The Fire movement and the trouble with penny pinching
If you haven’t heard of the Fire movement, you soon will. Originating in the US, its followers are devoted to extreme forms of money saving to achieve “financial independence” and “retire early”.
You could argue that Fire is an ADHU — an acronym that doesn’t help understanding — but the habits of this thrifty group are worthy of further examination.
Fire followers budget like crazy and target savings of up to 70 per cent of their annual income, which (crucially) they invest for the long term. Once their savings pot has hit the desired level — typically 30 years’ worth of living expenses — they keep it invested in low-cost tracker funds, withdrawing no more than 4 per cent every year in the hope they will never extinguish their capital.
Having spent years subsisting on next to nothing, their thrifty habits are so ingrained by retirement that keeping a lid on day-to-day living costs is second nature. Combined with the savings buffer, extreme Fire devotees aspire to quit their jobs in their 30s or 40s, or at least have the freedom to achieve a greater work/life balance.
Young people all over the internet are earnestly raving about how marvellous Fire is, but it’s essentially rebranding retirement saving (which, let’s face it, sounds terribly dull) as an empowering lifestyle choice.
It is music to my ears to hear of young people getting into the savings habit early — all the more time for their investments to compound — but I feel compelled to throw a little fat on the fire.
The first problem is property. Most young people I know would struggle to save even 20 per cent of their annual income, as they spend more than 50 per cent of it on rent. Others manage to save — plenty still live with their parents — but intend to use their pot as a property deposit, rather than a retirement fund.
The second issue is having children — good luck staying in the black when that happens.
And the longer-term worry is the maths. Catchy concepts such as the “4 per cent rule” look increasingly optimistic as global growth stutters, and bond yields turn negative. I’m a fan of investing in low-cost trackers, which have served my portfolio very well over the past decade, but I’m not expecting this performance to be repeated over the next 10 years.
For all of these reasons, I think everyone needs to get “fired up” about spending less and saving more to give themselves more options in later life. Saving 70 per cent and retiring in your 40s might not be achievable; saving a bit harder and retiring in your 60s still could.
My final beef is the frugality. If you take money saving to the extremes that some Fire devotees claim to, then the whole thing becomes self-defeating.
There is no way that some of the “young retired” stars of Fire videos on YouTube could manage this lifestyle if they had a full-time job! The money saving tactics they employ are often extremely time-consuming — walking everywhere, timing a “yellow sticker strike” on a range of different food shops just before they close, making their own clothes and boiling up endless pots of low-cost pulses.
They might have “retired” in their 30s — but it sounds like they’ve just swapped one form of drudgery for another.
I tax efficiently save as much as I can, but examining my own spending data (a thrifty habit I recommend) shows exactly where I sacrifice money saving to buy greater convenience. This includes paying someone to clean our flat; taking a taxi to cut a journey time in half; having online groceries delivered (Ocado might not do yellow stickers, but its “flash sales” are not bad).
The time this saves me makes it worth the money.
But consumer habits are increasingly shaped by the cost to our planet, not just the cost to our pockets.
In the old days, we may have tried to hide our penny pinching ways. Today, virtue signalling has made being thrifty fashionable.
Even the editor of the FT’s How to Spend It is supporting Oxfam’s Second Hand September campaign (a challenge not to buy new clothes for 30 days).
Another closely related YouTube tribe are the minimalists, to whom clutter is anathema. There are some great money and planet-saving lessons in the “12 things I’ve stopped buying” video by vlogger Conni Biesalski.
Fast fashion is number one on her “no shopping list”; physical gifts are number two. She prefers to give the gift of spending time on shared experiences, arguing this is a far better way of sustaining a friendship than a scented candle (I’ll second that).
In the future, our virtue could be rewarded with lower taxes. This week, Prof Sir Ian Boyd, the government’s chief environmental scientist, said the Treasury should reform tax policy to reward those with low-carbon lifestyles and nudge rampant consumers into more frugal habits.
Policymakers and financial providers could learn a thing or two from the Fire movement’s appeal. Make saving into pensions and Isas attractive by keeping the rules as simple as possible; speed up initiatives such as the pensions dashboard that will better enable savers to plan for the future, and think of snappier ways to spread the savings message to young people.