Financial Independence, Retire Early (FIRE) Definition

What Is Financial Independence, Retire Early (FIRE)?

FIRE stands for financial independence retire early. The concept is to become financially independent and gain control over one’s life without being dependent on a monthly salary. Traditionally, the ultimate goal has been to retire and live on the return from your savings.

There are many examples of people who have saved between 50-75% of their income and been able to retire when they are in their 30s, but the approach to FIRE has become a little more nuanced over time.

Most continue to work in some form and more talk about the freedom of being financially independent rather than retiring.

Another side of FIRE is understanding what really makes you happy, where to spend your time, and what is worth spending money on.

What is the purpose of FIRE?

By reducing your expenses and saving a large part of your salary, you can save money that you invest.

Eventually, you can live on the return on your investment.

When you invest your money in stocks and mutual funds, they will generate a return. The return you get on the stock exchange naturally varies from year to year.

As a rule of thumb, however, it is usually said that you can withdraw 4% of the money every year without it running out.

You therefore need to save up about 25 times your annual costs to become financially independent (4% corresponds to a 25-part).

How do you retire early with FIRE?

The journey to reach FIRE can be summed up in three steps. The amount of capital you need to become FIRE is a function of how much you spend, so step 1 is to cut down on expenses.

Step 2 is to increase income so that you can save more. The third and final step is to invest the money saved on the stock exchange, in the form of (usually) index funds.

Then you just have to wait until the money machine has grown so big that you can live on capital.

1. Spend less

As previously mentioned: the amount you need to become FIRE is a function of how much your life costs. So, the less you need to spend each year, the less you will need to save.

Often you can make relatively large savings by just changing a few simple lifestyles. Therefore, this is usually recommended as the first step towards FIRE.

The idea is to change your habits so that you no longer spend money on things that do not create value.

Here I am not talking about living a life of miserliness, but instead adapt your expenses to what you value.

2. Increase your revenue

The marginal benefit of spending less decreases with each saving you make. In time, you will reach a point where it is no longer worthwhile to reduce expenses, but instead time to increase revenues.

When it comes to earning more, there are several things to look at: can you work more hours on your existing job?

Can you take inconvenient working hours to get higher compensation? Can you negotiate your compensation?

All the strategies above assume that you can and / or want to make more money from your existing work. Another way to earn more is by having an extra job or side job (this is often called your “side hustle”).

It is enough to earn a few extra hundred bucks every month via the side job for the savings to get a real boost.

3. Invest

The money we talked about by spending less and earning more, we will then invest. The investments provide returns (increase in value) that you can then live on.

When the investments correspond to 25 times (4% = 1/25) your annual expenses, you can completely reimburse your salary and choose to stop working.

Most in the FIRE movement use the 4% rule as a guide. It means that you can live on 4% of your invested capital every year without the money running out.

A prerequisite for this to work is that you have invested the money in index funds.

If you have all the money in a savings account, the money will run out because the interest rate on a savings account is so low.

FIRE without stopping working

Something you often encounter within the FIRE movement are people who talk about only Financial Independence or “FI” without including the “RE” part.

A large part of what distinguishes the various camps in the FIRE movement is precisely the words “Retire Early”.

Many people think that the word “Retire” is negatively charged.

The same applies in Swedish where people like to talk about financial freedom. Retiring early is not as popular to talk about.

Another reason for this is that you do not have to stop working at all just because you have achieved financial freedom.

It is not uncommon to continue working in some way, even though you have reached FIRE.

What do you want to do when you reach FIRE?

Reaching FIRE is not about saving enough money to spend the rest of your life in a deck chair with umbrella drinks on the beach.

At least not for most people. An important question to ask is therefore what you want to do next.

Therefore, it is not uncommon for those who have reached FIRE to often choose to spend their time on things that create value – for themselves or for others.

Some examples include:

  • Pete (Mr. Money Mustache) builds and renovates houses and runs his blog.
  • Brad and Jonathan from ChooseFI both spend more time with their children and have built a blog, podcast and educational activities in ChooseFI.
  • Brandon from MadFientist moved to Scotland and continued with programming, but now only on the projects he likes.

What are the disadvantages of FIRE?

Although FIRE sounds interesting, it’s not just positive.

1. Balance correctly

By putting all your focus on saving as much money as possible at the beginning of your life, it is easy to lose the positive during those years.

A good balance is extremely important for living a healthy life.

2. Alone

Becoming financially independent is not for everyone and it is hardly easy. What happens when and if you succeed?

This is a big difference from retiring at the age of 65 and 50. If you want to be able to implement this, it is important that you have clear hobbies not to stand there alone but also to get busy.

How much do I need to save?

Why should you save exactly 25 times your annual income for FIRE, it is because with a value development of 4% you will get back your annual income (600,000 x 0.04 = 24,000).

I do not take taxes and the like into account in these examples and if you choose to follow this method and start approaching your target amount, you probably have a much better understanding of what the actual amount will need to look like.

Choice of location affects how much you have to save

The location affects the sum very much. A monthly salary of $2000 in Sweden gives you enough to be able to live while in Thailand you live a luxury life.

That being said, it does not necessarily have to be a large sum that needs to be saved.

Types of FIRE

There are several different types of FIRE. They tell you how financially independent you are.

Here are the most common types of FIRE:

1. Lean FIRE

You have saved enough to cover your basic needs from your returns. Many who have achieved Lean Fire still need to work to survive.

2. Barista FIRE

You are not completely financially independent, but you can manage if you live frugally.

Many who are at this level are still working but may have lost time or started working with what they dreamed of.

3. Fat FIRE

You are financially independent and can live the same life you lived when you worked. You can live entirely on your returns to cover your expenses.

Where does FIRE come from?

The FIRE movement has its origins in the book Your Money or Your Life by Vicki Robin and Joe Dominguez from 1992.

They write, among other things, about the relationship between your time in life and the time you spend at work.

For example, if you are in debt and do not save, you are a slave to your dependence on an income.

If you instead save and build up a fortune, you will become more and more free as time goes on.

In recent times, the business has gained momentum and the ideas of saving to build a fortune and retire early have spread via the internet.

There are many blogs, podcasts and books on the subject.

How long does it take to become financially independent?

An important factor that determines how long it will take for you to become financially independent is your savings ratio.

Your savings quota is the money you can set aside for saving each month after you have paid bills, budgeted for food, entertainment and all other necessary parts of your life.

According to a survey by a swedish insurance company, 45,9% of the population in Sweden save less than $100 a month.

As many as 20,9% do not save at all. Only 8,01% of Swedes save more than $500 a month.

For most people, it would be possible to increase their savings ratio with a few simple lifestyle changes.

A savings ratio can be stated as a percentage, here are some examples:

  • 0% in savings ratio – You have no savings at all but spend your entire salary every month.
  • 10% in savings ratio – You save a tenth of the salary every month, which for most means a couple of hundred bucks.
  • 50% in savings ratio – You live frugally and get rid of half your income every month.

Your savings ratio is often the one that has the greatest impact on how long it will take you to achieve FIRE, or financial independence.

I can make some estimates to see how long it would take, depending on your savings ratio.

  • If your savings ratio is 10%, it would take you about 38 years to reach FIRE.
  • If your savings ratio is 20%, it would take you about 28 years to reach FIRE.
  • If your savings ratio is 50%, it would take you about 14 years to reach FIRE.

This simple model is intended to provide a reasonably reasonable estimate of the time it would take to achieve financial freedom.

The example is based on a net income of $2000 and an expected average return on your capital of 8%.

A factor that is important to understand is that the higher the savings ratio you have, the less capital you need to have to get your lifestyle going.

If you can manage on $1000 instead of $1500, you can both save more, and need less invested capital to get $1000 a month in average return.

Is FIRE and financial freedom possible?

FIRE is a lifestyle. A way to focus on costs, income and returns – often with others with the same interest.

There is an expression that is “you become like the ones you hang out with” and by joining FIRE groups, members are helped to take the next, next and next step to an earlier retirement.

Financial freedom of choice is an opportunity. But it does not have to be achieved precisely through the FIRE movement.

The basic idea, however, is always to review your expenses and income and start early with long-term savings.

It also makes it easier to have a goal and sub-goal. One goal may be, for example, to be able to work 75% instead of 100% – which requires significantly less capital than being able to retire at the age of 40.

For many, saving 10-15% of their income may be enough to increase their financial freedom significantly.

It’s all about what financial goals you have – and what you are willing to sacrifice to achieve them.


FIRE is an exciting method that allows you to retire earlier in life and maintain the same income as before. It requires a lifelong commitment from you but also gives you a freedom that very few have the opportunity to.

  • 4% value development is very low but takes into account how the market changes.
  • 25 times the annual income applies with 4% value development.
  • You may not need to receive the full monthly salary as today, but the target amount can be clearly lower than you expect.


  • Reach your life goals, “What would I do if I did not have to work for money?”
  • FIRE can help you review your current lifestyle and set concrete savings goals, whether financial freedom is the goal or not.
  • Can help you find motivation in everyday life and can give you a goal for why you work as much as you do.



This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policies.

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