Semi-Retire FIRE

How do I buy an index fund?

I’m currently coaching a client regarding financial freedom and building a freedom fund. She understands all the principles of FIRE (financial independence retire early) the 4 per cent rule, budgeting, compound interest and what stocks and shares are but she had one barrier to starting the whole journey. And that was ‘How do I buy an index fund?’

It was then that I realised that sometimes its just not having the knowledge of the more practical first steps that is holding people back from starting their financial freedom journey.

So this post is to try and give some pointers on where to start. However I am not a financial adviser so I don’t give individual advice and I’m based in the UK, so although the other posts on this website can hopefully be appreciated by any one from any country, this one is definitely UK skewed.

Ok where do I start?

Well put simply, in order to start investing you need these 3 things –

The index fund or shares that you want to buy (the investments)
An account that you will put your investments in (eg a stocks and shares ISA)
A platform that will hold your account and the investments that are inside it.

In the UK a very tax efficient way of investing is in a stocks and shares ISA. This is a type of account that you will put your investments into. This is tax free so you wont be taxed on the growth of your investments or any dividends received. You can invest a maximum of £20k each year. However, if you are currently investing in a cash ISA you can’t also invest in a stocks and shares ISA as well. However these rules could change in future.

There are lots of platforms that will hold the stocks and shares ISA such as Vanguard, Interactive Investor, Hargreaves Lansdown and many others. They all have different fees and restrictions so you will need to do your homework and see which will work best for you.

Once you have your chosen account in the platform of your choice e.g. a stocks and shares ISA on the Vanguard platform, you can then choose which fund or shares to invest in. As previously discussed in investing for beginners, many proponents of FIRE choose to invest in a global index fund. These are low cost, diverse as you are buying lots of different companies throughout the world and simple to buy. There are lots of different types depending on which platform you use, but they are easy to search through on the platform. You can also use morningstar to check the details and performance of your fund to make a more informed decision.

Often you can start investing with as little as £50 to£100 a month into the fund. You can start a regular direct debit into it each month and then just let compound interest do its thing over time. Once you have the hang of it and as you trim down expenses and increase income you can then choose to increase your contributions each month.

Hopefully this gives you some basics and pointers as to where to start when looking to buy an index fund. Do make sure you do your own research though to work out what is best for you. There is a wealth of information out there about investing so please use this post as a starting point and let me know how you get on.

Investing for beginners: Don’t be sexy and exciting, be dull and boring.

I know in most circumstances this would be terrible advice, but when it comes to investing, personally I think dull and boring is the best strategy.

I am not a financial adviser so this is just my opinion and not advice. But to me, sexy and exciting investing would be buying the latest individual hot stock, random crypto currencies or any new ‘get rich quick’ investment thats been shared on TikTok. For some people these things might be ok to dabble in now and again, but for a long term investing strategy that is going to grow your wealth over time (say 10 plus years) I think dull and boring is the way to go.

In dull and boring I mean some kind of low cost global index fund.

What is a global index fund?

A global index fund enables you to buy a slice of the worlds economy. Each index fund varies in size depending on what market it is tracking but there will usually be hundreds if not thousands of different companies in it. When you buy shares in the index fund you are buying every company in it. And not just any companies, some of the biggest and best most profitable ones throughout the world (think Apple, Amazon, Meta, McDonalds, oil companies, pharmaceuticals etc) An index fund just tracks the whole market. For this reason its called a passive fund and usually has cheaper fees. There are no highly paid active fund managers trying to beat the stock market.

It will still go up and down in value day by day and year by year, but if you are in it for the long run (decades rather than months or years) you will hopefully get rates of return higher than you would in just a savings account. For example historically the US S and P 500 stock market has on average returned around 10 per cent per year before inflation.

As in my previous post pay yourself first, rather than buying the latest Apple gadget or having a daily McDonalds, you could use that money to buy a part of the business instead via the global index fund. This is the path to your wealth and financial freedom.

Not sure where to start with buying global index funds? Well don’t worry we will look at this in the next post.

The 4 % rule and why you need to know it.

Don’t worry you don’t need to be Carol Vorderman or have completed any sort of Maths qualifications to understand the 4% rule. In fact its pretty simple.

However it is an important part of the FIRE (financial independence retire early) movement and indeed semi-retire FIRE.

So what is this mysterious rule??

Put simply, it is the percentage of your investment portfolio (freedom fund) you can withdraw every year and never run out of money (well at least for 30+ years). In other words, you can withdraw 4% from your freedom fund annually to cover some or all of your living expenses and still have lots of money left.

This rule was the result of a famous study in 1998 called the Trinity Study. It looked at different scenarios for withdrawing money from an investment portfolio of stocks and bonds at different points over a 70 year period. This was to find what percentage of investments could be safely withdrawn each year to provide an income in retirement without running out of money for at least 30 years. They found this number to be 4 %. If you want to know more about the study here is a thorough explanation Trinity study – Wikipedia . The 4% rule is also called the safe withdrawal rate.

Knowing this safe withdrawal rate number means you can work out the amount of money you need in your investment portfolio to be able to cover your expenses post FIRE. This is obviously going to be quite a large number for full FIRE which is why semi-retire FIRE can be a more achievable goal.

There is an easy way to work out exactly how much you will need. For full FIRE you can work out the amount you need to have invested by multiplying your annual living expenses by 25.

For example, if you need £2000 a month to live on once you retire you can multiply this by 12 to get the yearly amount of £24000 and then multiply by 25 which is £600,000. That means if you have this amount in investments you can safely withdraw 4% (£2000) each month and hopefully never run out of money.

For semi-retire FIRE, if you want to cover half your expenses you can half the amount in your investments, so £300,000 will give you around £1000 income a month. If this still sounds like too much a pot of £150,000 will give you a £500 a month income, still a nice little income to be able to drop a day or 2 work a week for ever!

These numbers only work for investments though as savings interest rates are usually not as high and so safe withdrawal rates are lower. Fortunately investing can be pretty simple too if you follow a few rules which I will cover in my next post!

Disclaimer: This is not financial advice and you should seek independent advice if you choose to invest.

Grow your freedom fund!

Once you’ve mastered your budget, paid off any high debts and built up your emergency fund its time to look at the most exciting part of the plan…the freedom fund!

So what is a freedom fund??

A freedom fund is your pool of savings and investments that will be used for your path to semi FIRE or full FIRE, if that’s what you decide to do. Its the pot of money that you will be able to draw out an income each year to cover some or all of your expenses. Its your escape from the 9 to 5 rat race. Its your route to a different lifestyle and better work life balance.

In the next few posts we will cover all the things you need to know to start your own freedom fund including the 4% rule, some investing basics, compound interest and working out how much you need in your freedom fund. So keep on reading and start your journey to freedom today!

Budgeting can be fun!

I know this title is going to be a hard one to sell. But hear me out…

Most people wince or roll their eyes at the thought of budgeting. They see it as depriving themselves in some way. Not being able to buy the things they enjoy or have any fun.

But I like to think of having a budget as the opposite of that. Its all about making sure you allocate spending to the important things in life (such as financial freedom) and reducing the amount to the things not adding any value (do you really need another pair of jeans, shoes, handbag….insert as applicable).

So where to start?

A good place to start is with a budget planner or spreadsheet that you can fill in with all your monthly expenses. There are lots of free budgeting spreadsheets on the internet, here is a good one – Budget Planner: how to manage your money – MoneySavingExpert you can save the excel version to your computer or print it out. If feeling adventurous you can create one yourself, you get bonus points for that!

Then look over your bank statements from the past few months and see where your income has been going. You don’t need to beat yourself up on this. But “What isn’t measured isn’t managed” (a famous person once said) so you need to know where things stand at the moment without judging yourself, so you can manage it going forward.

Next step is to think about whether the spending in each area is adding value to your life or not. If the answer is no then this is probably an area you could cut back on or eliminate altogether. Some expenses probably can’t be changed very easily such as rent or mortgage. But other areas such as TV packages, subscriptions, eating out or clothes shopping usually can.

By reducing the expenses that aren’t adding value to your life you can pay more into the exciting expenses that align with your values like your financial freedom. You will then literally be buying more free time. Now hopefully you’ll agree that does sound like fun!

Build your emergency fund AKA the sleep soundly at night fund

Whatever you decide to call it, it has the same purpose. A pot of money that is patiently waiting in an easy access account so that any unexpected life events that might occur (e.g. boiler breakdown, car repairs, job loss) wont throw your financial dreams off track. Its a security blanket for you and your finances. Just knowing its there can be life changing if you’ve never had one before. You can close your eyes every night with a smug smile knowing that you will be able to handle any of life’s financial curveballs.

The amount of emergency fund to save depends on how much is going to allow you to sleep soundly at night. This will be different for everyone but somewhere between 3 to 6 months of your living expenses is probably enough. If you currently have zero emergency fund then even one months living expenses will be a game changer. Just keep building it up.

Once you have an emergency fund in place you can pat yourself on the back and start to look at other options for the rest of the money you have been paying yourself first. We will come on to this in the following posts.

Financial independence fundamentals: Pay yourself first!

Yes pay yourself first. Not McDonalds, not Costa, not Dunkin Donuts home delivery service (ok that might just be me..) but YOU.

Obviously you need to pay all your regular household bills too but if you then wait until the end of the month to save what ever is left, guess what, you will probably have aided the Dunkin Donuts CEO in his early retirement and not yours!

So how much should I pay myself?

Well it depends how quickly you want to semi-retire FIRE. But start off with something, anything, just make sure you start.

You will need to work out your budget which we will cover in another post, but getting into the habit of paying yourself first is half the battle. The other half is consistently keeping it up, month by month, year by year until hey presto eventually you will be able to quit that job, or at least work less.

Ideally set this up as an automatic payment each month. So you can set it up and not have to think about it again. It will just go from your pay cheque into your savings or investments every single month and your future you will be extremely grateful you did.

If you can get this FI fundamental up and running you are well on your path to financial freedom and Semi-retire FIRE so keep on reading and let me know how you get on.

What is Semi-Retire FIRE?

I like to think of semi-retire FIRE as a more chilled out version of the traditional FIRE (financial independence retire early) movement.

Before I came across the FIRE movement, I often used to think the idea of working 5 days a week and getting just 2 days off to do what I chose to do, for the next 30 to 40 years just didn’t seem like a well balanced life to me.

So when I came across the idea of FIRE in my mid thirties it immediately piqued my interest.

I read all the classic FIRE blogs like Mr Money Moustache and JL Collins The simple path to wealth. But after doing the calculations to work out when I would hit financial independence, on my average salary and potential savings rate, I wasn’t going to reach FIRE much before age 60, and not that many years before my official retirement age. The trade off wasn’t worth that. I didn’t want to put my life on hold until a magical date 25 years in the future when I could finally get my freedom and financial independence.

But rather than give up on the idea as nonsense or only for other people, I decided to embark on my own version of it.

Introducing Semi-Retire FIRE

I still use the same principles and techniques of FIRE but to reach a stage where I have enough passive income from investments to never have to work full time again. I could subsidise my lifestyle and current income to work just 2 or 3 days a week, or work part time on a lifestyle business or freelance basis. Still giving me flexibility and more time to do what I wanted to do. And crucially would hit that number far sooner than 25 years!

And that’s how it all started.

If you want to find out more about how I did this I will be posting regularly on this site so do keep reading and hopefully I will inspire you to start your own Sem-retire FIRE journey.