If you follow personal finance at all, there's a good chance you've heard of FIRE: Financial Independence, Retire Early. So what actually is it, and is it achievable for you?
Where FIRE came from
The FIRE movement really took off in the early 2010s, thanks to a handful of great bloggers and writers like Mr. Money Mustache and JL Collins, author of The Simple Path to Wealth. These days they don't post nearly as often as they used to. (Probably because they're too busy being FIRE to log in and sit at a computer.)
Their real impact on the personal finance community was showing that you don't have to slog through a career you hate for the next 40 years. There's a real path to retiring early, maybe even 30 years early.
What FI and RE actually mean
FI (Financial Independence) means your investments can cover your lifestyle, so you no longer depend on a paycheck. Personally, this has been my goal rather than full FIRE. FI gives you options: retire, travel, take a year off, change careers, or do just about anything that doesn't require working.
RE (Retire Early) is the part people argue about. Under the strictest definition, it means not working at all. Make any money, no matter how easy it was or how much you wanted to, and purists would say you're no longer FIRE. Most people in the community are more flexible, but that's the hard-line version.
Your FIRE number: the 25x rule
So how do you actually reach FI or FIRE? The basic target is investments worth 25 times your yearly spending. That's the same as saying a 4% withdrawal each year covers your expenses. This comes from research on historical market returns, which found that a 4% withdrawal rate would have lasted through almost every 30-year retirement on record.
What does that look like in practice? With exactly $1 million invested, you could withdraw about $40,000 a year. Run the same math on your own yearly spending to find your number. By my calculations, I'll need a little under $60,000 a year, so about $1.5 million to be fully FIRE.
How do people actually get there?
Step one is knowing your numbers. You need to know exactly what you spend each month before you can run a real FIRE calculation. (Use our free spreadsheet to figure this out: moneybythenumbers.com/resources.)
After that, there are two levers that get you to FIRE faster:
Reduce your spending. Spending less doesn't just free up more money to invest. It also proves you can live on less, which shrinks your FIRE number. It's a double win.
Increase your income. This one can really speed up your journey. There's always a limit to how much you can cut, but there's no limit to how much you can earn.
Welcome to the FIRE journey
Once you know your numbers and start cutting spending, growing your income, or both, you're officially on the path to FIRE. What you'll actually do once you get there? That may be a different story.
