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Three ways the principles of extreme saving can help your finances

The Financial Independence, Retire Early (FIRE) movement originated in the early 1990s and gained popularity, particularly among millennials in the 2010s.

The movement is rooted in the idea of achieving financial independence and planning for later life through extreme saving and frugal living. 

Although it seems to be uncertain who exactly coined the FIRE phrase, the 1992 best-selling book “Your Money or Your Life” by Vicki Robin and Joe Dominguez played a significant role in popularising the concept of achieving financial independence by evaluating every expense in terms of the number of working hours it took to pay for it.

The key elements of the FIRE movement include reducing expenses and investing the saved funds.

The overall goal is to maximise all savings, with FIRE proponents aiming to stop working in their 30s or 40s by intentionally saving a large portion of their income and pursuing frugal lifestyles.

To achieve this ambitious goal of stopping work 20 or 30 years before the most people stop work, advocates of FIRE take extreme steps. In some instances, people have been able to save a whopping 70% of their income to achieve their goal.

With many people struggling to save anything, it will be an outright fantasy to think about saving 10% or 20% of their income, let alone 70%.

Nevertheless, there is much to take inspiration from in the FIRE movement, in particular, thinking about your overall financial position and setting a long term objective, reducing any unnecessary spending, challenging yourself to stretch how much you put away in a savings account and shopping around for the best rate.

  1. Planning your finances

Whatever your income or current ability to save, thinking about your current salary and spending and the type of life you would like in the future, is a great way to evaluate your finances. FIRE just takes this to an extreme.

Recent research from the Centre for Research and Social Policy at Loughborough University found that 77% of savers do not know how much they will need once they give up formal employment and only 16% of savers could give a figure.

Open Banking Apps like Snoop or Hyper Jar can help you to take a fresh look at your finances, and consider some of the steps you could take to start putting some money away for a rainy day.

Many savings providers also offer a savings review service to help you get to grips with your current financial position and suggest ways for you improve your savings.

2. Mindful spending

The rise in the cost of living over the last year has meant that many households are now struggling to pay for everyday essentials like their rent/mortgage, heating their homes, clothing and food.

Given the specific rise in the cost of food, whether eating out or buying from a supermarket, creating meal plans for the week is one way to reduce buying unnecessary food that will just go to waste.  

You can download meal plan templates from the likes of the British Nutrition Foundation or Tesco to help you plan the week before you go shopping or create your own one on Google Sheets or even just a spare bit of paper.

However, if your household is able to cover essential costs comfortably, thinking about where you could cut back and budgeting your spending is a useful exercise.

One way that you could adopt a bit of the FIRE mentality is to try the No Spend Challenge, where you only spend on essentials and save the rest. But while this can give a boost to your savings in the short term, it isn’t sustainable for all but the most hardened FIRE-ites.

3. Maximise your savings – it all adds up to something good

Proponents of the FIRE movement prioritise savings and set aside a significant portion of their income.

For the vast majority of people, this is not going to be possible (or desirable!).

That said, even putting away small amounts of money consistently into a savings account can help you build a financial cushion for the future.

Setting up a direct debit from your current account on payday into a savings or ISA is a great way to help you save and make your money work harder.

Challenging yourself to save a bit more each month is a great way to step this up a level.

For example, you could increase the amount you put away by £10 each month, so that by month 12 you are putting £120 into your savings account in a single month. Over the year, that could add up to £780 in contributions, plus any interest you make on top.

Speaking of interest, it always worth checking that your savings account is giving you the best rate available. Look at comparison websites or ask in your local branch.

Benefits of the principles of FIRE

FIRE is an extreme lifestyle, and for most people will not be viable or sustainable.

However, the underlying principles of helping people to take control of their finances is something we can all achieve.

By focusing on planning finances, mindful living and maximising savings, they can help to build a stronger financial foundation and work towards achieving greater financial independence.