exit.

But isn't it tied up as much as your pension? You can't withdraw before 60 without loss of the government contribution?

Sorry, more questions than answers.

@Tightwad2020 yes, the government top up is the same for my LISA as my pension.
I would lose 25% of the LISA (so more than the government contribution) if I were to withdraw it before 60 - at the moment I would still be £2k up. It is invested in stocks and shares.
I will not max out my pension this year, in previous years I have and so the LISA was a bonus. Not sure whether to bother with both this year or just to throw as much in the pension as possible.

@Fleurchamp is depends if you will be a basic or higher rate tax payer when you retire. If you are a basic rate tax payer now and will be at retirement, then both would work. With the LISA SS you can choose your own investments and so have greater flexibility. With a workplace pension, it would depend on your T&Cs but you will pay tax on the way out at retirement so if there’s a chance you will be a higher rate tax payer at that time then you may be better off with a LISA. You also have a £4K limit on the LISA. It’s all very much dependant on your personal circumstances so I’d speak with a FA. I don’t like the thought of being tied up to 60 with a LISA so I don’t have one, but it works for others dependant on your circumstances

The other thing with a pension is the lifetime allowance. If go over this there is a punitive tax rate on withdrawal. With quite a lot of life and therefore investment growth to go, if you have a bit in there, it could grow to hit this. Sounds like you might if you have been maxing it out.

Plus, your ability to contribute to a LISA stops at 50, but the ability to contribute to a pension exists beyond that. In fact you can keep putting money in to get the top up plus tax free withdrawal (though there are conditions to this too, be careful). Given both those things, I would favour the LISA at the moment in your circumstances, most likely.

This is an interesting thread, so thank you for starting it, OP.

Can I just make a small point about Bitcoin. Before you start investing in it please investigate the impact it has on the environment. In my opinion, it is pointless investing for our children, if there will be no planet left worth living on.

Sorry if this is not in the spirit of the thread!

Thanks @Redcart21 @starface I am some way away from the lifetime allowance and I doubt I will be a higher rate taxpayer in retirement (but who knows?!?).
I only started maxing out my pension over the past 4 years when on mat leave/ going back very part time - I didn't pay in at all for about 6 years so I am catching up. However, who knows what future governments will do with pensions?
It is a minefield!
I think I will keep topping up the LISA and pension - I can invest £25 minimum in my LISA but have to make top up payments of £100 minimum to my pension so if I have a little spare at the end of the month I may send it into the LISA.

I feel like I've found my people.

I'm too old for the "early" part of FIRE (early 60's) but DH and I have always lived by the same principles. We paid off our mortgage almost 20 years ago, invested steadily in stocks, and lived below our means.

There was a book out here (in the US) about 20 years ago called The Millionaire Next Door that partly inspired DH to take this path. It was about how ordinary people can become financially independent.

We now have the money to put both our kids through uni debt-free (no small feat in the US) and can retire when we want. We're both still working but it's nice to know that we don't have to.

@Fleurchamp sorry, I assumed "maxing out" meant putting in 40k.

I think pension accessibility will rise to age 60 (on a par with the Lifetime Isa) and stay at 10 years below state retirement age. I think the UK system of financial incentives will make it difficult to retire more than 10 years early, although still possible. They don't really want people to run out of money.