What can we learn from the world’s toughest savings technique?

We asked personal finance writer, Emma Lunn, to find out more about a savings technique that gives us a simple equation (but a very tough approach) for early retirement. And it could all start with Jars…


Fancy retiring when you’re 40? Well, followers of the FIRE movement reckon you can do just that. FIRE stands for “Financial Independence, Retire Early”. The idea is you dedicate a large proportion of your income to investments that will grow, to the extent that you can quit traditional work much earlier than most people. Financial independence doesn’t necessarily mean downing tools and never working again – it means freedom and choices. Sound good? Well, read on.

The Big Picture: save 25 times your annual spending

So, how much do you need to save or invest to be ready for retirement at 40? It all depends on how much you spend each year.

The most common figure banded around by FIRE enthusiasts is that you need to accumulate a pot of money worth 25 times your annual spending. So, if you reckon you spend £20,000 a year, you need £500,000 stashed away.

The 4% rule

Fast forward to the point when you’ve saved your target amount, and it’s time to live by the “4% rule”. This rule states that, if you keep your money invested and can live off a withdrawal rate of 4% a year, you’ll never run out of money (assuming a 30-year retirement).

A FIRE success story

All this might sound wildly ambitious but FIRE devotees reckon it’s achievable.

At 41, Alan Donegan says he never has to work again unless he wants to. Admittedly, he and his wife Katie had something of a head start, owning a business (The Pop Up Business School), and two investment properties. The couple were able to save 30 to 40% of their income before they discovered FIRE; after that they upped to it to 60% or more during their most aggressive savings phase.

Nevertheless, Alan says anyone can strive for financial independence if they follow FIRE principles.

“I always say ‘don’t buy liabilities, buy assets’,” he says, “My wife and I bought two investment flats back in 2015, and also started investing in stocks and shares – something I’d long been scared of.”

Long-term investing

Getting involved in the stock market for the long-term is crucial to FIRE success, according to its fans. But Alan is quick to point out that you don’t need lots of spare cash to invest in stocks and shares.

“The barrier to entry in investing in the stock market is a lot lower than, say, property. You can start with £100. Once you have a financial freedom fund started, invest in broad-based index funds over the long term and never sell,” says Alan.

FIRE advocates generally swear by exchange-traded funds, known as ETFs. ETFs are investment funds that aim to track the performance of a specific index, such as the FTSE 100.

Different types of investments (stocks, bonds, commodities, etc) are pooled together into a single entity, which then offers shares to investors. These shares can be bought and sold on major stock exchanges. ETFs are popular as they offer diversification at a lower cost than other types of investment fund.

“The earlier you start saving the better. You have a massive advantage if you start in your 20s and will be shocked at how quickly your money can grow. It’s tougher, but still possible, if you start in your 50s.”

Jars can help you plan

Obviously saving such a high proportion of your income might sound tricky if – like most of us - you’re struggling with high rent, ever-increasing bills and a modest salary (and no investment properties).

In short, the less you can live on, the better. And if you have a high salary, but not the spending habits to match, even better.

Whatever your income level and spending habits, the jar budgeting system can help, according to Alan.

“What percentage of your income can you live off, and what can you split into ‘play’ money, an emergency jar and your financial freedom jar? Split your money as soon as it comes in, rather than trying to save at the end of the month. The jar system is incredible for financial planning,” he says.

Even if your ambitions are simpler than retiring 30 years before your friends do, it might be time to get the calculator out, get on top of what you’re spending and where, and start your own journey to financial independence.