Welcome to Fire (financial independence, retire early), a lifestyle movement favoured by those who want to achieve financial freedom, or get to a point where income from other sources covers expenses, while they’re young enough to fully enjoy it. Often, the goal is achieved through ‘aggressive’ saving, as well as other endeavours: investment, side hustles, clearing debts, and creating a passive or residual income.
Vincent Doherty organises the Dublin Meetup group of Financial Independence Ireland; where around 135 members, aged from their early 20s to late 60s, convene to compare notes, advice and tips on the journey towards financial independence.
Kildare-based Doherty (53) started his own journey three years ago, and estimates that he is “18pc of the way” towards total financial independence.
“When I celebrated my 50th, I realised that I was quickly approaching retirement age and had little savings and only a little pension at the time, and I thought, ‘oh boy, what will I do here?'” he recalls. “I don’t even know if the government pension will be there or not by the time I reach retirement age, so I decided to take responsibility for my finances.”
Many Fire advocates suggest the simple rule of thumb of building up savings for an annual drawdown of 4pc, thus setting a goal of saving at least 25 times your estimated annual living expenses. So if you need €40,000 per annum to live, you will need a savings pot of €1m. Upon reaching financial independence, paid work then becomes optional.
Doherty, who currently works as a technical manager, has a mortgage on a home he bought in 2008, but notes: “If I didn’t have a house, I’m not sure I’d buy one now. A house is not an asset – it’s a liability. There’s this thing called geoarbitrage, where you look for a lower level of rent or cheaper place to live.
“I think younger people are starting to realise [property] is not the greatest of investments and you’re better off taking bets with index fund investments – the point is to save enough money to get into some type of investment, to get your money working for you.”
Doherty also suggests a number of other measures: building an emergency fund, getting rid of unnecessary debt, saving consistently to take advantage of compound interest, increasing one’s pre-tax retirement fund, and aim for a net worth of 25 times your annual expenses.
He himself puts 25pc of his annual wage into a pension. He also suggests increasing savings in small increments: “Start saving €300 a month, then €303 the month after that, then €306 a month later. If you push it little bits at a time, you’ll find this is possible and you’ll start to enjoy it more.”
As to what financial independence means to him, Doherty tells Review: “For me, it’s about giving myself more time to do what I want. I can go to work and if I don’t like it, or something is going on and I don’t like it, I can walk away. I might want to volunteer, or visit friends and family more often.”
Most people aiming for financial independence start by tracking their expenses, and looking out for things like discretionary spending and lifestyle creep (the gradual increase of spending as wages increase).
Aoife Gaffney (50) is not part of the Fire movement as such, yet has also turned this expenses tracking into the finest of arts. She has been working towards absolute financial independence for the last 15 years, and notes that the “last hurdle is in sight”.
Twenty years ago, she was grappling with “two mortgages and no job'” as well as debts incurred by a third party in her name.
“There was so much shame associated with that – all that feeling of failure,” she recalls.
“My first step was to take responsibility and figure out why this was my pattern. The first thing I did find out was how much debt there was. Then I took off the monetary symbols of the amounts, and then they became numbers, which removed a lot of the emotion. It then became like a mathematical equation that had to be solved.”
Gaffney founded Prudence Moneypenny Coaching, and has become a money mindset mentor, speaker and bestselling author, which provides a ‘passive’ income stream.
In addition to curbing her spending at the outset of her plan, Gaffney, a mother of one, started a number of ‘side hustles’.
“I worked on a market stall, did exit surveys, market research, all sorts of things. I printed off a 30-page tax return and read through it thinking, ‘there are countless ways I can earn money’. The secret art of leverage, and this really is my secret sauce of the whole thing, is, I think the other person really has to earn my money.
“How do I get the most out of this transaction? If I buy groceries, how do I get the most out of my €20 with the least amount of effort? Paying with a credit card gives me 56 days’ credit – though you need to be really careful. I also use rewards cards. I never pay bank charges. I’m mindful of my tax credits. The longer I keep money in my pocket, the better is it for me.”
Sounds like basic common sense, but those working towards financial independence say it’s the bedrock of the whole plan.
“You’ll never be able to save a million euro, but with consistent savings and the right investments, it can grow to a million,” says Doherty.
Mary MacRory (61), based in Kilteel, Co Kildare, became financially free at 47, via clever property investments. With her then-fiancé, she bought her first house in 1983 in Newcastle, Dublin, with a £27,000 mortgage, then bought a property in Stillorgan (later rezoned to Blackrock) for £52,000. Another rental property was bought in 2001, in Newbridge.
“The property was a Section 23 property, so we were able to charge rent and obtain tax relief on the net rental income for 10 years, so the rent was tax-free, legitimately.”
The couple then sold their house in Newcastle, and bought 11.5 acres in Kilteel.
“In the beginning, it was cheap carpets, cheap doors and no garage, no landscaping nor fabulous décor,” she explains. “We worked away and replaced the cheap stuff with better quality items.
“The house in Blackrock continued as a rental property until 2004 and upon realising that the property market was about to implode, we sold it for €549,000. After paying capital gains tax, estate agent and solicitor fees, plus the outstanding mortgage, we were left with a tidy sum that allowed us to pay off the mortgages on Kilteel and Newbridge.
“Both of us continued to work and are now concentrating more on pension funds at this stage in our lives. Plus, being able to afford the experiences of travelling outside of Europe. Cuba, Australia, New Zealand and Brazil have all provided great insights, education and joy.”
Also an author, MacRory retrained in 2016 as a life coach, a neurolinguistic programming practitioner and, later, a reiki master.
Gaffney acknowledges that, similarly, buying her house 30 years ago was a matter of exceedingly good timing, but she also started investing in shares at an early age.
“I made huge mistakes at first, but then I got a bit better,” she says. “The younger you are, the more risk you can afford to take. I don’t invest with companies that don’t fit my personal values, but I personally invest small regular amounts rather than large lump sums. The key to financial freedom is investing – do your own research and be willing to take a risk.”
Can a younger person with no property, given the current rental or property climate, still realistically gain financial freedom? After all, achieving high savings in today’s financial climate seems impossible. “Absolutely,” Gaffney affirms. “Perhaps not necessarily living in Dublin, but something has to give. It’s not about making yourself feel awful. It’s not frugality from a place of pain, it’s prudence from a place of high self-worth.
“I do feel sorry for people 10 or 15 years younger than me, but I was brought up to get a job at 18, get out at 65, and die a little bit every day. Now, you can have three or four jobs at the same time, and if someone does something well, why shouldn’t they succeed?”
Monika Wojtysiak (35) started her lash extension business, LashLuv, nine years ago, and was one of the first people in Galway to detect the growing trend.
She trained up, and a year later moved into her own premises, hiring two staff. Now, she trains other lash technicians, and two years ago she and her husband decided to open a natural cosmetics franchise. Both businesses are working so well that Wojtysiak could stay at home if she wanted and still earn comfortably.
“Of course, I don’t though,” she says. “I like challenges, so now I’ve started a third business, a henna brow distribution company.”
Still, she likes to take a holiday every month: “My customers always joke with me, ‘when is your next holiday?'” she laughs.
“I’m not thinking about retirement – the minute you retire, you don’t evolve and you don’t progress. The whole point of financial independence, for me, is the opportunity to try other things,” she adds. “You don’t keep this money for pleasure. You invest it down the line.” Jane McAleese, financial planner with Wealth Alliance, describes financial freedom thus: “It means you have enough income or finance where you have choices. It doesn’t mean, ‘not working’. Our clients ask firstly, ‘am I going to be okay?’ Then, ‘am I going to be okay in a catastrophe?’ and then after that, ‘now, what can I do with my assets or economic power?’
“The ways to improve your finances is to earn more income through work or things like rental income, reduce expenses, and drive more growth from your assets. And the latter is a real balancing act.”
Does she believe a younger person without a property asset can achieve financial independence?
“It depends on each person’s lifestyle and their cost of living,” she reasons. “Generations will adjust [to the financial environment] and it will look very different in a generation’s time. Maybe owning a property won’t be the be-all and end-all in 20 years’ time. I’d hate for young people to think ‘I won’t achieve it so I won’t even try’.”
Financial advisor John Lowe, aka The Money Doctor, affirms that investing in the stock market is a positive thing.
“We’re in the 10th year of a boom market,” he explains. “As Warren Buffett calls it, it’s a mechanism for transferring wealth from the in-patient to the patient. The stock market is always a winner, but the buzzword is diversification. Get into the stock market instead of putting money into a saver account as the interest rates for the next few years are going to be low.”
He advocates starting with a budget planner (he has an app, The Money Doctor, that does this) and to create a rainy day fund that is three to six months of a person’s net income.
“Honestly, I don’t believe anyone could retire at 40 unless they have an inheritance or hit the jackpot,” he adds. “Income-wise, it’s just not feasible. If someone is on €50,000 a year, which is a really good wage, that’s about €35,000 net or €3,000 a month. If they pay €1,000 on rent or a mortgage – and you’ll get nowhere for that mortgage amount – try saving on what’s left.
“That said, if you’re young, free and single and you’re relatively cautious about your spending, you can definitely head in the right direction if you don’t go on month-long holidays to Vietnam,” he adds. “I met a guy who had three lattes a day, saying ‘I have to have them’. It was costing him €2,000 a year, meaning he needed to earn €4,000 gross to buy them.”
MacRory offers the following advice for those hoping to reach a place of financial comfort more quickly: “Pay off your loans and your mortgage as quickly as suits you and your partner. The interest is crippling. Why stick money in a bank deposit or a risky investment when you can pay off a debt that has a far more expensive interest cost associated to it than the less than 1pc deposit interest the banks are offering on savings?
“Everything is cyclical in economics (and life) so don’t despair,” she adds. “Being financially independent is not only a sound financial aspiration or even decision, but it will free you up to experience the good things in life.”