What FIRE means for me?

Ever since I started this blog, I’ve been interacting frequently with the personal finance community. The one word that keeps cropping up is FIRE.

Just a bit of a disclaimer: we in the personal finance community aren’t all obsessive arsonists.

FIRE actually stands for Financial Independence Retiring Early.

Not sure if these words need any more detailed explanation. You get the idea.

I suspect FIRE has different meaning to different people, and rightly so. A couple with a budding newborn will have very different financial requirements to a elderly bachelor approaching at the peak of his career.

In this post I will tell you what FIRE means for me.

A little bit about myself

I am 28 years old. Married and expecting a baby.

My wife and I both have full time job that pays above median salary (our combined salaries places us at the top 20 percentile of UK households, which is £75,000 as of 2017). We both also derive passive incomes from other sources. I publish mine in detailed monthly progress updates.

I also act as a business consultant on the side (my side hustle). I leverage my skills and experience to help small businesses scale.

What Financial Independence means for us?

We are very lucky for millennials.

Most of our peers are constantly worried about rising rent and dream of home ownership. We were fortunate enough to have access to capital during the Great Recession and took the risk to buy properties. Thus we have done very well from a net wealth perspective over the past 5 years.

At the same time, we entered the workforce during the worst possible time and suffered the most significant drop a real wage growth in recent history, thus our income is disproportionately low as a % of our net worth.

Currently our non-employment based income can comfortablely cover our essential living expenditures (mortgage, utilities, taxes, food and travel). Thus we save most of our salaries into pensions, investment accounts and holiday funds.

When envisage our financial independence landscape, I can see the following:

  • Our essential living expenses are covered entirely by non-employment based income sources;
  • My main employment (or job as most of us call it) would provide high level of enjoyment, fulfilment and flexibility to enable me to spend time with my family and friends.

To break this down further, currently most of our living expenses are already being paid by non-employment incomes. However with the arrival of WB40 Junior and potentially another one, this will become stretched and hence we need to increase our income level.

How the WB40 Challenge fits in?

The purpose of this blog is really to document my journey towards meeting the WB40 Challenge, a key component being:

To generate at least £60,000 of gross non-employment based monthly income by the age of 40.

Currently we are about 1/6 way there.

Why £60,000 per month?

Here are my rationales:

  • £60,000 per month equates to £720,000 per year;
  • Assume 30% goes to the taxman, that leaves us with around £500,000 of net income;
  • I will be sending WB40 Junior and his future sibling to be educated privately, thus costing £100,000 per year in total;
  • I’d like to do three £20,000 family vacations per year -> £60,000;
  • Assume a generous living expenditure of £60,000 per year, which will be more than enough to enjoy a quiet and peaceful life in the UK;
  • This leaves us with £280,000 spare, which will allow me to plough into other investment activities.

My eventual aim is to grow the £240,000 per year savings into a trust fund that creates its own steady income stream and donate it to British Cycling, a charity that promotes safer cycling infrastructures across the country. Being a keen daily cyclist myself, my heart remains very close to that organisation.

Where does Retiring Early fit in?

Our traditional interpretation of retirement where one works for 30-40 years and then enjoy his twilight with savings accumulated over the working career needs redefining under FIRE.

People retire because they can afford not to work. The key criteria here is that your non-employment based income exceeds your expenditure, thus giving you the financials flexibility of not having to work.

Consequently, reaching financial independence enables early retirement.
For me retirement doesn’t mean globe trotting and cocktail sipping on the beach (although I’m sure there will be a fair amount of that). I would never stop working as employment keeps my brain sharp and engaged. It simply means that I would have sufficient non-employment based income to sustain my desired lifestyle so that I can devote my time and energy to causes I am passionate about. For example promoting greater cycling adoption and safety as well as equity investment. Having financial independence would enable me to dedicate my time to these 2 causes without having to worry about the daily chores.

Wrap up

Financial independence provides the foundation to enable early retirement, which allows me to dedicate my time to causes I care about.
What does FIRE mean to you? I would love to hear your thoughts. Please comment away, as usual.