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What is FIRE (Financial Independence Retire Early)?

It’s a word you might have come across several times on the internet while researching personal finance: FIRE. But what is FIRE (Financial Independence, Retire Early)?

In an era where the conventional trajectory of working until retirement age is being redefined, the FIRE (Financial Independence, Retire Early) movement has emerged as a beacon of financial empowerment. This lifestyle and financial strategy has captured the imagination of many, challenging traditional norms surrounding work, savings, and retirement. 

In this article, we will delve deeper into the essence of FIRE, uncovering its principles, diverse strategies, and the various types of FIRE that enthusiasts adopt on their journey to financial freedom.

Table of Contents

Understanding the Pillars of FIRE

FIRE comprises two fundamental pillars: Financial Independence (FI) and Retiring Early (RE).

  • Financial Independence (FI): At its core, achieving financial independence means having a robust financial cushion, often generated through savings and investments, to cover living expenses without relying on traditional employment income. Simply put, your money makes enough money to cover your expenses.
  • Retire Early (RE): The second pillar involves retiring earlier than the standard retirement age. This doesn’t necessarily mean a life of leisure but rather having the freedom to choose how to spend one’s time without being tethered to a 9-to-5 job until you’re in your 60’s. It gives you more freedom in creating the life you want to live.

Diverse Types of FIRE

The FIRE (Financial Independence, Retire Early) movement is not a uniform entity; it encompasses various approaches and philosophies. Here are four prominent types of FIRE:

  • Lean FIRE: Lean FIRE adherents focus on extreme frugality to achieve financial independence. This approach often involves a minimalist lifestyle, prioritizing essential expenses and cutting out non-essential or luxury spending. Lean FIRE enthusiasts typically have a high savings rate and may retire with a modest nest egg.


  • Fat FIRE: On the other end of the spectrum is Fat FIRE, which allows for a more comfortable and affluent retirement. Fat FIRE proponents prioritize a higher standard of living during both their working years and retirement. This type of FIRE requires a larger nest egg and often involves a more extended working period to accumulate the necessary wealth.


  • Barista FIRE: Barista FIRE strikes a balance between the extremes of Lean and Fat FIRE. This approach involves achieving financial independence to the extent that individuals can take on part-time or less demanding work that they find fulfilling (hence the name ‘barista’). The additional income covers living expenses, allowing for a semi-retired lifestyle.


  • Coast FIRE: While traditional FIRE focuses on aggressively saving and investing to achieve financial independence as quickly as possible, Coast FIRE takes a slightly different approach. The term “coast” implies that individuals can ease off the accelerator, allowing their existing investments to grow over time without making additional contributions. In Coast FIRE, the emphasis is on reaching a point where your current savings and investments, without further contributions, will grow to a sufficient amount to support your retirement at a later age.


Which type of FIRE appeals most to you?

Strategies for Achieving FIRE

  • Savings Rate: A common thread among all types of FIRE is maintaining a high savings rate. Many FIRE adherents aim to save 50% or more of their income, funneling these savings into investment vehicles that generate passive income. If you’d like to achieve a high savings rate, you may be interested in improving your financial literacy.


  • Investing: FIRE proponents often advocate for long-term, low-cost index fund investing. The goal is to let compound interest work over time, steadily growing wealth and creating a sustainable income stream in retirement. Learn more about why it is important to invest your money in one of our other articles.


  • Frugality: Living frugally is a central theme in the FIRE community. While not about deprivation, it involves intentional spending, focusing on what truly brings happiness and fulfillment rather than succumbing to mindless consumerism.


  • Side Hustles: Many FIRE enthusiasts engage in side hustles or part-time work to supplement their income. This additional income can significantly accelerate the journey to financial independence.

Calculating Your FIRE Goal

How do you know when you have achieved FIRE? Traditionally, most proponents of FIRE use the 4% rule. This means that you can safely withdraw 4% of your net worth every year once you have decided to retire. 

This rule was popularized by financial planner William Bengen in the 1990s and has since become a foundational concept in financial planning. It is based on historical market performance, specifically the worst-case scenarios for investment returns. Bengen analyzed historical market data and identified periods with low market returns to ensure the 4% withdrawal rate would withstand economic downturns.

Following this logic, you can calculate the amount of wealth you need to achieve FIRE by using this formula:

Yearly Expenses x 25 = Wealth needed for FIRE

So if your yearly expenses are $50,000, you will need 50,000 x 25 = $1,250,000 to retire. Cutting your expenses can thus help to bring down the amount of money you need to achieve your FIRE goal. If you’d like to play with these numbers more in-depth, I can highly recommend using the FIRE Calculator.

Challenges and Criticisms

While the FIRE movement has inspired many to reassess their financial priorities, it’s not without its criticisms. Critics argue that the extreme frugality and aggressive saving advocated by FIRE could lead to a diminished quality of life in the present. I personally believe it’s important to strike a balance between saving for the future and living in the present.

Life After FIRE

For those who successfully achieve FIRE, the post-retirement phase is often a time of exploration and pursuing passions. Some may choose to continue working in a more flexible or fulfilling capacity, while others may travel, volunteer, or engage in creative pursuits. The essence of achieving FIRE is thus giving yourself the freedom to design a life to your liking.

Conclusion: What Is FIRE?

The FIRE (Financial Independence, Retire Early) movement has become a catalyst for change in how individuals approach their finances and the concept of retirement. As the landscape of work and finance continues to evolve, the principles of financial independence and early retirement offer a compelling alternative to the traditional narrative of working until a certain age.

Whether one fully embraces FIRE or incorporates some of its principles, the movement serves as a reminder that the journey to financial freedom is multifaceted, and there is no one-size-fits-all approach. Thoughtful planning, adaptability, and consideration of individual circumstances remain paramount on the path to achieving financial independence and retiring early. Good luck on your own journey towards financial independence!