Nearly a month has passed since I decided to work towards financial independence and early retirement (FIRE). Below I am summarising the steps I have taken. These are easy to follow for everyone who wishes to pursue FIRE. It is ok to start with small baby steps to financial independence, as long as you start at all. If you are hesitant, I highly recommend starting TODAY as you will benefit whether or not you achieve FIRE. At worst, you will have slightly more money in your wallet! Check out this post to find out about the concept of FIRE.
To ensure Monethalia remains free of charge, this post contains affiliate links.
Baby step to FIRE 1: Reduce your spendings
Reducing your spending should always be the first step because it is easy and everyone can do it. First, you will need to find out where exactly your money goes every month. I already use Monzo which automatically puts all my purchases into categories and neatly summarises them. My budget used to be £350 a month including groceries, entertainment, petrol
Grocery shopping for financial independence
To reduce my monthly spending by £60, I started doing my grocery shopping (as far as I can being gluten free) at ALDI. Secondly, I started using cashback apps more aggressively (CheckOutSmart, GreenJinn and Shopmium). Should you be interested in Shopmium, you can get free Nutella with the code q2766a. Thirdly, I worked on saving petrol by always driving 5 mph slower than I normally would. My car is a petrol monster so I think there is lots of potential for saving.
An interesting toy I bought is this laundry egg. Detergent, although I do not buy it often, is the single most expensive item on my weekly shopping list. With the laundry egg, I will not have to worry about buying detergent for another 720 washes. As I do not wash that much as a single person, one pack should last me about five years. What a great investment this is!
For further reading, you may be interested in my post that shows you how you can cut your grocery bill in half with little extra effort.
Assess your subscriptions
I had a look at what goes out of my bank account every month and examined each direct debit/standing order on whether it was a) necessary or b) added to my happiness. To be honest, everything I paid for turned out to be necessary. My car needs to be taxed, my rent needs to be paid and I do need my gym membership.
Typical saving advice is to cancel your gym membership and cycle or run instead. If I would follow that advice, I could save £50 a month. However, I am also very lazy and would never cycle or run anywhere. One of my FIRE goals is to be healthy and there is no point in being financially independent and retired only to be in bad shape. For me, my gym membership is a keeper! That is why you need to have a look at your account for yourself and decide what is important to you. You may wish to cancel your gym membership but keep your Netflix subscription instead.
Baby step to FIRE 2: Increase your income for financial independence
The more money you earn, the quicker you can be financially independent. While this may sound obvious, implementing an increase in income is not that easy. Personally, I decided to apply for better-paying jobs. This was a difficult decision for me as I am naturally not very confident in my skills and am currently working in a secure position. However, I also felt that at my current company, achieving a pay rise would be difficult and I have been craving change for a while. It is amazing that people continue to work in jobs they hate just because their job is secure and they can stay in their comfort zone. I am unsure of whether I have the skills to work for another company but we shall see!
If you think you deserve to be paid more, why not ask for a raise? While it seems daunting, keep in mind that just earning a little bit more may allow you to reach financial independence and retire a few years earlier. If a raise is unlikely, you may consider joining me in my quest to find a new job. Changing jobs is one of the bigger baby steps to financial independence but the reward will be worth it. If you are happy with your current position, are self-employed or staying at home, you can always start a new side hustle such as matched betting or blogging. If you are out of ideas, I have a list of 100 ways to make money.
Baby step to FIRE 3: Invest your savings
The world of stocks and shares is as scary as a career change. However, if you want to achieve FIRE, there is no way around is as financial independence depends on the interest on your savings.
Determine where you are
When I looked at my savings account, I was shocked. My cash ISA generated a whopping 0.3% interest! And my instant-access saving account was not doing any better. Assuming an inflation of 2% (the normal yearly price increase for goods), I was losing money! Sadly, many people are like me and think that just because an account is labelled “ISA” or “Saver”, it must be good. Look at where your money is right now and how much interest you are obtaining. If you are in debt, how much interest do you pay? For me, the only wise financial decision (in my opinion) I ever made was opening a Ratesetter account. My £1,000 in there will generate 14.9% interest thanks to the sign-up bonus. Should you be interested in signing-up, make sure you are aware about the risk and benefits of peer-to-peer lending.
Optimise your situation
It was clear that I had plenty of potential for improvement. Thus, I opened a Nationwide FlexiCurrent account with 5% interest to serve as my emergency fund. Before committing to long-term investments, it is important that you are secure in the short term, hence building an emergency fund and paying back debts should take priority.
As I am already debt free, I transferred my lousy cash ISA to a stocks & shares ISA with Vanguard (Vanguard FTSE All Cap Accumulation Index Fund). This fund has been widely recommended to beginners. If you are interested in opening an investment account, make sure you are aware about the risk and benefits. Also, please do not choose a fund solely based on where I put my money. As this article is about baby steps to financial independence, you may want to start with a high-interest current account rather than funds. Anyway, my FIRE fund is currently £690 strong but at least it is a start!
I am currently reading up on investing and will re-evaluate my situation three months from now. Should I find out that my Vanguard fund is suboptimal, I will simply open one that suits me better. For now, at least my money is doing something. From my local library, I borrowed Investing for Dummies and Time Hale’s Smarter Investing: Simpler Decisions for Better Results. Both books are beginner friendly and easy to understand so even a financially illiterate person like me does not feel lost. As always when you start something new, there is a lot of learning to do!
Baby step to FIRE 4: Set yourself a goal
What would you like to do once you are financially independent? Having a clear vision will help you stay on track. You can make a list or draw a picture of what you would like your future to look like. Keep it in your drawer for those moments when you feel like giving up. Personally, my plans, once I am financially independent, are to write a novel, volunteer to protect the environment and travel. What does your FIRE list look like?
I feel that while working towards FIRE, it is very important that you are happy with the life you are living at all times. You should never feel deprived. Also, make sure that you are not your own enemy.
If you like this post, help Monethalia grow by sharing it on social media using the buttons below. You can also sign-up to my newsletter by entering your name and email address into the top bar.
How much savings by age should you have? Maybe you are like me and you have less than you shoul...
Below I have gathered a list of useful blogs to follow that deal with financial independence and ear...
I am convinced that nearly everybody has the capability of achieving financial independence and...
This list grades asset classes by risk and return. It may help you if you want to know whether ...