I’m very excited as today I share with you my first interview post! I’ve already announced this a few weeks ago in my semi-annual blog update post.
Therefore, I want to introduce to you my first expert The FIRE Engine (TFE) of thefireeng.com. FIRE is pretty popular in the USA. However, in Europe, it’s not that well-known. That’s why I wanted to talk to him as he is one of those outliers that is focusing on that. He lives in the North of England. TFE works in the public sector in healthcare. He’s in his mid-twenties and graduated two years ago from University with a degree that led directly into his current day-job. We’ve chatted pretty often since we both started blogging a while ago. He’s a totally nice guy and definitely knows what he’s talking about.
So without further ado, let’s dive in.
Question #1: When did you start to care about your finances? And why?
I’ve always been careful with my money. I remember getting my first bank account aged eleven, as it came with a little red safe. Once, aged about thirteen going on one the few trips abroad we took as a family I remember taking out money from an ATM in the airport. I wouldn’t let even my family near me as I entered my PIN code! That same holiday, my father jokingly took my wallet and we ended up “play fighting”. Let’s just say, I may have “play” cracked one of his ribs. He soon learned better.
Why I was like this from a young age I honestly don’t know, but it has put me in good stead. I can’t pinpoint exactly when I came across the idea of financial independence, but it was somewhere between starting university at eighteen and buying into my first index fund around my twentieth birthday. I was living off student loans and part-time work, but chose an account with the lowest opening minimum and monthly contributions, and started putting away £30 per month with the idea that it was better to start with the small amounts of money I had, so that by the time I started full-time work I’d have a better idea of what I was doing.
Note by Sir Budget: I agree heavily with TFE on this point! I’ve written a blog post specifically targeting why you should start investing as soon as possible. Even a few years can make an incredibly huge difference later.
Question #2: What is FIRE?
FIRE is a short acronym, but a wide array of interpretations. It stands for Financial Independence, Retire Early. For me, Financial Independence means having a large enough nest egg to have a reasonable chance of covering my expenses for the rest of my life, while the Retire Early part describes achieving freedom from necessity of paid work. Note that I refer to the necessity of paid work, as there are countless examples from the personal finance community of those reaching financial independence and continuing paid work of some form or another, often resulting in higher incomes than they’d ever realised pre-FIRE!
I enjoy the core of my work, which is why I intend on keeping it going in some form long term. Financial Independence (or even being well on the path towards it) would give me the freedom to pursue the much less profitable but more rewarding opportunities, including charity work and expedition healthcare.
Question #3: What is special about FIRE in Europe?
Of course, there can be vast differences from one European country to the next. As I see it, however, there is a general trend in Europe towards governments taking a greater interest in the wellbeing of its people. In the UK we benefit from a National Health Service which is free at the point of use and makes up about 97% of healthcare in the UK. This means that you can receive the same (high quality) healthcare regardless of your income, with no need for medical insurance. I see a lot of personal finance bloggers from the US and elsewhere (including Sir Budget in Germany) having to factor medical insurance into their future planning, but for as long as the NHS still stands, it’s one less thing to worry about.
We are also a country of pensions. There is a small State Pension available for those who have worked and paid national insurance (a national tax which pays towards state benefits), and recently the government has announced that all employers are required to offer a workplace pension and automatically enrol employees, so they have to opt out if they don’t want to pay into it. So, for those who don’t take any action towards planning for their future, they can still expect to receive two different pensions in their retirement.
Question #4: How can you still achieve early retirement in Europe?
Of course, all of these state services come at a price, and that price is higher taxation rates in Europe than the US. Of the thirty-five OECD countries, the US has the fourth lowest tax burden at 25% of its GDP, compared to around 32% for the UK and 37% for Germany. At nearly 50%, Denmark has the highest relative tax burden. So, while working towards FI you have higher taxes on your income, but you likely have fewer expenses like insurance and medical bills to account for in your FI calculations. Whether this makes the journey shorter or longer on average than in the US, I have no clue (but would love to know!).
Note from Sir Budget: It’s even worse for Germany. The highest income tax rate is at 45%. The average (!!!) costs for taxes and social security combined are roughly at 50% for unmarried childless employees. So yeah, normally half of your money is gone right away and I guess that makes it a little harder to retire early. We also have higher taxes on capital gains, therefore, we need also more money in our investing accounts. Investing in general, at least in Germany, is not such a big thing. I don’t know many people who ever bought stocks here. But I agree, there are disadvantages on both sides of the Atlantic.
I honestly think there is less of a drive for financial independence in Europe, and for early retirement on the whole, but with good reason. Aside from more accessible and affordable health and social care, in Europe, we already have more free time from work! In the US I understand there is no statutory minimum number of paid leave days, and on average private employers offer roughly between ten paid days after one year’s work to twenty days after twenty years. The European Union currently requires a minimum of twenty days of leave per year, and in the UK we have an additional eight public holiday days on top of this.
I can understand people’s desperate drive to escape the workplace if you have to work fifty weeks of the year, but if you have more time off during your working life then it’s much less of a millstone around your neck and becomes more enjoyable.
So, given all of these differences, do I think it’s possible to achieve early retirement in Europe? Running a blog called The FIRE Engine probably means I’m biased, but I say it’s definitely attainable for many in Europe, and in many ways will be easier than in the US. I feel there is less of a financial independence movement here, but things have started to pick up and more European blogs have started to flourish in recent times, which I’m really happy to see!
Question #5: What are your special tips and tricks?
I have no secret tips and tricks. Just like with getting fitter or losing weight, it’s a case of simple advice that’s often hard to follow. Here are some of the habits I use to keep myself on the road to FI:
• Automatic savings into an emergency fund
• Automatic contributions to index investments
• Walk/cycle as much as possible
• Have a cheap economical car if necessary, use it as little as possible
• Batch cook healthy meals
• Don’t eat meat every day
• Track your spending
• Have concrete written goals and check in regularly
• For big purchases, ask three questions. Do I need it? Can I afford it? Can I get it cheaper elsewhere or used?
• Realise you will have setbacks
• Have a housemate/lodger
That’s all from me here at The FIRE Engine, and I’d like to say thank you to Sir Budget for inviting me to this interview on his fantastic blog! We started blogging at a similar time and both our blogs have grown almost in parallel, so I’m always interested in seeing what he’s up to!
Note from Sir Budget: I hope you’ve enjoyed this new blogging format. Let me know by leaving a note in the comment section below! Additionally, head over to The FIRE Engine to learn more about financial independence, early retirement, and general money advice.