What is FIRE?
FIRE stands for Financial Independence, Retire Early. It means having so much money invested that the return is enough to live on. Then work becomes a choice instead of something you have to do.
FIRE in one minute
Spend less than you earn
Live on a little less than you take home, and do it on purpose. Every krona you do not spend is a krona that can work for you.
Invest the difference
Put the money in cheap, broad index funds and leave it there. Over time the return starts to earn a return of its own.
Let the money pay the bills
When what you have invested is about 25 to 30 times what you spend in a year, the return can pay for your life. Then you are financially independent.
“Work is better when you don’t need the money.”
Why it is worth it, even if you like your job
Most people who become financially independent keep working in some way. The point is not to stop, but to be free to choose. When the money no longer decides, you can:
- say no to a boss or a project that makes you unhappy
- work part time, or take a year off
- stay at home longer with your children
- change careers or start something of your own
- get through a layoff without panic
- do work you find meaningful, even if it pays less
Even halfway there, a buffer of a few years' spending makes everyday life calmer. That is why FIRE is worth aiming for even if you never stop working.
The saving rate decides
Your saving rate is the share of your take-home pay that you save. It is the most important number in FIRE, more important than how much you earn.
It works twice: you put more money aside, and you get used to living on less, so you need less to be free.
Counted with a return of 5 % a year after inflation and the 4 % rule (25 times a year's spending), with the same costs before and after. The FIRE calculator is more careful and counts with 30 times, which adds a few years.
Two people, two salaries
Anna takes home 30,000 kr a month and lives on 15,000. Erik takes home 80,000 kr and lives on 72,000. Erik earns far more, but Anna is free after 17 years and Erik only after 51 years. Anna saves half of her pay and needs only half of it to live on.
The talk
Mr. Money Mustache, whose real name is Pete Adeney, stopped working at 30. In this talk he explains how it can be done on an ordinary salary, and why the saving rate matters more than the pay. The talk is in English.
Early Retirement in One Lesson (or How I Retired at 30)
Mr. Money Mustache
Nothing is loaded from YouTube until you press play. Then Google gets your IP address and can store cookies. Watch it on YouTube
How much do you need?
A common rule of thumb is the 4 % rule: if you take out 4 % of the money each year, it has historically lasted for at least 30 years. Turned around, you need 25 times what you spend in a year. For a longer life without a salary, many count more carefully with 30 times.
| You spend a month | 25 times a year | 30 times a year |
|---|---|---|
| 15 000 kr | 4 500 000 kr | 5 400 000 kr |
| 25 000 kr | 7 500 000 kr | 9 000 000 kr |
| 35 000 kr | 10 500 000 kr | 12 600 000 kr |
So every 1,000 kr less a month in fixed costs lowers the goal by 300,000 to 360,000 kr. Cutting costs is the fastest way there.
The public pension and any occupational pension come on top later, so your own money only has to cover everything until they start.
When the money has to last
How do you actually take the money out? ISK or a regular account, selling funds or living on dividends, and a buffer for when the stock market falls for years.
Read about withdrawal strategiesDifferent kinds of FIRE
Lean FIRE
Freedom on a small budget: a simple life and a smaller goal.
Fat FIRE
Freedom with room for more: travel, a bigger home and a margin. It takes longer.
Barista FIRE
Enough saved that a part-time job covers the rest. Often the most common way in practice.
Coast FIRE
Enough saved early that the money grows to the goal by pension age on its own. After that your pay only has to cover your living costs.
How to start
- Find out where the money goes. A budget for a few months shows what you really spend.Start a shared budget
- Build a buffer of a few months' costs, so that a broken washing machine does not become a loan.
- Get rid of expensive debt, and think twice before taking a car loan.Car loan calculator
- Lower the big costs first: housing, car and food matter more than the coffee.
- Invest automatically every month in cheap, broad index funds, for example on an ISK.Compound interest
- Work out when you can be free, and work it out again once a year.FIRE Calculator
- Plan how to take the money out when the day comes.Withdrawal strategies
Questions
Do you have to earn a lot?
No. The saving rate matters more than the pay. A high salary helps, but only if the costs do not grow with it.
Is it not boring to live frugally?
FIRE is not about saying no to everything, but about spending on what really makes you happy and cutting the rest. Many find they miss little of what they cut.
What if the stock market crashes?
It will happen, probably several times. The 4 % rule is built to get through bad years, and in those years you can spend a little less or earn a little extra. A cash buffer and a goal of 30 rather than 25 times give more margin.
How does the pension fit in?
The public pension and any occupational pension start to pay out later in life. Your own money only has to cover everything until then, and less after that.
Can you do FIRE as a couple?
Yes, and it is often easier: two incomes, shared costs and someone to plan with. In Sambokoll you can share the budget and see how far you have left, together.
Work out your own path
The FIRE calculator shows when you can be financially independent with your own numbers, with good and bad years on the stock market. Free, and nothing you enter is saved.