Financial independence is not a goal in itself but a result of a frugal lifestyle. It all comes down to this one thing: don't buy shit you don't need or can't afford.


How to achieve financial independence (FI) and retire early (RE)

You are financially independent when you meet two simple criteria:

  • Your income is sufficient to cover your expenses
  • Your investments provide sufficient income

The more you earn, and the less you need, the sooner you'll have enough money to live off your investments (or stash). However, financial independence shouldn't be a goal in itself. On the contrary; it emerges from a (frugal) lifestyle. Financial independence is inevitable when you are satisfied with your current level of spending and are able to save a portion of your income. Preventing lifestyle inflation when your income increases and investing the surplus to generate a passive income might make you financially independent sooner than expected.

Savings rate determines FIRE date

The most powerful indicator of the number of years to your financial independence, is your savings rate. The higher your savings rate, the sooner you will be financially independent. This works two ways: the less you spend, the more you can save and the less you spend, the smaller your stash needs to be from which you will live off.

  • If you have a savings rate of 20%, you will reach financial independence in 41 years
  • If you have a savings rate of 60%, you will reach financial independence in 13 years

Use the FIRE countdown formula below to calculate the number of years to reach financial independence. The formula allows us to calculate the years to financial independence for savings rates between 0 and 100. Before we can do any calculations we need to make some assumptions about the future. In this case we will make the following assumptions:

  • Annual return rate is 4% (after tax, cost and inflation)
  • Withdrawal rate equals return rate
  • Current expenses equal future expenses

When we put this formula into a graph it looks like this. Pick your savings rate on the X-axis and read the number of years to your financial independence on the Y-axis (inspired by and Mr. Money Mustache):