What is FIRE: Financial Independence Retire Early Explained

FIRE stands for Financial Independence, Retire Early. It's a movement centered on one simple but powerful idea: save and invest aggressively so you can live off your investments rather than relying on a paycheck. The "retire early" part is optional. Many people pursuing FIRE aren't trying to stop working entirely. They want the freedom to choose whether, when, and how they work.

How FIRE Actually Works

The math behind FIRE is straightforward. You need to accumulate enough invested assets that the returns can cover your living expenses indefinitely. Most FIRE calculations use what's called the 4% rule: if you can withdraw 4% of your portfolio annually to cover expenses, your money should last at least 30 years based on historical market performance.

Working backwards from that rule: if you spend $40,000 per year, you need $1 million invested (because $40,000 is 4% of $1 million). If you spend $60,000, you need $1.5 million. Your "FIRE number" is simply your annual expenses multiplied by 25.

The Real Variable: Your Savings Rate

What determines how fast you reach financial independence isn't your income. It's your savings rate. Someone earning $200,000 but spending $180,000 will take far longer to reach FIRE than someone earning $80,000 but spending $40,000. The person with the higher savings rate is simultaneously building wealth faster AND training themselves to live on less, which means they need a smaller portfolio to be financially independent.

Different Flavors of FIRE

The FIRE community has developed several variations to fit different lifestyles:

Lean FIRE: Achieving financial independence on a minimal budget, typically under $40,000 per year in expenses. This requires the smallest portfolio but demands ongoing frugality.

Fat FIRE: Targeting a more comfortable lifestyle, usually $100,000+ in annual expenses. This means a larger portfolio but more flexibility in retirement.

Barista FIRE: Reaching partial financial independence where investments cover most expenses, supplemented by part-time work for extras and health insurance.

Coast FIRE: Investing enough early that compound growth will eventually reach your target without additional contributions, letting you reduce savings intensity.

Is FIRE Right for You?

FIRE isn't about deprivation. It's about intentionality. Understanding where your money goes, deciding what actually brings you value, and making deliberate choices rather than defaulting to lifestyle inflation. Even if early retirement isn't your goal, the underlying principles of tracking spending, maximizing savings rate, and investing consistently will serve you well.