FIRE movement 2024: 3 steps to retire early

Not everybody wants to retire early. But while the FIRE movement is associated with its core idea of financial independence and retiring early, I think it can help focus the mind on some healthy financial mindsets whether or not early retirement is one of them right now.

Here are three FIRE movement steps I think could make good sense for many investors in 2024 – and beyond.

Make time work for us, not against us

One of the core insights of the movement is that time matters. Investing money for five years immediately before we retire can have very different results to investing the same amount for five years decades before we retire.

To illustrate, imagine I invest £100 a month in a Stocks and Shares ISA with an average dividend yield of 5% for the five years just before I retire. When I retire, my ISA would be worth £6,800, about £800 more than I had put into it.

What if I invested the same amount (£100 a month) for the same period (five years) but started 30 years before retiring and, after five years, kept the 5% annual gain compounding without investing any new funds?

By the time I retired, my ISA would be worth over £23,000. Clearly, time can be an investor’s friend.

More in, more out

Is a 5% compound annual gain realistic, considering both capital gains (or losses) and dividends?

I think it is and indeed the dividend yield of some shares I own, such as British American Tobacco and Vodafone, is currently around double that.

Some caveats are in order though. Prices can go down as well as up and dividends are never guaranteed.

An investor’s return can also be affected significantly over the long term by fees and charges, so I would choose my ISA or share-dealing account carefully to find one that is a good match for my own circumstances.

All other things being equal though, it is a fact that the more I put in, the more I will be able to take out in future.

Not everyone wants the sort of hair shirt existence favoured by some more miserly adherents of the FIRE movement. There is more to life – including financial requirements – than investing alone.

Broadly speaking though, when thinking about how much I ought to invest, I would focus on maximising the amount within my means rather than thinking about what is the bare minimum I could aim for.

Make a plan and stick to it

Something else I think the movement gets right is the realisation that big success rarely comes unasked for.

Whether a financial goal is to retire early, buy a home, or aim for a million, I think it is more likely to happen with planning.

Successful investors typically know what their objectives are and have a plan of how they will aim to get there. They monitor their performance and adjust their course along the way.

Such an investing plan can be very simple. But it can be a powerful way to keep aiming for personal targets.