Retiring early might sound like a pipe dream, something reserved for those making six figures in Silicon Valley.
But the FIRE community (that’s financial independence, retire early) is filled with all kinds of people: single parents, gig workers, people with debt, people in their 40s and 50s. And many of them still retired early by following the same basic formula of saving and investing.
In this article, you’ll meet some of these FIRE hopefuls and heroes. And you’ll learn eight simple steps to early retirement that anyone can follow, starting right now. Here’s how to become financially independent and retire early.
Step 1: Track Your Expenses
If you spend much time on the FIRE subreddit, you’ll eventually stumble upon a question like this: I have $1 million saved. Is that enough to retire?
And it’s always the same answer: It depends. A million probably isn’t enough if your expenses are over $100,000 a year. How much you’ll need in retirement depends on how much you spend now.
Track your expenses to the penny, advises Court, who writes about financial independence at Modern FImily. She and her wife Nic retired in their early 30s with a net worth of over $1 million. I created a super simple Excel spreadsheet over 10 years ago where I input our monthly earnings and expenses that I still use to this day.
Using the spreadsheet, Court found their annual living expenses were around $20,000 a year.
It helps with the money mindset, she says. As you input your expenses after the fact, in the back of your mind you may think that wasn’t worth it and not make that purchase again.
If a spreadsheet isn’t your style, there are plenty of budgeting apps to help you automatically track your expenses.
- Action item: Create a budget. Choose broad expense categories (rent or mortgage, groceries, entertainment, etc.), and then input what you spend in each of those categories by month.
2. Lower Your Spending
The FIRE community has a reputation as super-savers. Eat rice and beans. Shop thrift stores. But it’s not all spartan self-denial. The goal for this step is just to reduce expenses.
Now that you know what your monthly expenses are, find ways to cut back that you won’t regret.
A simple life can be a very happy life, Court says. Appreciate nature and all the free things in your area. Figure out what it is you actually value and cut out the fluff. Stop trying to keep up with the Joneses--they are broke.
Pre-FIRE, Court was an energy trader and Nic was a nurse with a combined income of around $100,000. They started out with six figures in student loan debt but reached financial independence in less than a decade, thanks in large part to trimming expenses.
She suggests looking for creative ways to boost your savings rate:
- Host an outdoor gathering instead of meeting at a bar or restaurant.
- Investigate lower costs for recurring expenses like car insurance and phone plans.
- Fix or make things yourself instead of outsourcing.
- Try house-hacking with roommates to pay off your mortgage faster.
- Volunteer to get into that dream event for free.
Court says it’s not about a life of deprivation. They have kids. They’ve traveled to over 25 countries. They even took breaks from work over the years to recharge. Yet they still managed to sock away 50-80% of their income.
We consider ourselves valuists, she explains. The norm is to spend everything you earn, live the FOMO life, and take selfies along the way. Next thing you know youre 65 and still in debt. We’ve rewritten our own script. Wealth is what you cant see.
- Action item: Pick three categories in your budget to reduce by 20%. Easy wins include choosing cheaper but still healthy food, cutting extra subscriptions, and trimming your entertainment budget.
3. Stock Your Emergency Fund
This is an essential step on the way to financial independence.
Why? Even with your rockstar monthly budget, you’ll still have unexpected expenses. The refrigerator will break or the dog will need an emergency trip to the vet. You don’t want those expenses to derail your FIRE savings or worse, land you in debt.
Michelle, aka That Girl On Fire, says an emergency fund has been crucial to her financial independence journey. She keeps around six months of expenses on hand for those unexpected (and expensive) crises.
I've had to use mine a number of times, she recalls. Once when we had a pipe burst under our sink. Once after a huge thunderstorm that caused a serious leak from the ceiling. A couple of times on car repairs.
Each time, her emergency fund came to the rescue. She’s currently on target to retire in 2026. Shell be 35.
Having cash in the bank offers you easy liquidity in a bear market, Michelle says. When all of your money is tied up in investments, you can risk making a loss pulling it out if the market is bad or you may even have to pay unnecessary capital taxes on the profits. Cash is king, for at least a portion of your investment strategy.
- Action item: Save 3-6 months of living expenses, more or less based on your risk tolerance. Put it in a high-interest savings account.
4. Pay Off High-Interest Debt
Depending on your situation, you might do this before Step 3. The important part here is to pay down debt that is costing you even more due to high-interest fees.
Related: Should You Pay Off Debt or Save for Retirement?
Take it from Jillian Johnsrud. By 19, she had $55,000 in debt, including student loans, credit cards, and medical bills. By 24, she was debt-free and had saved $100,000. She retired at 32.
Her secret? She and her husband lived off half their income while the other half went to paying down debt. They didn't finance it with huge paychecks. They each made around $30,000 a year. And they have four kids.
Paying off debt reduced our monthly expenses, enabling us to build up our emergency fund and start aggressively investing, Johnsrud says, adding that high-interest debt should be paid off first. It's really tough to make financial progress when you're paying hundreds of dollars a month in interest.
For practical tips, read our guide about how to pay down debt fast.
- Action item: Make a list of all your debt, from the highest interest rate to the lowest. Start at the top and pay off that bill first.
Related: How a Debt Snowball Can Reduce and Then Eliminate Your Debt
5. Calculate Your FIRE Number
First, take a breather. Youre halfway there, already much further than most Americans who have less than three months of savings or the 47% carrying credit card debt.
Now it’s time for some fun. Figure out the magic number you need as your net worth to be financially independent.
Back in 2013, Chris and Jenni, then in their late 20s, figured out their number: $625,000 per person.
To calculate our FI number, we simply multiplied our average annual spending by 25, says Chris. That’s the easy part. The hard part was gathering enough years of spending data for each of us, combining them, and coming to a reasonable average with a little bit of headroom.
This step isn’t all about math, though. Chris puts it in perspective:
The biggest reason to work out your own FIRE number is because it’ll force you to gather some financial information and view it holistically in a way you may have never before. The actual number itself, while useful, isn’t really the point of the exercise. The point is to learn something new and have a conversation, which might lead to something more valuable still.
They reached their goal in 2018, retired two years later, and then started their blog, TicTocLife, to show others how to do the same. (Even in retirement, they still track their monthly expenses with Mint here’s a peek at their budget.)
- Action item: Plug your numbers (desired retirement age, annual expenses, etc.) into a tool like this financial freedom calculator or this crowdsourced FIRE simulator. Then get an estimate of how much you need to FIRE.
6. Max out Your Retirement Accounts
Depending on your strategy, you might do this step even earlier.
Start with your 401k at work if there’s a company match. Then max out your Roth IRA, if you qualify. If not, a traditional IRA works too. Then go back to your 401k to finish up. Ideally, you’ll get to the point where youre putting in the maximum annual contribution allowed for both accounts.
You might already have a 401k from your employer. It’s a common vehicle for saving for retirement, but throwing a bit of your paycheck in there each payday won’t be enough to get you to FIRE.
One early retiree, who blogs anonymously at A Purple Life, says she opened a 401k at her first job in 2011, but it wasn’t until she started pursuing FI in 2015 that she dramatically increased her retirement investing.
I created the goal of maxing my 401k and traditional IRA and then investing anything I had left in a taxable account, which I successfully did every year until I retired in 2020, says the 31-year-old former marketer.
As a result of maxing out my tax-advantaged accounts for the last six years of my career, I saved approximately $56,000 on taxes. I invested that money and let it work for me instead. Doing so saved at least a year of working without me having to do anything.
- Action item: Find out if your employer has a 401k. If so, put as much as you can (check your budget) toward it, up to the company match so you get that free money. Then open up an IRA. Here are the best brokers for an IRA.
7. Boost Your Income
As with Steps 3 and 4, Steps 6 and 7 go together.
While youre maxing out those retirement accounts, you want to max out the money you can make to put into them. That means increasing your earnings.
There are a lot of strategies here:
- Ask your boss for a raise.
- Look for a higher-paying job.
- Take on extra side hustles.
The last one is what Jannese Torres-Rodriguez did. The former quality assurance manager in Tampa just FIREd in April, in large part thanks to an impressive 10 income streams, including $200,000 a year from side gigs.
Her first side hustle was sparked by a layoff in 2014. She felt her career didn’t match her goals. So she decided to create a food blog, which she eventually learned to monetize.
My side hustles helped me pay off over $39,000 of student loans in 17 months and start investing 50% of my income, she says. Most of all, it allowed me to realize that my income potential is unlimited. That's a life-changing mindset shift.
Now, among other things, she hosts the Yo Quiero Dinero podcast, a platform she created to connect others looking to increase their wealth.
- Action item: Take one step to boost your income, whether it’s asking for a raise, picking up a side hustle, or updating your resume after you learn how much you could be making.
8. Automate Your Investments
So youre already investing in tax-advantaged retirement accounts. Why invest more? Because the money in your IRA and 401k is mainly for life after the traditional retirement age of 65. If you withdraw your money early, you’ll typically be hit with a tax penalty.
To retire early, you’ll want to start investing in other vehicles. There are plenty of options:
I didn’t mention investing in bonds, CDs, or other securities because these low-risk investments don’t tend to have much use for the FIRE crowd. I also left gold off the list because it’s usually a terrible investment.
What you choose to invest in depends on your risk tolerance, interest, target retirement age, and more. Every one of the FIRE success stories profiled above invested, each with slightly different strategies.
There’s sometimes a learning curve to investing. It was hit or miss for a while for Robert, a 34-year-old steelworker planning to retire by 40. His net worth is currently around $300,000.
My rental and my stock market investing have been my only two truly successful investments, and the real estate has had its stresses despite the overall positive results and over 25% appreciation in value, he says. My biggest failure was mining Ethereum in 2018. It could have been profitable, but it took over all of my free time and was not cheap to maintain. I had to give it up for my own sanity and lifestyle.
His biggest tip? Automate your investing.
IRA is a $500 monthly automatic transfer. My taxable brokerage is an automatic transfer. Even the rebalancing is done automatically via M1 by buying the underperforming allocation, he says. The automation has helped ensure I don’t miss the important transactions that I definitely don’t want to miss. No late fees. Guaranteed growth on my investments.
Still stumped? Read our four-step guide on how to start investing.
- Action item: Open up a taxable account and put as much as you can into it. For something easy and less volatile, start by investing in a low-fee index fund that tracks with the U.S. stock market or the S&P 500.
Final Step: Retire Early and Live
There’s no loss if you start these eight steps to retire early right now. After all, if your target retirement age is 35 and you miss it by a decade, youre still more than 20 years ahead of over two-thirds of Americans.
And you’ll be a lot more financially secure along the way, and that feeling of security is, in many ways, what financial freedom is all about.