FIRE 101: A Beginner’s Guide to Financial Independence

Welcome to myfireinvesting! If you’ve just typed “What is FIRE” into your search bar, you are about to discover a life-changing financial movement. This guide is aimed to be a one stop shop for you. Note that this isn’t a complex lecture; it’s a conversation about gaining control of your most valuable asset: your time.

Defining FIRE (And Why It’s More Than Just Early Retirement)

The Philosophy: Trading Consumption for Freedom

The core principle of the FIRE movement is this: aggressively save and invest now to buy back your time later.

Instead of adhering to the traditional 10-15% savings rate, FIRE advocates typically aim to save and invest 50% to 70%of their take-home pay. This drastically accelerates the timeline for achieving FI, compressing a 40-year working career into 10 to 20 years.

What Does F.I.R.E. Actually Stand For?

FIRE is the acronym for Financial Independence, Retire Early.

• F.I. (Financial Independence): This is the ultimate goal. It means your passive income from investments (like dividends, interest, and capital gains) is enough to cover all your living expenses. Simply put: You no longer need a job to survive.
• R.E. (Retire Early): This is the result of achieving FI. It means you gain the option to stop working decades sooner than the traditional age of 65. Many people who achieve FIRE don’t actually quit working; they pivot to passion projects, travel, or meaningful part-time work. They trade obligation for choice.

The Most Important Formula: The Savings Rate Effect

The most crucial factor in the FIRE journey is your Savings Rate, defined as:

Savings Rate = Total IncomeMoney Saved and Invested​ / Total Income

As your savings rate increases, the time required to reach financial independence drops dramatically. Here is a simple chart showing the relationship:

Savings Rate	Years to Financial Independence
5%	66 Years
10%	51 Years
25%	32 Years
50%	17 Years
70%	8.5 Years

The Math of Freedom (Your FIRE Number)

You achieve Financial Independence when your investment portfolio reaches a specific size, often referred to as your “FIRE Number”. This number is calculated using a foundational, historically-tested concept.

Step 1: Determine Your Target Annual Expenses

Before you can calculate what you need to save, you must know what you need to spend. Be honest about the annual expenses you expect to have in retirement.

Example: You currently spend $60,000 per year, but you plan to sell your house (eliminating mortgage payments) and travel more (increasing travel costs) when you retire. You estimate your Future Annual Expenses will be $50,000.

Step 2: Apply the 4% Rule

The 4% Rule is the cornerstone of the FIRE calculation. Based on studies of historical market data (like the famous Trinity Study), it suggests you can safely withdraw 4% of your investment portfolio each year, adjusted for inflation, with a very high probability of your money lasting for 30 years or more.

To find your FIRE Number, you simply need to reverse the 4% calculation:

Why 25?

Using the example above:

What this means: You need to accumulate an investment portfolio of $1.25 Million. Once you hit that number, you can safely withdraw $50,000 per year (4% of $1.25M), and your money should last indefinitely.

A Note on Safety and Simplicity (The Boglehead Approach)

The methodology of FIRE is largely built upon the simple, low-cost investing principles championed by the late John Bogle, the founder of Vanguard. He famously stated:

“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”

FIRE provides that exact plan and discipline: simple math, low-cost index funds, and patience.

The Different Flavours of FIRE

The FIRE movement isn’t one-size-fits-all. People customize it based on their lifestyle and risk tolerance. Understanding these “flavors” helps you define your own specific goal:

• Lean FIRE: Achieving FI with a very low annual expense budget (often under $40,000/year). This is the fastest track to FI, but it requires a very frugal lifestyle.
• Fat FIRE: Achieving FI with a high annual expense budget (often $100,000+/year). This requires a larger investment portfolio but allows for a more luxurious or comfortable retirement.
• Barista FIRE: You have enough passive income to cover your basic expenses (Lean FIRE), but you work a low-stress, enjoyable part-time job (like working at a coffee shop—a “Barista”) to cover the “fun” extras like travel or hobbies and avoid drawing down your principal too quickly.
• Coast FIRE: You save and invest enough early in life that your portfolio, left alone to grow without any further contributions, will naturally “coast” to your full FIRE Number by the traditional retirement age (65).

Starting Your Journey Today (Your First Action Items)

The biggest barrier to FIRE is simply getting started. Like most things in life, once you have momentum, the path becomes easier.

1. Track Your Spending

You cannot improve what you don’t measure. For one month, track every single dollar you spend. This is not about judgment; it’s about awareness. You’ll likely discover “leaks” that can be redirected straight into your investment accounts.

2. Automate Your Savings

Pay your future self first. As soon as your paycheck hits, set up an automatic transfer to your investment account. This is a crucial step in maintaining that high savings rate.

As another investing legend, Benjamin Graham, wisely advised:

“The investor’s chief problem—and even his worst enemy—is likely to be himself.”

By automating your investing, you remove yourself (and your emotional impulses) from the equation, giving you the necessary behavioral discipline that Bogle described.

3. Learn the Simple Investing Basics

Don’t panic about picking stocks. The vast majority of FIRE proponents invest in simple, low-cost investments like index funds or Exchange-Traded Funds (ETFs) that track the entire stock market (like the S&P 500). This keeps things simple and drastically lowers fees.

We are genuinely passionate about empowering others to find their financial freedom. This isn’t just a blog; it’s our mission to make wealth building accessible to everyone. We are here to learn and grow together.