FI/RE 101 – The Basics

It wasn’t until I started getting active in personal finance communities that I heard of FI/RE – that is Financially Independent / Retire Early. Sometimes it simply goes by FIRE. It seemed so unachievable that I didn’t even look into it until after we had paid off our debt. But what am I talking about? I’ll explain this seemingly crazy idea.

What Is FI/RE

It stands for Financial Independence / Retire Early. But what does that really mean? Let’s break them both down:

Financial Independence

Financial Independence is perhaps the most complicated one to understand. What it boils down to is that your investments exceed your expenses so you don’t need to work. You are independent from your job, which means you are free to do what you want! Sounds amazing right? How is it possible?

The 4% Rule

If you want to know how much money you need to be financially independent, you’ll need to calculate it using the 4% rule, or the “safe withdrawal rate”. If you withdrawal 4% of your investment per year, you won’t* run out of money.

To find out how much you need to retire, first you’ll need to calculate what your yearly expenses are. Let’s say you need about 4000 a month X 12 months = $48,000 a year. Times your yearly expenses by 25 and that is your retirement number, so $48,000 X 25 = 1.2 million.

*You shouldn’t run out of money if you only withdraw 4%, but you know, the stock market and all, things happen.

People are achieving financial independence through high savings rates (50-60% of their incomes), combined with frugal living to save a large amount of money in a short amount of time. They invest that money in low cost index funds to make sure their money grows.

Retire Early

Most people think that retirement happens at 60 or 65, but people in the FI/RE movement are retiring in their 30s and 40s! Their retirement might not be the way you picture it. Some of them are still “working”, but for a job they love, not for the money!

FI/RE ultimately gives people the freedom to do what they want with their time.

So Are We Trying To FI/RE?

Right now, no. We are focused on traveling, saving for a new car, and enjoying being debt free! We are not trying to put away 50% of our income. I can definitely see us retiring earlier than 60 though!

If you’re interested in more in depth info about FI/RE I really enjoyed reading Playing With Fire by Scott Rieckens. Also the “original” idea came from Your Money Or Your Life By Vicki Robin and Joe Dominguez.

Mr Money Mustache runs a blog, after successfully retiring in his early 30s. He has lots of great info and I enjoy reading his posts!