The Principles of FIRE and Figuring out ‘Your Number’

FIRE is an acronym for “Financial Independence/Retire Early“. These two concepts, while closely related, can mean two different things to two different people. They’re milestones to strive for, and for some are the driving force behind the decision to save or earn more money.

Financial Independence

Being financially independent is a pretty easy concept to grasp. Being financially independent means that you have enough money to cover your basic necessities: food, shelter, etc. without that pesky job. If you ever want to retire, this concept is critical to understand. This doesn’t necessarily mean you need to have millions and millions of dollars today in order to sustain yourself. The money you use to be financially independent of a job can be money still being earned somehow. When many (I’d say probably most) people reach their FI number, they’ll continue to work. Chances are your expenses could end up going up after you leave your job (in part due to more free time to do things like going out to eat, traveling, and other things like insurance costs).

There are two ways to hit this number more quickly.

  1. Spend less. If you drive your expenses down, obviously the amount of money you need to have saved up or coming in also will decrease. Let’s assume you estimate that you’d need $3500 a month to be financially independent. If you want to have the security of a lump sum, and assume you’ll live another 50 years, you’ll need $2,100,000 – not accounting for inflation, increased health expenses as you age, etc. If you were to live a bit more meagerly, say on $2750 a month, you’d only need $1,650,000. Cutting your costs can be a great way of hitting this number early, but you can only cut expenses so far; you’ll still have some expenses that will be unavoidable, like food.
  2. Earn more, independently of your day job. This can mean things like a ‘side hustle’, dividends from investments, cash flow from real estate, or royalties from a novel you’ve penned. The great thing about earning more money outside of your job is that it’s there whether you get laid off or not. And, unlike strictly focusing on saving, there’s no limit to how much you can earn. There will always be ways to make more money if you’re willing to put in the time and effort.

Financial Independence doesn’t inherently mean retirement – it simply means you have more flexibility in your life to pursue the things that are of interest to you, regardless of what those things pay. I’d love to quit my day job and focus on writing, have a more lax consulting gig, and focus on furthering my skills in a number of different areas for both personal and potential monetary gain. I don’t think many people would consider that retirement per se, but being financially independent doesn’t mean that you need to stop working…simply that you could, should you choose.

The road to financial independence can be a long one, and for most people it’s definitely monotonous and boring. It involves a lot of repetition, slow gains, and chipping away relentlessly despite sometimes not seeing any progress – or, at times, even some set-backs. But the flexibility and peace-of-mind that comes with attaining financial independence will make the long journey worth it.

Early Retirement

Early retirement is the second principle of FIRE. We’ve talked about early retirement already, and I won’t go into as much detail here as I did in the other post.

Okay, so, you don’t need to necessarily just have millions and millions of dollars saved up in advance to be considered financially independent. But to truly retire early, it’s best to have some serious cash saved up to help buffer yourself from market changes over the long haul if your goal is to never go back to work. The big – and arguably only important – difference between financial independence and early retirement is simply the act of no longer working a traditional job.

One of the most important numbers is called the Safe Withdrawal Rate, or SWR. This is the rate at which you can safely withdraw money from your accounts so that it’ll last, in theory, for the rest of your life. There’s a study that was done back in 1998, called the Trinity Study, which aims to find out what this rate is based on historical stock market data. The number they arrived at? 4%. So, according to this research, you could have a stock portfolio and withdraw roughly 4% and your money would last you forever, with increases taken for inflation, essentially.

Of course, a lot of things have happened since 1998 that yielded market conditions not seen before, like the dotcom era and the market crash in 2008. These sorts of extreme market fluctuations were not part of the study, and so relying on a 4% withdrawal rate, while not totally misguided, is definitely less conservative depending on your beliefs of the future of the market. Most folks I read about who aim to retire early – particularly because of the extra risk that early retirement poses, since you’ll need to stretch your money for a longer period of time – aim for a 2% to 3% rate at best.

Whatever you’re comfortable with, knowing what this number is for you is important to figuring out if you feel you’ve hit the point in your life that you can step away from your income-producing job(s). If you want to keep your current income, and use a 4% SWR, you’ll need to have 25x your annual income to make it happen. No small feat.

Both financial independence and early retirement require keeping an eye on your spending, making sure you budget, and steady progress.

There will be set backs; hopefully your emergency fund covers some of those. But as long as you keep at it, financial independence is something everyone can achieve.


Does financial independence motivate you to earn more or spend less? And is early retirement something you’re considering?

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  1. It motivates me to do both. I know it can be achieved through a combination of both. But my primary focus is on the expense side. The less you spend, the less you have to cover and the less income that is required to retire early or be financially independent.

    Thanks for the great read today!


    1. Thanks for stopping in, Bert. It’s nuts how much cutting a recurring expense can minimize the amount you need to have saved up for retirement. I think focusing on expenses is the most logical starting point, then once you have those at a sustainable level, switch to focus on growing your income.

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