Have you ever thought about leaving your job to pursue your passions? Not because you hate your job, but because you don’t need to work anymore? That’s what the FIRE movement is all about: Financial Independence, Retire Early. It’s a goal that a lot of people, especially millennials, are working towards. They want to retire earlier than the normal retirement age of 66, live on their own terms and not have to answer to a boss every day.
But to make that dream a reality, you need to know your FIRE number. Your FIRE number is the total savings you will need to retire comfortably and live off the income generated from your investments. The first step is to create FIRE goals for the future, then calculate your FIRE number and create a plan.
If you’re not sure how to get started, that’s where Circadian Capital comes in. We can assist you in determining your FIRE number and developing a strategy to achieve it. Book a consultation with us today and let’s get you on the path to financial freedom.
What’s a FIRE Number?
Think of it as a goal to retire early. It’s the amount of money you need to have saved up to quit your job and still be able to cover your living expenses.
A common rule people follow is the 25x rule. Here’s how it works: You take your annual expenses and multiply them by 25. That’s your FIRE number. For example, if you spend £40,000 a year, your FIRE number would be £1,000,000. Simple, right?
This rule is based on the idea that you can safely withdraw 4% of your savings every year without running out of money. So, if you have £1,000,000 saved up, you can withdraw £40,000 a year and your money should last for a long time. It’s a good guide to help you get started.
How to Calculate Your FIRE Number?
Calculating your FIRE Number is a simple process that shouldn’t take much time.
The first step is to figure out how much you spend in a year. Look at things like rent, food, transportation and other essentials. Don’t include things like vacations or extra luxuries, because those can change over time.
Once you have your annual expenses, multiply that number by 25. So, if you spend £30,000 a year, your FIRE number would be £750,000. But don’t forget to factor in inflation. A 2% inflation rate each year is a good estimate to keep in mind. As prices are always going up, planning for a little extra is a smart move. If you are looking for a more comprehensive tool, try using this retirement calculator.
Having a large savings account is just the first step. The second is to ensure that money grows with you. Think about investing your money safely to navigate inflation, financial crises and even luxuries like a new car or a trip.
If you’re investing your money in things like stocks or index funds, you can expect your savings to grow over time. Experts suggest a return of around 7-8% annually, which means you’ll hit your FIRE number faster if you just saved money in a regular bank account. Consider opting for an account with a compounding interest rate.
Factors That Can Affect Your FIRE Number
There are a few things that might change your FIRE number. First off, your lifestyle plays a big role. If you’re someone who likes to travel a lot or live in an expensive area, you’ll need more to save up for more than basic expenses. But if you’re aiming for a Lean FIRE, where you live a more minimalistic lifestyle, you won’t need to save as much.
Your investment strategy also matters. If you’re just saving money in a regular savings account, it’ll take a lot longer to reach your FIRE number. But if you’re investing in things like stocks, bonds, or real estate, you’ll see your money grow faster.
And don’t forget about emergency funds. It’s important to have some money set aside for unexpected costs, so you don’t dip into your investments in a pinch.
How to Increase Your FIRE Number: Strategies for Accelerating Your Path
If you want to reach your FIRE number faster, here are a few things you can do:
- Boost your savings rate: Consider using a bonus saving account
- Smart Investments: Grow your investments with ETFs and index funds.
- Boost your income: Rent out that extra room or create extra income with a side hustle
Which FIRE Plan Suits You?
When it comes to FIRE, there’s no one-size-fits-all. It all depends on your goals and lifestyle. If you’re happy living simply and cutting back, Lean FIRE might be right for you – it’s all about frugality. On the other hand, if you want to retire early but still enjoy a comfortable lifestyle, Fat FIRE is a better fit. Learn more about LeanFIRE vs FatFIRE.
Then there is BaristaFIRE & CoastFIRE. In BaristaFIRE – you aim for early retirement but still work part-time to cover some living expenses and in CoastFIRE – you save enough early on so that you can coast to retirement without needing to contribute more. Your financial advisor can help you decide which plan works best for you, based on your savings, spending habits and goals.
Conclusion: Take Control of Your Financial Future
Understanding your FIRE number is the first step to taking control of your financial future. Once you know what your target is, you can start making a plan to reach it.
At Circadian Capital, we can help you calculate your FIRE number and create a plan that works for you. It’s not just about reaching a financial goal, it’s about creating a lifestyle that works for you. If you’re ready to get started, Contact us today, and let’s begin your journey to financial freedom.