Financial Independence, Retire Early (FIRE): Getting Started

If you’re someone who seeks to achieve financial independence and desires to retire early, you’ve probably come across the acronym FIRE. This stands for Financial Independence, Retire Early. It represents a movement whose followers aim to save and invest aggressively to retire before the traditional retirement age.

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Key Takeaways

  • FIRE (Financial Independence, Retire Early) focuses on extreme saving and investing to allow individuals to retire well before the traditional age of 65.
  • Three primary types of FIRE include Lean FIRE, Fat FIRE, and Barista FIRE, each tailored to different lifestyles and retirement goals.
  • Achieving FIRE involves aggressive budgeting, maximizing income, strategic investing, and maintaining an emergency fund to handle unexpected challenges.

What is the FIRE Movement?

The Financial Independence, Retire Early (FIRE) movement is a lifestyle approach centered on extreme savings and investments with the aim of gaining enough financial independence to retire early, often decades earlier than the traditional retirement age of 65.

Originating from the 1992 best-selling book “Your Money or Your Life” by Vicki Robin and Joe Dominguez, the FIRE movement was initially a niche concept. However, with the advent of the internet and various personal finance blogs, it has grown substantially and now has a robust following around the globe.

The central idea of the FIRE movement is straightforward – save and invest aggressively to accumulate sufficient wealth that allows you to withdraw enough money each year to cover annual expenses, without eroding the principal retirement money. This is often expressed as needing 25 times your yearly expenses saved and invested, based on the commonly accepted safe withdrawal rate of 4%.

How FIRE Works

The FIRE movement embraces the diversity of its followers and the varying financial circumstances, preferences, and goals they each have. As a result, distinct offshoots of the movement have evolved to cater to different lifestyles and aspirations. Let’s explore the three common types of FIRE: Lean FIRE, Fat FIRE, and Barista FIRE.


Lean FIRE is often considered the most “hardcore” version of FIRE. It centers around minimalism and frugality, with the goal of achieving financial independence as quickly as possible. Followers of Lean FIRE aim to drastically reduce their annual expenses and live on as little as possible, both in their journey to FIRE and during their early retirement.

Lean FIRE followers might choose to live in a small home, forego a car in favor of biking or public transport, cook meals at home instead of dining out, and make other significant lifestyle changes to decrease spending. They use the saved funds to invest heavily and accelerate their journey towards financial independence.

The Lean FIRE path requires a high level of discipline and resilience, but for many, the prospect of gaining financial independence sooner is worth the austerity and sacrifice.


On the opposite end of the spectrum, there’s Fat FIRE. This version of FIRE is for those who wish to maintain a higher standard of living in retirement. Instead of minimizing expenses to the extreme, the aim is to save and invest a larger nest egg that will support a more comfortable, even luxurious, lifestyle in retirement.

The Fat FIRE path might involve saving enough to continue traveling extensively, living in high cost-of-living areas, or having hobbies that require a more substantial budget. Achieving Fat FIRE generally requires a high income, significant savings, or a combination of both.

Barista FIRE

Barista FIRE is a more moderate approach to the FIRE movement. It involves achieving a level of financial independence that allows you to leave a high-stress, full-time job and instead work part-time or take on lower-paying but more fulfilling work.

The term ‘Barista FIRE’ comes from the concept of leaving high-stress corporate jobs. Instead, you might choose a less stressful job, like a barista at a coffee shop. This job covers your current expenses, allowing your investments to grow. Over time, these investments bring you to complete financial independence.

This approach can be ideal for those who enjoy working or want to continue in a role that offers social interaction and structure, but without the pressure and stress of a full-time, high-intensity job. It allows for a slower, potentially more enjoyable transition into full retirement, and it can also offer the advantage of additional income, and, depending on the job, health insurance benefits.

Personal Finance Basics

Before starting on the path to financial independence and early retirement, it’s essential to grasp some fundamental personal finance concepts.

Saving and Investing

At its core, FIRE is about saving a significant portion of your income, much more than the average person. While the percentage varies, many FIRE followers aim to save 50% or more of their income.

Beyond merely saving, it’s also wise to invest your savings. Investing allows your money to work for you and grow over time due to compound interest. The growth from investments can significantly accelerate the journey to FIRE, allowing you to build wealth faster.


Budgeting plays an integral role in the FIRE lifestyle. It involves tracking income and expenses, setting spending limits, and planning for savings and investments. Many FIRE advocates meticulously budget, often opting for a frugal lifestyle to maximize their savings rate.

Diversification and Risk Management

Diversification is a strategy that involves spreading investments across various financial instruments, industries, and other categories to reduce exposure to any single asset or risk. It’s a vital risk management tool for achieving financial freedom.

Tax Advantaged Retirement Accounts

Understanding and maximizing tax advantages is another vital component of achieving FIRE. Accounts such as 401(k)s, IRAs, and Health Savings Accounts (HSAs) offer tax benefits that can significantly accelerate your path to financial independence.

Setting FIRE Goals

Setting clear and precise financial goals is an essential first step in any FIRE journey. It’s important to understand your specific end target, the ‘FIRE number,’ so you can plan and act accordingly. The FIRE number and the rules used to calculate it stem from a couple of simple but powerful principles, namely the Rule of 25 and the 4% Rule.

The Rule of 25

The Rule of 25, also known as the multiply-by-25 rule, provides a rough estimate of the amount of savings you need to accumulate to sustain your desired lifestyle in retirement. The rule is relatively straightforward: take your annual expenses and multiply them by 25.

For instance, if your yearly living expenses amount to $40,000, applying the Rule of 25 would mean that your FIRE number is $1 million ($40,000 x 25). That means you’d need to amass $1 million in savings and investments to sustain a $40,000 per year lifestyle in retirement.

The 4% Rule

The 4% Rule, also known as the Safe Withdrawal Rate (SWR), complements the Rule of 25. It’s based on historical data and provides a guideline for how much you can withdraw from your retirement savings each year without significantly risking running out of money.

The 4% Rule originates from the Trinity Study. This research analyzed withdrawal rates over different periods. It concluded that a safe rate for a 30-year retirement period is withdrawing 4% of the initial portfolio value. This value is then adjusted annually for inflation.

When you apply the 4% Rule, it means you’d withdraw $40,000 from a $1 million portfolio in the first year of retirement, and adjust that amount for inflation each subsequent year. The 4% Rule and the Rule of 25 are related: if you need to withdraw $40,000 a year, you need to have saved 25 times that amount, hence the $1 million FIRE number.

Creating a FIRE-Friendly Budget

FIRE-friendly budgeting is about more than just cutting back on expenses; it’s about making conscious decisions on where to allocate resources based on what brings value to your life.

It’s common to see FIRE followers living in smaller homes, opting for second-hand items, cooking at home, and using public transportation or biking instead of paying for a car, car insurance, and all the related expenses. However, the key is to find a balance that works for you – a lifestyle that allows you to save aggressively while also enjoying the journey.

Maximizing Income

While keeping expenses low is part of the equation, maximizing income is another significant aspect of achieving financial freedom. This could involve negotiating a higher salary in your current job, changing careers, starting a side business, investing in real estate, or even creating passive income streams.

Investing for FIRE

Investing is a fundamental element of the FIRE movement. It’s not enough to merely save money; to achieve FIRE, that money needs to work for you and multiply. Investments can come in many forms, including stocks, bonds, cryptocurrency, real estate, or small businesses.

It’s important to choose investments that match your risk tolerance and financial goals. Many FIRE enthusiasts prefer low-cost index funds due to their broad market exposure and historically strong returns.

Overcoming Challenges and Obstacles

Pursuing financial independence and early retirement is an ambitious goal that comes with its share of challenges. However, with careful planning, persistence, and a supportive community, these obstacles can be overcome.

One common challenge is maintaining the motivation to continue on the FIRE path, especially when progress can sometimes seem slow. It’s essential to celebrate small victories along the way and keep the end goal in mind.

Another obstacle is dealing with unexpected expenses or financial emergencies. This is where having an emergency fund comes into play. A well-funded emergency savings account can provide a financial safety net, preventing unforeseen events from derailing your FIRE journey. Experts recommend keeping three to six months of living expenses in an emergency savings account. That way, you won’t have to dip into your retirement investments, or divert funds from your investments, to take care of an emergency such as home repairs or even temporary job loss.

Frequently Asked Questions

Is FIRE only for high-income earners?

No, FIRE is not just for high-income earners. While a higher income can accelerate the journey to financial independence, the principles of FIRE can be applied at any income level. It’s about saving a significant proportion of your income, reducing expenses, and investing wisely.

Is it possible to pursue FIRE with a family and children?

Many individuals and couples with children pursue and achieve FIRE. It may require more careful budgeting and planning, and potentially a larger FIRE number to account for additional expenses, but it’s entirely achievable.

What happens if the market crashes or there is a significant economic downturn?

Economic downturns can impact investment portfolios, but they don’t necessarily spell disaster for FIRE followers. A key part of FIRE planning involves creating an investment strategy that aligns with your risk tolerance and time horizon. This might include a diverse portfolio to spread risk.

Many also maintain an emergency fund for unexpected situations. Also, plans should be regularly reviewed and adjusted as needed.

Is health insurance a challenge for early retirees?

Health insurance can be a significant consideration, especially in countries like the U.S. where healthcare can be costly without employer-sponsored plans. Some FIRE followers factor the cost of private insurance into their FIRE number, while others might work part-time jobs that offer health benefits (like in Barista FIRE).

What if I achieve FIRE and then get bored in retirement?

FIRE provides financial independence and the freedom to choose how you spend your time, but it doesn’t dictate how you should live your retirement. Many people who achieve FIRE choose to pursue hobbies, start businesses, volunteer, travel, learn new skills, or even continue to work in a capacity they love. The key is that FIRE provides choice.

Dawn Allcot
Meet the author

Dawn Allot is a personal finance writer and content marketing expert specializing in finance, travel, real estate, and technology. In addition to her work at Crediful, Dawn regularly writes for Bankrate, GoBankingRates, and The Balance.