Financial Independence Retire Early (FIRE)

Ok, so this one's a bit of a guide for those looking to establish good financial behaviours. Most of it is common sense, but not all of us do that 😁

I'll start by saying I'm not an investment whizz, nor did I win the lottery. What I did do is a bit of financial planning that allowed me to have a decent working life and retire early at age 54

I started by doing an annual budget - looking at what I spent annually, those things that were "needs" (mortgage, utilities, transport - car/servicing, insurances, phone, food). I was strict and didn't include anything that was not a "need" (ie gym memberships, streaming services etc). I also made sure that every one of these spends was reviewed every year to ensure that they were the most value for money I could get - for example I never auto renewed insurances, phone contracts etc. 

Then I looked at how much I would have left at the end of the year if that's all I spent. Let's call this amount the "discretionary bucket". I was surprised at how big this was.

I then looked at my "wants", keeping in mind that everything that I spent on "wants" meant my discretionary bucket was less. I included things like Pension (this might be a "need" for some), Holidays, birthdays & Christmas presents, nights out, fun etc. I set a budget for every item that could have one  (ie my holiday budget was  £750 for a week's holiday; £50 for a night out with a max 2 nights out per month; £20 for a takeaway with say 4 takeaways a month etc). I grouped each of these into annual spends (ie holidays, birthdays etc) and the rest (nights out, takeaways etc). For the annual spends, I made sure to put a proportion of my monthly money away to fund it (I used jars - one for each item). At the end of each month, I looked back to see how I'd got on - specifically looking to see if I needed to revisit anything. And as with any spend, I tried to make sure I got value for money whenever I spent it.

This let me get an idea of how much I had left unspent in my discretionary bucket. I saved it up a bit for a few months to create a buffer or emergency fund should I need an unplanned spend (ie washing machine breaking down & new one needed) and I made sure to put this into a high interest savings account. Once I had a buffer then I could decide how best to make the left over discretionary bucket grow. I started with a stocks & shares ISA and a medium to high risk portfolio. I didn't need to pick funds, most platforms (ie Nutmeg) will do this for you. I wasn't familiar with the risk of investing, so took a conservative approach putting 50% into the ISA whilst I got comfortable with it, and I put the rest into a the interest savings account (lots out there around 5%). 

Every year I revisited my budget and also rechecked whenever a major event occured (ie pay rise or bonus; house move; relationship change). This approach meant I started getting into a habit of making good financial choices (eg every spend looking for value), I saw my savings and investments grow, and I was able to reap rewards (ie using some of my growth in savings or investments for a "desire" - maybe a luxury holiday, wedding/honeymoon, pay off mortgage etc)

Some will read this and think this is scrimping on enjoying life, but in my view this approach enables you to enjoy life. You don't have to be a frugal Scrooge, but you do have to know what you've got available to spend, make conscious decisions about what you spend, and ensure you get value for money on what you actually spend.

A small side note. One think to look out for are any things which can make you finances stringer. One example is employee/staff benefits or any other benefits you have access to (ie credit card benefits, public benefit platforms like Topcashback/Quidco) . You'd be surprised how many of your "needs" and "wants" might be supplemented or negated by a staff benefit or other benefits platform: discounts on services you might use, or even in some cases negating spends (lots of companies give you death in service insurance - so why take out separate life insurance unless you have too). One specific example is Pension contributions - a lot of companies offer matching (to a level) any extra contributions you might make - and as this is usually done through salary sacrifice it's tax efficient too!!!!

Good luck and if it all works out and you see me around, buy me a beer 🍻