Calculate Your Annual Expenses

Before you can plan for FIRE, you need to understand exactly how much you spend each year. Your annual expenses determine your FIRE Number (the amount you need to retire), so getting an accurate estimate is crucial.

How to Track Your Expenses

To make tracking your expenses easier, consider using budgeting and expense tracking apps. These tools can help you automatically categorize spending, analyze trends, and highlight areas to save:

• Mint – Free budgeting tool that syncs with your bank accounts and categorizes transactions automatically.
• YNAB (You Need a Budget) – A proactive budgeting tool that helps you allocate every dollar intentionally.
• PocketGuard – Simplifies budgeting by showing how much you have available after bills, goals, and necessities.
• Tiller Money – A spreadsheet-based tool that links to your accounts, providing automation with full customization.

How to Calculate Your Annual Expenses

To determine your FIRE Number, you first need to calculate your annual expenses. Here’s a step-by-step approach:

1. Review Past Spending

Look at bank and credit card statements from the past 12 months to track your real spending habits. This gives you an accurate picture of where your money is going.

2. Categorize Your Expenses

Break your expenses into categories for better clarity:

• Housing (rent/mortgage, property taxes, maintenance)
• Food (groceries, dining out)
• Transportation (gas, insurance, public transit, car maintenance)
• Insurance (health, home, auto, life)
• Discretionary Spending (entertainment, subscriptions, hobbies)

3. Account for Irregular Expenses

Factor in annual or irregular costs, such as:

• Vacations & Travel
• Home Repairs & Maintenance
• Medical Expenses
• Gifts & Holidays

4. Project Future Changes

If you plan to downsize, relocate, or adjust your lifestyle in retirement, modify your estimates accordingly. Consider:

• Lower housing costs if moving to a lower-cost area
• Changes in healthcare expenses
• Increased travel or leisure spending

By accurately calculating your annual expenses, you’ll have a realistic FIRE target and a clear roadmap toward financial independence.

Example Expense Breakdown

Category	Monthly Expense	Annual Total
Housing	$1,500	$18,000
Food	$600	$7,200
Transportation	$300	$3,600
Insurance	$400	$4,800
Travel	$250	$3,000
Other Expenses	$450	$5,400
Total	$3,500	$42,000