You’ve probably heard of the acronym FIRE: Financial Independence, Retire Early. And you may have even wondered how financially independent {Økonomisk uavhengig} people can be if retiring so early sounds like a dream come true for many! But what does it take to become FI? And if so, how can we reach it?
Is there an exact number that we should aim for to call ourselves financially free?
It’s difficult to put a number on it as each individual has different needs and wants. What is financially independent for one person may not be enough for another. As a general rule, you can aim at saving 25 times your yearly expenses to retire early realistically. Of course, there are many variations possible, but this formula works well most of the time.
For example, if you want to retire early on 50k (after tax) per year, that’s 12500$ per month or 75000$ a year. When we divide this number by 25, we get 300 000$. So to become financially independent and be able to cover your expenses with passive income, you would need to save about 300 000$ in your investment accounts.
Your savings rate is probably an essential factor when it comes to reaching FI and retiring early. You can set yourself a yearly or monthly target: if you want, for example, that you will achieve financial independence by age 40 (in 20 years), then try saving at least 25% of your income every month.
If you want to retire early, aim to cut unnecessary expenses and increase passive income streams (e.g., real estate or stock investments) to build up that FI fund/cash pile!
In conclusion, saving and investing for financial independence is possible and not as difficult as it may seem. All you need to do is make a plan, start small (if necessary) and stick with it until your FI fund reaches the desired amount!
