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A Guide to the Financial Independence Retire Early Movement

Sara DeSantis Updated: June 27, 2023 • 7 min read
financial independence retire early

Financial Independence, Retire Early, also known as FIRE, is a global movement of people who are pursuing or have pursued early retirement. Early retirement is retiring before the age of 67. The movement is all about saving for retirement in a much shorter time frame than the traditional 40-year plan that most people follow. It's an ambitious goal to achieve financial independence and retire early, but with the right planning, it can be achievable.

Keep reading to learn everything you need to know about the FIRE Movement and if you can make Financial Independence, Retire Early a reality for you.

How does Financial Independence Retire Early (FIRE) work?

Financial independence is crucial to being able to retire early. Financial Independence is the ability to pursue your true passions without worrying about money or if you can cover your cost of living. You need to reach financial independence first because it can provide you the freedom to tackle the huge savings goal for early retirement.

Understanding the 4% rule

The 4% rule is a key concept in the FIRE  movement. The rule suggests that if you plan efficiently, you can withdraw 4% of your retirement savings per year (adjusted for inflation) every year, without the risk of running out of money. Followers of the rule believe that your retirement savings should then last for at least 30 years, if you allocate to a conservative mix of stocks and bonds.

For example, if someone has a retirement portfolio of $1 million, they could withdraw $40,000 in the first year of retirement, adjusted for inflation each year thereafter.

Next, a FIRE Number is the amount of money that you need to save in order to retire early, using the 4% rule. Your number will come from how much you expect you to need every year to live. You want your yearly expenses to be covered in the 4% that you withdraw.

It's important to note that the 4% rule is just a guideline, and actual withdrawal rates may vary depending on factors such as investment returns, inflation, and the retirement lifestyle you plan to have. Additionally, everyone's FIRE number will be different, depending on the retirement lifestyle you expect to live.

Following the 4% rule doesn't mean that you can stop actively managing your finances. Experts suggest taking a more dynamic approach to retirement while keeping the 4% rule in mind, as down markets can influence your portfolio.

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Types of FIRE:

Following the FIRE movement doesn't mean you have to live an extremely frugal lifestyle. The approach is flexible, and there are different ways to save. The three main types of FIRE are:

  • Lean: The most common approach, LEAN fire focuses on living a frugal lifestyle on a limited budget. This could include moving to a smaller home, buying in bulk and eating cheap foods, giving up a car and doing minimal online shopping and dining out. The aim of this approach is to spend only 20% of  your income and save a whopping 80%.
  • Fat: The goal of Fat FIRE is to save enough to be able to live a more luxurious lifestyle during retirement, filled with vacations, nice accommodations and experiences. This method requires saving for a longer amount of time than the Lean approach.
  • Barista: If you want to keep a side job for additional income while pursuing early retirement, Barista FIRE is right for you. Many followers of this approach live outside of the US in a country where expenses are lower and they are able to live off of savings with only a small, part-time job. Many choose to work at a coffee shop, hence its name.

Regardless of the type of FIRE you plan to pursue, keep in mind that living frugally is not realistic for everyone. If you have a family or support several loved ones, you may have to make compromises in your approach to saving.

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How to reach Financial Independence Early Retirement

There are two key things that anyone who wants to achieve this should prioritize:

  • Decrease expenses: Spending excess money cuts away from how much you can save. By lowering how much you spend, you can save more money towards early retirement.
  • Increase income: Having one job can allow you to save for normal retirement, but if you want to retire early, you need to earn more money. Increasing your income will allow you to continue living your current lifestyle while saving even more money.

Both of these are crucial to actually save enough money in a short amount of time.

Ways to Decrease Expenses

Cutting unnecessary costs may seem like it won’t make a difference at first. However, these small changes over many years can add up to saving you a lot of money.

  • Budget: One of the best places to start when you are looking for ways to save money is by establishing a budget. A budget will allow you to see exactly how much you plan to spend each month. You have to allocate your income and make sure your basic needs are met with the money you have. If you don’t have a budget, start tracking your spending. Our budget calculator makes it easy to break down your needs, wants and savings.
  • Be frugal: Finding ways to be frugal in your day to day life will help you decrease your expense. If you are getting coffee on your way to work everyday, find a way to do this cheaper. Is there a different order you can get? Does your work have free coffee? Could you make it at home? Ask yourself questions like this on spending that may be extra. It can help you find alternatives that will save you money.
  • Lower your utility costs: There are small actions you can take to lower your utilities. Electricity and water and two easy ways to save money. Always turn off lights when they are not needed. Use LED bulbs. Unplug appliances that are not in use. Shower and wash clothes with colder water. These small actions add up to helping you lower your utility costs.
  • Cut back on essentials: Housing, transportation, and food usually take up most of someone’s budget. If you are a renter, you can find a place to live for cheaper that still offers you the same lifestyle.  If you are driving a new car, you can sell it and find a cheaper option or go entirely car free if you have access to public transportation.

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Ways to Increase Income

While cutting costs in your budget is a great way to save extra money, to achieve financial independence, you need to save even more. There is only so much you can cut out from your expenses, but your income potential is limitless. Here are some popular and simple ways to increase your income:

  • Sell items in your home: With platforms like Mercari or eBay, you can sell items to anyone in the world. Mercari allows you to post everyday items for sale, like lightly used clothes, unopened supplies, or kitchen accessories. eBay is great for selling more antique for unique items. Anyone can start using these, as there are no fees to post.  There are, however, fees associated with marketplaces and shipping your items.
  • Start a side hustle: You can spend part of your free time working a second job in the evenings or on weekends. You can get a job at a physical location or have an online side hustle. Great online hustles are tutoring, freelancing, copywriting, and content creation. The best part is that many side hustles can be done on the weekends, or from home. Read more here: Unlock Your Earning Potential with These Work-From-Home Business Ideas.
  • Launch a business: You’ll need to determine your business strategy, register your business, and finance your business. For a detailed breakdown, read our step-by-step guide to starting your own business.
  • Invest in real estate: If you have enough cash flow, acquiring and renting out property is one of the best sources of passive income. If you can't purchase real estate, there are financial products like REITs that can enable you to buy shares of real estate projects, similarly to how mutual funds allow you to buy shares of popular stock indices.

Can you really retire early?

When they hear about the Financial Independence Retire Early movement, the big question is, “Can you really retire early?” The answer really depends.

If you want to achieve FIRE, you have to take certain steps, such as lowering expenses, increasing your income, and having a financial plan to achieve your goals. It’s not something that just happens. Most people who have achieved FIRE have a very realistic understanding of their financial situation.

The next thing is you have to make a plan and come up with a FIRE Number. Budgeting is a tremendous tool for anyone wanting to retire early. Cutting expenses and increasing income are the two most powerful ways to save money. You have to be willing to cut costs, work a side hustle, or even start a business.

Starting FIRE at a young age is the best way to start, but anyone can start at any age. You don’t need a certain income to achieve this status, but you need realistic expectations if you want to retire early.



The Financial Independence, Retire Early movement is one of extreme frugality and saving to reach a lofty goal. However, achieving FIRE status can be doable with the right financial goal and plan. Focus on decreasing your spending and increasing your income to help you achieve your financial goals.

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Written by Sara DeSantis linkedin-icon

Sara is an Accredited Financial Counselor who has been writing about finance and teaching others about how to save, budget and invest. She also teaches Personal Financial Literacy as an adjunct professor.