The Ultimate Guide to the FIRE Movement

The Financial Independence, Retire Early (FIRE) movement has gained traction over the years as more individuals look to save enough money to be able to take early retirement. But what does it involve and how accessible are its aims?

Rhiannon Philps 17 November 2020

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FIRE is often characterised by the principles of extreme saving, frugality, and generating a passive income to fund an early retirement.

However, this is just one aspect of FIRE. It doesn’t necessarily involve this minimalist approach and an early retirement doesn’t even need to be the ultimate goal!

It is all about giving yourself the financial capacity to choose what you want to do, whether that’s retiring early, working part-time, or pursuing other careers or hobbies that you can now financially afford.

Read on to find out more about the FIRE movement and what you could learn from it.

What is FIRE?

FIRE is a movement that aims to help individuals achieve financial freedom and gain control over their lives, rather than depending on income from a 9-5 job to fund their lifestyle.

The ultimate aim of FIRE is traditionally to take early retirement, using your savings and income from investments for all your living expenses.

Often you might hear about people living extremely frugally to save as much as possible, then investing this money to be in a position to retire in their 30s. They might be able to save 50% of their income, or often even more, in order to retire so early, but this is not the only way to view the FIRE movement.

The definition of FIRE has become much broader and more expansive over the years. Nowadays, many people place more emphasis on the “financial independence” aspect of FIRE, rather than retiring early.

FIRE involves a shift in perspective regarding money and work, making you think about what is most important to you and how you can reach a position of financial freedom where your decisions are not dictated by the need to earn money.

Many of the principles of FIRE, like saving and being conscious about your spending, are universal, but the way people choose to enact these in their own lives and the actual outcome they are hoping to achieve may differ.

Types of FIRE

There are several variations of FIRE that have developed over the years.

  • LeanFIRE- This type of FIRE favours a minimalist and “lean” way of living, in order to save up enough money to retire as early as possible. You would live on the bare minimum and save the rest, and in retirement you would also be living more modestly. Because of the extreme saving and because of your smaller income in retirement, you should achieve FIRE sooner.
  • FatFIRE- This again has the same aims as LeanFIRE, but instead favours a less frugal and more indulgent approach. People following this method won’t make as many sacrifices in their current spending or in retirement, and so will need to save more money to fund their lifestyle than if they followed the LeanFIRE approach. Because of this, it will normally take longer to achieve your goals and you are likely to need a higher income.
  • BaristaFIRE- Again, this focuses on saving enough money to allow you to retire from your main job early. But, instead of not working at all, people may use their financial independence to work part-time, do freelance work, or pursue a dream career that is less well-paid. It gives you the choice of working for pleasure rather than working to live.

How can you become financially independent?

Make a plan

Before doing anything, you should consider what your goals actually are. Decide when you want to retire, if at all, and, once you know what you want, you can start to plan how you will get there.

You will need to consider many different questions about your finances. What is your income? What are your current expenses and will they change? What standard of living do you want in retirement and how much does this cost? How much do you need to save? Do you need to increase your income? Will you have any income during retirement from your pension or other sources?

As you start to save, you should continually monitor your progress and make any changes to your plan if necessary.

Reduce your spending

Review your monthly and annual spending, including bills, regular expenditure on shopping etc., and one-off expenses like holidays and presents and work out areas where you can make cuts to your expenditure.

Corina from Inspiring Life Design says:

“A primary concept of the financial independence movement is reducing expenses as much as possible. It's not just about saving excess cash, it's about looking at every facet of your financial life to see where you are perhaps overspending or making unnecessary purchases, and changing your spending lifestyle.


“For example, cutting out takeaway coffees, getting rid of scarcely used subscriptions etc. This has two advantages. First it means that you have more money to save toward FIRE, and secondly, the amount of money you need to amass to become financially independent reduces because the lifestyle expenses you need to cover are lower.”

Aim to stay out of debt

If you haven’t got one already, save an emergency fund to help you through any financial difficulties so you don’t need to resort to taking out credit.

Increase the amount you save

Some elements of FIRE can seem intimidating but, especially if you are fairly new to saving, you can start small and build up from there. Set yourself small savings goals and gradually increase these as you get more comfortable, as getting these small wins will keep you motivated and on track to achieve your main goal.

Increase your income

You could also look for ways of boosting your income, whether that’s through advancing your career or from getting a second job or side hustle.

Finding ways to make additional income can help you reach FIRE sooner, as long as you don’t fall into the ‘lifestyle inflation’ trap which is when your spending increases alongside your income. Instead, if you save this extra money you earn, you can achieve your savings goals quicker!

If you manage to make money from your side hustle that you are passionate about, such as blogging, then this could also supplement your income in your retirement.

However, as Fire v London explains, it can be more useful in the long-term to look for ways of saving what you already earn, rather than finding multiple ways of increasing your income.

“Financial independence is really about needing to work less, not needing to work more. Most forms of additional income involve work, which kind of defeats the object.


“For most FIRE people, putting money aside is more important than finding 'additional' income - this is because for every £10 that you can reduce your spending by, you get a double whammy - you have £10 of additional savings, and the level of spending that those savings need to cover are lower - meaning your savings target is lower/easier to hit. Whereas an extra £10 of income, which is all saved/invested, is just a 'single whammy' - your spending remains the same and thus requires a higher level of savings to cover it.”

Invest your savings

Investments are a way to generate passive income which means your money continues to work for you long after you’ve earned it.

Tony Byrne, Managing Director of Wealth and Tax Management, says passive income should be the target for all those aiming for financial independence:

“By all means save money but also seek passive income as well as work to find additional income. The problem with working for earned income is that there are only a limited number of hours in a day. Passive income should be your focus because it doesn’t use up your time which is your most precious resource and is limited.”


To get advice on how to invest your money, you should consult a financial advisor who will be able to discuss your investment options, along with their risk and potential returns.

How much money do you need to be financially independent?

To achieve financial independence, you will need to save enough money to live on without needing to work full-time.

As a general guideline, it is said that you should save up approximately 25-30 times your annual expenses, which you would invest to provide you with sufficient income in retirement.

This should then mean that you can withdraw 4% of the value of the amount you have saved in your investment portfolio, without running out of money. This is based on historical studies conducted by William Bengen, but it should only be used as a starting point to work out how much you need to save to be financially independent

The exact amount you need to save will be unique to each person, as it will depend on when you retire, how long your retirement lasts, whether you will have any other form of income during this time, the kind of retirement you want and how much you would need to fund your desired lifestyle.

You would also need to consider how the market might change and the reliability of any investments, as well as how rules on taxation might evolve, as this could affect your income.

Because of these unknown factors, it is better to save more than you think you might need to give yourself a financial cushion should your circumstances change.

Ian McNally, Director at Saunderson House, reinforces how individual the question of “how much” really is:

“Each person should cut their cloth according to their circumstances. I have clients living and enjoying happy retirements without them feeling that they are scrimping, yet the difference in retirement expenditure between some is huge. Clearly there is a minimum spend for a ‘comfortable’ lifestyle in retirement.”


When do you need to start saving to retire early?

You can start saving at any age, but the earlier you begin, the more you can save and the earlier you can retire.

Anyone of any age can look to incorporate FIRE principles in their life, but the only way you can see if it’s possible for you to retire early is to conduct a thorough review of your finances.

Whether early retirement is achievable for you will depend on your income, how much you already have in savings or investments, how much of your income you are able to save, what age you want to retire, and how much you need to live on in retirement.

You also need to consider whether you have debt, if you own your house, if you’re set to inherit anything, if you will have any income in retirement from pensions, and many more factors.

What are the benefits of FIRE?

One of the main benefits of FIRE is that it encourages people to think about retirement and plan for their future. It highlights how much money you need to live the kind of lifestyle you want in retirement and helps you to create a plan to achieve your target, which is in contrast to many other people who don’t prepare enough for their retirement.

FIRE also gives you the financial capacity and the freedom to make choices about your life.

If you save enough to retire early, you no longer need to work for anyone else, or at all, and so you can get time back for yourself to do what you want to do, whether that’s travelling, spending time with loved ones, pursuing hobbies, or something else.

But FIRE can bring benefits even if you don’t retire early, as Michael from Foxy Monkey says:

“FIRE is not only about retiring early. Being financially independent while working is very rewarding. It means you can keep doing what you love and also have the option to stop when you want to. As the saying goes, I prefer to work because I want to not because I have to.”


FIRE can also teach you how to save and can help you to develop sustainable and responsible financial habits. By setting savings targets and by sticking to your budget, you will learn good money management skills and be more mindful about your spending.

This spending discipline will pay off in retirement, as you will be used to spending within your budget which will help to ensure you don’t run out of money.

How much sacrifice does FIRE involve?

Because FIRE is centred around saving money, you will undoubtedly have to make changes to your lifestyle, which may involve some sacrifices.

As Kristy from Millennial Revolution underlines, you won’t have enough money to spend on everything and save for FIRE so you need to work out your priorities.

“The trick is to realize that you can't spend on everything. You can't go clubbing every weekend, AND eat out every meal, AND buy purses every month, AND rent an expensive place, AND buy a car every two years, AND etc. You have to pick and choose: what one or two things really make you happy, and then deprioritize the rest.”


However, as we have seen, minimalism is not essential to the FIRE movement as there are many advocates of FatFIRE who live a more comfortable way of life.

The sacrifices you are willing to make to achieve your FIRE goals are up to you. Some will be willing to live on a minimalist budget to achieve financial independence quicker, while others will prefer to enjoy more luxuries even though it will take longer to reach their savings target.

Rather than viewing FIRE as a frugal lifestyle involving great sacrifices, Kristy views it as understanding what makes you happy and making conscious spending decisions:

“It really isn't about minimalism, it's about purposeful spending, and spending in line with your values. We always spent $5k to $8k a year on travelling because it's important to us. But we didn't buy a car and instead walked/ran to work because owning a car wasn't important to us. Many people spend without thinking, then wonder where their money went years later and it's because they're not paying attention to what spending makes them happy and what spending doesn't.”


Is FIRE realistic for all people? How exclusive is it?

Many people hold the impression that FIRE is for an exclusive club of high earners and the small percentage of extreme savers that are willing to live on a minimalist budget.

However, as Michael from Foxy Monkey points out, while some elements of FIRE are more exclusive and out-of-reach for some people, the FIRE principles can be useful for everyone.

“Not everyone can save 10% or more every month. Simply put, if you have some fixed costs and a low-to-average salary there is only so much you can save. Therefore, the retiring early part of the FIRE acronym is indeed more exclusive.


“Having said that, people often benefit from the FIRE principles without having "retire early" as the main goal. For example, saving 5% of your salary and investing wisely will pave the path to no debt, less financial stress and more freedom. The power of having options in life is underrated.”

FIRE v London agrees by saying:

“Many lessons in FIRE are applicable to everybody - especially people who struggle to save money - but they are probably more about improving financial security/retirement prospects than 'retiring early'. The idea of chucking in work in your thirties is a pretty 'exclusive' ambition; most FIRE types have much less exclusive aims.”


So, FIRE has a lot of accessible elements, as, however much you earn and whatever your motivation or goal, it’s simply about how you spend and save your money. Everyone can benefit from some of the principles of FIRE, as planning for the future, meaningful spending, and saving money are valuable lessons to learn whether you want to retire early or not.

About the author:

Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more

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