How to Achieve FIRE and Financial Independence

The Internet is full of FIRE (financial independence retire early) articles. Before I started typing this post, I ran a quick Google search that returned over seventy million results.

You can now read about coastFIRE, slowFIRE, fatFIRE, baristaFIRE, leanFIRE, and all other versions of FIRE that currently exist. Over time I’m sure new terms will be coined and added to the list.

When my husband and I started saving money, we didn’t know about FIRE. We stumbled upon the term after reaching financial independence in our early-thirties.

Lots of FIRE articles are written by those hoping to reach FI. This one is written by someone who has achieved it. These are the lessons my husband and I learned on the path to financial freedom. If you are searching for FIRE, I hope my words will help you on your journey.

What is FIRE?

Typically, FIRE seekers hope to reach financial independence at a very young age. They aim to save a large sum of money so they can live off of their investments for the rest of their lives.

While the definition has changed over the years, the goal has always been to create enough income to pay household bills and expenses without the need for steady employment.

The Simple FIRE Formula

Most financial enthusiasts talk about FIRE as a simple mathematical formula. Increase your income, spend less than you earn, and invest the rest. Then wait for the returns on your investments to cover living expenses and extraneous costs.

When you can pay your bills without a job, you’ve reached financial independence! To accomplish this feat, you must save a lot of money. Some FIRE fanatics suggest saving 50% to 60% of your salary.

Once you’ve saved enough, you can choose how to spend your time. If you love your job, you can continue working. If you don’t, you can pursue other options. You can volunteer, spend time with your family or begin new, creative endeavors.

FIRE provides you with the option for early retirement, and with financial freedom, you get to decide how to spend your time. 

To achieve FIRE, you must keep this goal in your mind and weigh its importance against your other life goals.

How to Achieve FIRE

As I mentioned above, many how-to FIRE articles boil down the details into three pieces of advice. Trim your expenses, increase your income, and invest. That advice is valuable, but it leaves out a few key components to the quest for FIRE.

FIRE is not just about managing money. It’s about managing your money mindset.

I learned about FIRE (financial independence retire early) long after graduating from college and began planning for my future. At the age of twenty-two, the idea of reaching financial independence would have seemed downright impossible.

Yet, my husband and I reached this financial feat in less than two decades, without even knowing about the FIRE movement.

How did we get here? I’ll explain in a bit, but first, let’s talk about the value of FIRE and why so many want to achieve it.

A Guide to FIRE

Most of us spend at least thirteen years in school. Then tack on another four to eight for college. What is the prize for all that hard work? A job for the next thirty, forty, or fifty years.

What will your life be like forty years from now? Take a moment to picture your future self. Close your eyes and cast an image in your mind’s eye. Think about your gray hair and wrinkles. Visualize your partner, children (if you intend to have them), and friends.

Look at the scene around you. Where are you standing or sitting, and what can you see?

I’m not sure what you just envisioned, but I highly doubt you pictured yourself sitting in a cubicle. You have many dreams for your life, but sitting at work for the next four to five decades might not be one of them.

Working into your forties and fifties may not be a dream, either. What if you could cut those forty years of work in half? What if you could retire well before the average retirement age of sixty-two and pursue your passions, interests, or volunteer?

The Necessary Steps to Achieve FIRE

Does that sound like a pipe dream? Becoming financially independent isn’t easy or even possible for all those who desire it, but you can achieve it under the right circumstances.

Before I begin let me say that privilege, higher education, and a life without a large stack of student loans led us to the start of this race.

If you are inundated with debt or a lack of skills your journey will take much longer. In fact, it might be downright impossible.

FIRE works best when you can increase your income and save a large portion of it. If that is a possibility for you read on.

Here are the steps my husband and I took to reach financial independence in our mid-thirties.

1. Calculate Your Hourly Pay Rate

As a young FIRE seeker, you must recognize the exchange of time and money. Each day you go to work and trade your time for your paycheck. After work, you use your paycheck to purchase the things you need and want.

At a fundamental level, most of us understand this. If we don’t work, we can’t earn money, and without that money, we cannot buy the things we need and want. It seems simple enough, but most of us still miss the point.

We don’t calculate the amount of time we spend earning money. Most salaried employees know how much money they make in a year, but they fail to break this number down into how much they earn per hour.

Your yearly salary might look like a nice, round, plump number, but what happens when you look at your hourly rate?

Let’s use a simple calculation. Begin by assuming the average American employee works 2000 hours per year.

Now divide your salary by 2000 hours. If you earn $75,000 per year, you earn $37.50 per hour. If you earn $70,000 per year, you earn $35.00 per hour. A person earning $40,000 a year makes $20.00 an hour.

Of course, that isn’t how much you earn because the taxman will come and take away a portion of those dollars.

That number doesn’t account for the extra time that borders your actual workday, either. You know that fun stuff like getting ready for work and commuting.

If you spend an hour a day on these activities, you spend 250 extra hours on work-related activities you aren’t getting paid to do. That means your $70,000 salary drops down to $31.11 per hour rather than $35.00.

If you put in more than forty hours per week, it doesn’t account for that extra time either. Every time you spend more than 40 hours a week working, your hourly pay rate drops.

2. Understand the Exchange of Time and Money

Why does our hourly pay rate matter? Many of us work long hours at jobs we don’t love. Then we buy a whole bunch of stuff we don’t need with the money we spent hours, days, or weeks earning.

When you calculate your hourly pay rate, you can see just how much you earn for a sixty-minute block of time.

To achieve FIRE, you must weigh your purchasing decisions carefully and begin to question them. How many hours, days, or years will it take you to earn money to buy the item you covet?

If you earn a decent salary, it’s easy to pick a $50 item off the shelf and walk over to the checkout line to pay for it. Most of us don’t think, “Wait, it takes me an hour and a half worth of work to buy this. Do I want to work 90 minutes to pay for this?”

When you understand the exchange of time and money, you begin to think about these decisions more carefully. Eventually, you’ll start placing these unnecessary items back on the shelf.

Maybe that $50 item doesn’t seem like a big deal, so let’s use a pricier example. Let’s imagine you need a car to get to work. What kind of car do you need? Do you need an expensive, fancy model, or will a cheaper alternative work just fine? 

Maybe you want to buy a fancy car. That’s fine, but what if I told you that car would cost you an extra two years of work. That’s right, twenty-four additional months of sitting inside your cubicle.

Is that fancy, new vehicle worth two extra years of work? It’s OK to choose the car you want, but recognize that you are trading your time for the money needed to buy it.

To reach FIRE, we must begin to recognize how much of our life energy we trade for money. Then use that knowledge to decide how to spend the money we worked so hard to earn.

In the quest for FIRE, my husband and I became minimalists.

3. Make Conscious Financial Decisions

To achieve FIRE, you must understand why you spend money, weigh your financial decisions, and prioritize your spending.

This doesn’t mean you won’t spend any money at all. It means you choose the trip to Cancun but buy a cheaper car. Or buy the more expensive vehicle, but cut back on your extravagant travels.

When you live frugally and intentionally, you minimize your expenses without sacrificing too much of your enjoyment. Each time you cut out an unnecessary expense (something you don’t want or need), you cut back on the number of years you must remain gainfully employed.

4. Cut Back on Expenses

To achieve FIRE, you must track your money. Find a comfy chair and sit down with your credit card bill, checking account ledger, and a set of multi-colored pens.

Start by color coding your items line by line. Use a red pen to mark all the necessary expenses. These will include utility bills, rent checks, and car payments. Review the costs associated with high prices like housing, transportation, and food.

Ask yourself if you can cut back on these in any way. Can you find a job closer to your house or apartment? Can you commute in a more reliable, more eco-friendly vehicle? Would it be possible to bring in a roommate to cut the cost of rent? Can you look for a cheaper apartment to save money? Can you spend less on groceries?

These big-ticket items are often harder to change but provide the most cost savings. Next, move on to optional items, which you can mark in blue. These include dining out, going to the movies, buying new clothes, etc.

As you step through the list, ask yourself which purchases bring you joy. An example might be a happy hour after work or paying for gas to drive to a new hiking spot with your partner.

If an item didn’t bring you joy, ask yourself why you purchased it. Can you save money by avoiding these everyday purchases in the future?

5. Calculate How Much You Need

Reducing your expenses comes with an added benefit. The less inflated your lifestyle is, the less you’ll need to save. The less you need to save, the less time you need to work.

To achieve FIRE, you must set a target for passive income, but how do you know how much you need? It helps to review your bills and figure out the minimum amount of money you require each month. (See the step above.)

Start with a bare-bones budget. Imagine you cut out all extraneous expenses. How much do you need to cover your transportation, rent, utilities, and food?

This is the starting point for your monthly FIRE number. Let’s say you need $3,000 per month to pay your bills. How much will you need to save to earn $3,000 in dividends and interest? There are tons of FIRE calculators available online to help you calculate your specific numbers.

This is the amount of money you will set out to save. Of course, life would be miserable on a bare-bones budget, so I’m not suggesting you cut out all of the fun stuff.

This step is necessary to reach your base number. Once you have that figure in mind, you can start adding the optional expenses back in.

6. Plan for Higher Expenses

Before you race towards the FIRE finish line, think carefully about your future expenses. You might be able to live like a college student right now, but will happen as you get older? Will you want to live with roommates or in a van down the river?

Keep this in mind when calculating your FIRE number. If you live in America, you’ll also need to figure out a plan for health care. Non-subsidized health care may be five to six times more than you pay through your employer.

Add these figures to your FIRE number and provide an extra-large buffer for unexpected expenses you might incur in your later years.

Be realistic with these numbers. As someone who is often anxious and fearful about money, I need an extra-large buffer to feel safe.

7. Increase Your Income

Trimming expenses are helpful, but to achieve FIRE; it is necessary to increase your income as much as possible. What can you do to prove you are an invaluable employee? How can you earn raises or promotions?

Offer to take on additional work if you think it will lead to better opportunities and teach yourself skills outside of the normal 9-to-5.

Don’t get an extra degree unless you are certain it will help your career. Instead, learn real-world skills that are applicable to your job.

Don’t rule out any possibilities and try not to view your job as a drudgery. If you are unhappy at work search for ways to make it better. If you can’t move on. You may have to switch companies to attain a raise or even look for a higher-paying career.

Consider searching for side hustles that can help you earn money in your spare time. Can you drive for Uber, sell items on Etsy, or help others build websites or blogs?

The gig economy is booming, and it’s an easy way to earn extra money outside of the 9-to-5. Best of all, you can continue to perform gig work after you retire.

8. Take Big Risks in Your Career

When I graduated from college, I was provided with two different job offers. One job paid $50,000 right out of the gate. The second offered $32,000.

While the $50,000 job may have seemed like a wiser choice, it had limited, long-term potential. As a marketing assistant in a tiny company, pay raises and promotions were unlikely to occur.

The $32,000 job was a completely different story. Although the starting rate was low, it provided unlimited upward potential. Besides being a much larger company, it offered me the opportunity to learn to code.

I weighed both options but ultimately chose to become a software engineer. Seven years later, I was earning six figures.

My husband took the exact opposite approach. After working for a mid-sized organization, he transferred to a company with less than fifteen people. His new position as a contractor was riskier, but he doubled his salary in the process. Six years later, he formed a company of his own so he could earn his full rate, plus a portion of the rate of his employees.

9. Learn About Tax-Advantaged Accounts

After you save your money it’s important to figure out how and where to invest it. You can’t reach FI by stowing all your cash under your mattress.

If you want to achieve FIRE it’s important to begin researching tax-advantaged accounts. HSAs, Roth IRAs, 401(k)s, and other accounts all play a role in the investing process.

Make sure you understand how these accounts work, how much money you can save in each, and when you can access it. It won’t do you any good to tie up money in retirement accounts that you can’t withdraw from at an early age.

If you don’t understand investment vehicles now is the time to read up on them. Seek expert advice if you need it, but beware of brokers and account managers who charge excessive fees.

Many FIRE seekers prefer to invest in index funds, which have fewer fees than typical investment vehicles. My husband and I invest the majority of our money in a three-fund portfolio.

10. Search for Alternative Income Streams

FIRE seekers often search for multiple streams of income and my husband and I have done exactly that.

In the beginning, we focused solely on increasing income at our day jobs. We ranked earned income, (the money earned from our day jobs), above all else. We spent the majority of time focused on climbing the corporate ladder.

But a few years after graduation, my husband and I purchased our first vacation rental property. It provides an additional source of income beyond traditional employment. One day, in the not so distant future, we will build a second rental home.

Over the years we’ve focused less on earned income and more on other income streams. In addition to our business income, we began to focus on dividend income and interest.

We’ve also tinkered with passive income projects like this blog.

11. Seek Contentment

In the beginning, the quest for FIRE focuses on money. You will find yourself asking.

  • How much do I need?
  • What can I live without?
  • How quickly can I build my savings?
  • What can I do to earn extra money?

These questions all make sense. It’s impossible to reach FIRE without a hefty sum of money to support your future living expenses.

But eventually, as your bank account balances rise, your money mentality will change. As you cut out unnecessary expenses, you will begin to feel content with what you have

You’ll recognize that you don’t need a lot of extra stuff in your life and find that you can live your best life without a lot of money. You will find yourself living a simple life with less than you ever could have imagined.

When we stop buying unnecessary stuff, we make room for the things that truly matter. At this point in your journey, you will start feeling satisfied with your path and stop comparing yourself to others.

12. Reflect on the People and Activities That Truly Matter

While financial independence is valuable, it is not the most important thing in life. Don’t waste your time chasing career or financial success if it makes you miserable.

While it’s nice to have money in the bank, you must also live for today. You cannot save every penny waiting for a future that may never come. Find the right balance between saving and spending.

Remember to cut out expenses and activities that don’t make you happy, rather than trimming everything and feeling utterly gloomy in the process.

13. Talk About Money

If you have a partner, learn to talk about money openly and honestly together. Discuss your reasons for achieving FIRE and figure out simple ways to support one another.

Once a year, host a family financial meeting to discuss your net worth and review your income, expenses, insurance policies, and short and long-term goals.

Create nerdy pie charts and bar graphs to show your progress and celebrate your financial victories together.

14. Choose Your FIRE Model

Over the last few years the definition of FIRE has been changing. Traditional fatFIRE seekers still want to pile up their investments and plan to spend a significant amount of money each year. While those seeking leanFIRE, want to downsize their lifestyles and feel comfortable spending much less.

But these days fatFIRE and leanFIRE aren’t the only options. CoastFIRE, slowFIRE, and baristaFIRE have joined the list too. These choices often involve working in some capacity after reaching financial independence.

Perhaps you need a job that offers health care or want to work a less stressful position that doesn’t come with the typical headaches of large-scale, corporate work.

Many of these new FIRE choices are easier to achieve than the traditional model.

15. Set Your Goals for FIRE (Early Retirement or Not)

As a young FIRE seeker, you may leave your high paying job or quit a job that makes you unhappy, but that doesn’t mean you will quit working forever. You might travel the world for a year or hang out with friends and family, but eventually, you will seek a greater purpose.

Remember that FIRE provides options. With your newfound time, you may volunteer or seek creative pursuits. You will most likely continue earning income after early retirement, which means you don’t need as much before quitting your job.

You can love your job and still seek FIRE. In fact, you don’t have to leave your current position to desire financial independence. Quitting is simply an added benefit of your hard work.

16. Document Your FIRE Journey

Last, but not least, take the time to document your journey. This will help you stay accountable to yourself and your future goals. Fifteen years ago I started this blog to document my relationship with money. At some point, it helped me become a millionaire.

“As the world was shouting at me to buy more, live in bigger spaces, or take extravagant vacations, this blog helped me find others who wanted to save more and dampen the noise of needless spending.”

It also connected me with amazing money mentors and role models that applauded my efforts and spurred me along on this journey.

17 thoughts on “How to Achieve FIRE and Financial Independence”

  1. With so many millions of articles about FIRE, why are you writing another one?

    What you write isn’t unique at all. I was hoping you’d writing something more interesting, like your actual investment income and expenses.

  2. I thought the article was helpful. I hadn’t heard of a three fund portfolio before. Not so sure about bonds right now but its an interesting approach.

    • Thank you for your comment. At this time we use three funds, but our third fund contains international funds rather than bonds.

  3. I especially liked number three. I think most people don’t think about what level of spending makes them happy. Most just spend whatever they make without thinking much about it. I discovered quite by accident that I was perfectly happy spending less than I was making. I didn’t start off thinking I would retire early but all that money I didn’t spend (and invested instead) came in awfully handy when I got tired of my job. Good post!

    • Some of these lessons definitely had a bigger impact than others. Number 3 is one of those for me. Extra purchases didn’t make me happy. Being able to use the money I saved to stay home with my children has! Thank you for the comment.

  4. Number 7 is the sole reason any person can retire early. It doesn’t matter how much you cut expenses, learn about tax savings or make conscious financial decisions if you don’t earn AT LEAST an upper middle class salary you WILL NEVER be able to retire early.

    The author clearly benefited from a good education and then proceeded to get a job in software engineering, presumably making over $100,000 at some point in her career. Not too hard to save lots of money when you make double (or more) than the average American worker.

    • I promise you if #7 was the sole reason than I wouldn’t have written about fifteen others. Having a high paying salary and not overspending is the quickest way to retire early, but it is not the only step to take. I did benefit from a solid education, but I started earning $32,000 a year with a liberal arts degree.

    • Vielen Dank für den informativen Beitrag. Nummer 11 gefällt mir besonders gut. In Oesterreich gibt es einen Spruch “Vergleich ist das Ende des Glücks und der Beginn der Unzufriedenheit”.
      Liebe Grüße

  5. Currently at a fork in my life with opportunity of (my partner & I) moving from comfortable 3 bedroom house to minimising to tiny house. Reason 2fold – weird experiment and intension of possibly moving our FiRE date forward. The idea of dramatically downsizing has been met with despair and unvoiced questions to our sanity…in fact even by my own mind. I stumble across your site looking for inspiration on downsizing/minimalism and despite hearing something information prior, your words have just given me food for thought and feel that our endeavour is at least worth the experience…thank you.

    • Hi Erica,

      Thank you for your comment. Most things in life are not set in stone. Could you try to downsize and then try to shift back if you don’t like it? Some times we think we have to jump ship and can never jump back. What if you looked at the situation as something that you could try for a bit and then change if you are unhappy? Do you think that would help?

  6. I earn 25k (after taxes, taxes are super high in my country) a year working 39 hours a week in a job I hate. (I also earn between 2 and 3,5k a year in a side job, but that makes 6 days out of 7 to work with over 45 hours) But it’s either this or a lesser paying job with longer commute right now. (I am working on changing that, going to start studying for another career with the support of my boss, so there’s that).

    FIRE is an impossible goal for me even if I do find a higher paying job, but this blog does help me to change my mindset and not focus on what I don’t have, but on what I do have.

    Retirement age in my country has gone up from 65 to 67 at the earliest (no matter if you have a full career of 42 years). If you retire early you receive lower pension (and the pension after taxes for someone living on their own is between 1000 and 1400 dollars a month (unless you have a high paying job but taxes for pensions above 2400 dollars a month are also taxed higher). So in order to retire early it is indeed necessary to have a passive income.

    I won’t retire super early, but I do hope I won’t have to work until 67 to then earn 1400 dollars a month to live on with expenses on the rise as food cost and all go up and worth of money goes down.

    • Thank you for your kind comment. I’m glad that you found something positive in this post. We can’t always control the money that comes into our hands, but we can try to alter our mindsets.

  7. This post was well written and I appreciated it so much. Thank you for writing it in a way that the average person, and a newbie like me to this idea of FIRE, could understand. I have bookmarked it and will refer back to it often.


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