The 5 stages of FIRE

This article is about the various stages of FIRE- as I see this. Do let me know in the comments where you are- or if I missed a stage out!

Stage 1 – Learning

Brand new to FIRE- you have no clue what it even stands for, or what it means (Financially Independent, Retire Early). You become really interested by the idea- and start reading everything you can about it. This includes not only blogs like this one- but you will need to understand a little about the stock market as well. You will also need to learn something about the tax rules in the country you live in- for example in the UK you will need to know about ISAs/SIPPs at a very minimum.

All of this will help propel you even quicker towards the new dream of not having to work anymore. Do not get taken in by anybody selling you a book/course/training/advice at this time, there are very few shortcuts to be had! Always do your research before you do anything with your money.

Work out your FIRE number- think about what you spend, work out how much you earn. You don’t need a budget yet- but if you don’t have one you are going to have no idea what your FIRE number is. And without a goal, how are you going to know how far there is to go?

Clock showing time - picture form of the 5 stages of FIRE
Clock showing time

Stage 2 – Implementation

Now that you have read all the blogs, news articles, books and any other resources, its time to start the implementation stage. Spreadsheets are your friend here- but you might also want to use a budget app like YNAB. Just remember that you might want to start small- rather than taking on too much all in 1 go. Just like loosing weight- or any other big project, break it into smaller tasks and take on one at a time rather than trying to do everything at once.

A lot of this implementation will probably be creating new accounts and consolidating some of the accounts you might already have (Such as pension accounts etc). Whilst this might seem like a complete pain- it mostly only has to be done once. Setting up direct debits for regular monthly investing- or setting up regular savers is important to start getting used to the budgets that you thought about in stage 1.

I would personally suggest a spreadsheet for monitoring net worth at a very least. Each month, on the same day, take a note of each account’s balance, and put it on the spreadsheet. Have a formula that adds up each column into a total at the end. Remember to include any debt like mortgages, student loan, credit cards, loans etc as a negative value (or minus off the net worth above). Each month you should have some idea of how much you have saved (or not) during the month.

Stage 3 – Refinement

As you continue to learn more about what you need to do to FIRE- you will need to refine your approach. This might be finding a fund/investment that is actually cheaper than you one that you first picked. Or, more likely, the flat fee broker that was too expensive for your small pot to start with becomes cheaper than the percentage one you started with. These small changes will make large differences in the time frame you are going to be investing/saving over.

Some changes might not work for you- for example cutting your budget down to no takeaways, or no holidays. FIRE planning does not have to be about having no fun along the journey- but it’s just making sure that the money you do spend is worthwhile to YOU (And nobody else). So, it might be that you cut the budget in other places, or actually when you re-run the calculations you realise you can have 2 holidays a year for the next 10 years if you are willing to work an extra 6 months. Or maybe you cancelled 2 TV subscriptions instead. Whatever works for you.

Stage 4 – The Slog

This is pretty much the stage that I am at currently. I have done stages 1-3 (though I do keep refining where I can), and now I just need to keep the savings rate as high as I can until I reach my number. There isn’t much left to do here- you could look to find a 2nd job/start a business alongside your main job- or even look for promotion etc. But apart from that, it’s about enjoying the life that you currently have and just updating your spreadsheet/budget/application on a monthly basis.

By the time that you are at this point- it’s probably been 6-12months since you first read about FIRE and decided that it is for you. The ongoing time cost of following FIRE should be no more than 30 minutes a month as you log into your various accounts and update you spreadsheet. If you are following a full spreadsheet (and you should be to start with) it might take another 30 minutes to categorise your spending if you aren’t doing this as you go through the month. That’s it, keep it simple.

Find ways that work for you to keep on track- have mini presentations every year with your partner (or even to yourself). This is where you review performance- savings percentages, any big spends, any investment gains/losses. Use graphs, use nudges to help you save where you are finding it hard. With all the applications out there now- its no longer impossible, to say, move £3 to savings account when you walk to work rather than taking the train (IFTTT – Monzo – Strava) etc.

Is this you sitting on your FIRE beach?

Stage 5 – FIRE

Well, you hit your number- you probably even went over a little bit, just to make sure that you never have to go back to work ever again. You are finished, full time work is no longer something that you have to do to bill the bills- you have a FIRE number that will satisfy these, FOREVER!

I think the most important thing to do first is to give yourself some time- something like 3 months to allow yourself to recover from the marathon that you have just run- it’s likely been years of hard work to get where you are. Whilst you take this break, work out what is important to you- whether that’s family, friends, travelling, writing, skydiving- whatever it is. To come up with your FIRE number you will have had some idea of what your new budget is to play with.

You may not want to wish to budget monthly any more- or your new life style might not work well with monthly numbers any more (remember, you aren’t getting paid monthly anymore!). So, it might be that you do a yearly budget instead, and slot you holiday/travel spending into this instead (rather than budgeting for 0.3 holidays a month, its 4 per year). You will probably want to continue to look at your investment accounts slightly regularly to keep on top of what you own- and what you are going to sell down/dividends to life on.

Thoughts? Comments?

As ever, please let me know if you have any thoughts/comments, did I miss something out?


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