What Is Fire?

Fire is a very popular word these days when it comes to building wealth and retiring early. Fire stands for Financially Independent & Retire Early, in short, Financially Independent and Early Retirement. It is about retiring even earlier than known with early retirement. The American couple from Our Rich Journey had already retired at the age of 40.

Origin Fire

Fire originated from two books: Your Money, Your life (1992) and Early Retirement Extreme (2010). Both books tell how I can achieve financial independence with a minimalist lifestyle and income from investments. In the blog '5 financial platforms' I introduce a few Fire platforms. 

Reach Fire

Does being Fire mean having millions in the bank? No, everyone has a different Firenumber. The number depends on how much money I need to live on when I reach Fire. The formula to calculate my Fire number is easy. It is about how much money I need in a year and how much return I make per year on my investments. The popular figure to use is 4 percent. It is therefore assumed that I use 4 percent of my money every year. Because I usually catch a higher percentage on my investments, my capital should then be able to continue indefinitely.

The calculation is as follows: Suppose I need 35.000 euros every year to live on, then my calculation would be:

35.000 x 25*= 875,000 euros. I must have a net worth of 875.000 euros before I am Fire and can retire early.

*25 is derived from 4% compared to 100% (100/4)

35.000 x *25 =875.000 euros

If  I am the person who needs 35.000 euro a year, I know I need to get a fortune of 875.000 euros. I have to keep up growing my money after being Fire to maintain Fire and keep up with inflation. Due to COVID and the war in Ukraine the inflation is higher than normal, but it is the same with each crisis. On the long term 4 percent on avarage is a good one to do the math with. But history is not always the future with inflation rising at the moment above 10 percent.

Becoming Fire

To become Fire it is handy to know all my finances. From bank accounts, debts, investments, etc. All these data needs to be connected to get the big picture and I have to set a goal to reach Fire. Combing these data can lead to a Big Data mess which needs figuring out before Fire is reached.