The Telegraph is wrong about FIRE

Everyone's favourite tabloid, The Daily Telegraph, contains an article decrying the Financial Independence Retire Early philosophy¹

I have a mixed relationship with the FIRE movement. It basically boils down to "spend less, save more, then you can retire once you've save 25x your annual spend". That's it.

As Michael Taylor writes, some people fetishise the "spend less" part. If you deny yourself all pleasure, he argues, then life isn't worth living. That's probably broadly true.

But he makes a fundamental mistake in his calculations:

Let’s assume that you’re able to invest an extra £10,000 per year by living miserably now in hopes of a brighter future (bear in mind the average full-time salary in the UK is around £35,000 and that’s before tax).

The S&P 500 has historically averaged around 10pc per year, so if we assume a compound annual growth rate of 8pc across 20 years, you’d have £46,609.57.

Yes. £10,000 getting 8%, compounded over 20 years is "only" £46k. Not really enough to retire on. So don't bother saving! Spend! Spend! Spend! Feed the capitalist machine!

But, that's not the assumption being made. Read closer:

you’re able to invest an extra £10,000 per year

You add £10k, get 8%, you now have £10,800. Next year you add another £10k, meaning you get 8% on £20,800. A total of £22,464.

Repeat that for 20 years and what do you end up with?

£540,838.79

Yup! Over half a million quid. That rather changes things, doesn't it? If you started investing at age 30 and stopped at 50, you could retire early and live off the proceeds of £500k until your state pension kicked in².

But how much is £10k per year really? It is a lot for most people but can be structured in a more manageable way.

Let's assume you're part of a couple³. People who live together spend less on housing, utilities, food, entertainment, etc.

If you're part of a couple, you only need to save £5k per year each. How much is that?

£96 per week. Or £14 per day.

Actually, it is even cheaper than that. If you open up a LISA⁴, you can deposit a maximum of £4k per year and the Government will give you a £1k bonus.

To invest £4,000 per year, you'd need to save... £11 per day.

I don't want to go all "Millennials just need less Starbucks and avocado toast!" but... yeah. If you're the sort of person who buys a meal-deal for lunch⁵ how much of that can you save per day by making your own sandwiches?

A pint less here, a cheaper bottle of wine there, going to the lower resolution Netflix, all the other boring budgeting tips you've heard of⁶.

£11 per day, each, for 20 years, gets you half a million quid.

That's what the FIRE movement is about. Getting people to realise that a small sacrifice now will pay off in the future.

Michael Taylor's article is correct. You probably shouldn't live on a diet of bread and water, never seeing friends, not going on a spontaneous trip to France; life is for living. Make the most of it!

But, also, life is for living, not working. If you take small actions now, you can free yourself from drudgery later.