This is my master plan for financial independence, the blueprint to freedom. In March this year, I started working towards financial independence and early retirement (FIRE) and aim to be financially independent by age 40. As I am not that wealthy, I started off with absolutely nothing in my FIRE fund. This means there is a lot of saving to do! I set myself a number of goals to ensure my success, which you can find below.
Savings required for FIRE
This is a highly simplified model of how much I will need to save. The goal is to give me a very rough estimate so that I can set myself monthly/yearly targets. I will periodically update this post as I go along and announce any changes in my monthly savings reports.
My FIRE number
The most popular way to calculate the amount of money needed to achieve FIRE is the 4% rule. It is based on the Trinity study and concluded that it is safe to withdraw 4% per year from an investment portfolio without ever depleting it. Based on this, you can multiply your annual expenses by 25 to obtain the amount needed to FIRE. There are some limitations with this study and its results, most notably the fact that it only looked at a 30-year time horizon.
My FIRE number based on the 4% rule is £330,000 (current annual expenses: £13,200). As a more cautious approach is warranted, I rather use a withdrawal rate of 3.8% which gives me £343,200. To live fully independent, £343,200 is a minimum amount rather than a target. On the other hand, saving £400,000 would give ~£300 extra per month post-retirement and make me feel more secure.
Ultimately, I want to aim for £400,000 as my target. However, my FIRE number is £343,200 and once I have this amount, I will re-evaluate my situation and, if appropriate, up my game to £400,000.
If you are not interested in reaching FIRE, you can work out the amount of savings you should have at your age and use this as your target.
Progress to FIRE
In the sidebar, you can see my current status. The percentage is the amount I have saved in relation to my FIRE goal, £343,200.
As we have established, there is a lot of saving to do. Luckily, I can rely on the power of compound interest to help me out. Compound interest means that my interest will accumulate, and I will gain interest on interest (similar to a snowball rolling down a hill). You can get this, too, simply by leaving your funds invested rather than withdrawing profits.
How much compound interest I will gain over 10 years is hard to calculate, because my savings rate and the interest will change over time. Basic calculations using a compound interest calculator show that I can expect to gain anywhere from £65,000 to £82,000 with my current savings rate. I plan to increase my savings rate over time, so for the sake of my plan for financial independence, I will assume £80,000 interest. Again, this is highly simplified and may not reflect reality.
Aiming for £343,200 and receiving £80,000 of planned interest, leaves me with £263,200 to save. As I ambitiously plan to FIRE in ten years, I have to save £26,320 per year or ~£2,190 per month. This amount includes pension contribution as well as my monthly savings.
The savings gap
If you have been following my savings reports, you will know that I save an average of £1,367 per month. My workplace pension contribution is £242 per month. In total, I therefore save an average £1,609 monthly.
From the start, it was clear that my journey to FIRE would be a challenge. I started blogging to help me stay motivated and to explore ways to boost my income and save money. With this, I hope to be able to increase my savings from now on.
You can follow my journey by reading my savings reports which I publish at the end of each month.
The plan for financial independence – goals
While I always had FIRE goals in my head, I figured it would help me to document them here. Firstly, to make sure I try my hardest to achieve them, and secondly, because it may help you and others on their FIRE journeys. Feel free to copy my goals and adjust them to your own needs.
Monthly FIRE goals
- Achieve a savings rate of over 50%
- Stick to my budget as much as possible
- Enjoy life every month
Year 1 FIRE goals
- Make £50 per month from blogging
- Max out ISA allowance (save at least £20,000)
- Make £20 per month from Pinterest affiliate marketing
Recurrent yearly FIRE goals
- Increase income by 15% every year
- Add one new income stream every year
- Have one no-spend month every year
- Enjoy life every year
- Go to ASDA and clean the car park
- Write a novel
- Continue blogging
- Try different jobs e.g. be a cleaner or a waitress
- Pick up litter regularly
The plan for financial independence – progress
My savings reports
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.
Welcome to my monthly savings report for September 2019! This is where I document my progress t...
As I am working towards financial independence and early retirement (FIRE), I decided to track ...
Welcome to my monthly savings report for August 2019. Not much has changed, and of course, I am...
Welcome to my monthly savings report for November 2019. November has been a busy month for me a...