What is FIRE?
FIRE Definition
The simple definition of FIRE is financially independent and retire early. It’s a concept coined by Tim Ferriss who wrote the 4 hour work week. The average retirement age in Canada is 64. That means up until that age you have to be employed working for someone else with likely very little decision how you get to spend your workdays. This works out to 252 working days during the year. If you’re lucky enough to get two weeks of vacation that’s 242 working days. If you do the math on a 9-5 job that adds up to almost 81 consecutive days out of 365 or 22% of the year you spend working. That’s great if you love your job. The problem is not everyone does. The goal of FIRE is to allow you the freedom to travel, work at something you want to, help others or do anything else your heart desires with your free time.
There are 5 types of FIRE:
Lean FIRE: For extremely frugal people who can live on $25,000 per year or less. They may have to sacrifice some creature comforts.
Standard FIRE: For those who want to live comfortably and enjoy life’s simple pleasures.
Fat FIRE: For those who want to live financially free and have lots of luxuries making over $100,000 per year. Maybe they can only afford one jet J/K.
Side FIRE: For people with side hustles that allow them to retire early.
Barista FIRE: For individuals who retire early but still require a part-time job to supplement their income and get health insurance.
The basic way to achieve FIRE is simple. When your income will match your expenses for the rest of your life. The catch is that in practice achieving FIRE is a lot more work.
The three pillars of FIRE are:
FIRE Number
Your FIRE number is how much money you need to have invested to be financially independent. Find out your FIRE number by downloading the Financially Free AF Fire calculator below. Or click here to use the calculator from Walletburst. Hint for an RRSP is the Canadian equivalent of a US 401K.
The 4% Rule
A common rule in the FIRE community to determine if you’ve reached FIRE is the 4% rule. This rule states that if you only spend 4% (safe withdrawal rate) each year of the money you have invested then you have reached FIRE. For example if you have $1,000,000 invested you can spend $40,000 per year in retirement. The concept is, that the stock market returns 6 to 8% per year so if you spend 4% you are still reinvesting a portion of your earnings to keep it growing. Also, dividend stocks commonly pay between 3 to 5% per year so you would never have to touch your principal investment after achieving FIRE.
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