Setting your FIRE Number

Now that you know your annual expenses, net worth, and savings rate, it’s time to set your FIRE goal—the point where your investments can cover your expenses indefinitely.

But remember—not all FIRE journeys look the same. Your savings target depends on the lifestyle you want.

Understanding Savings Rate and Financial Independence

Before we begin, it’s important to understand that the relationship between savings rate and time to financial independence isn’t just a simple linear equation. It’s based on:

✔ How much you save relative to your spending
✔ How long it takes for your investments to grow to cover your expenses

The Math Behind Savings Rate

The timeline to FIRE is influenced by three key factors:

• How much you save per year
• How much you spend per year
• Investment growth rate (typically assumed to be ~5% after inflation or ~7% before)

Key Takeaways

• The more you save, the less you need to live on.
• The less you spend, the smaller your FIRE number.
• Compounding investment returns play a huge role over time.

By increasing your savings rate, reducing expenses, and leveraging investment growth, you can significantly accelerate your path to financial independence.

How to Determine Your FIRE Number

Use the 4% Rule: FIRE Number = Annual Expenses × 25

Example Calculations:

• If your annual expenses are $40,000, your FIRE number is $1 million.
• If your annual expenses are $80,000, your FIRE number is $2 million.

This number represents the total amount you need invested to safely withdraw 4% per year and sustain your lifestyle indefinitely.

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Example Fire Timelines

🔻 Example: 10% Savings Rate

• You earn: $100,000 per year
• You save: 10% ($10,000)
• You spend: 90% ($90,000)
• Your FIRE Number: $90,000 × 25 = $2.25 million
• Time to FIRE: Since you’re saving $10,000 per year, it takes 51 years to reach FIRE with compounding.

🔻 Example: 50% Savings Rate

• You earn: $100,000 per year
• You save: 50% ($50,000)
• You spend: 50% ($50,000)
• Your FIRE Number: $50,000 × 25 = $1.25 million
• Time to FIRE: Since you’re saving $50,000 per year, it takes only 17 years to reach FIRE.