# Calculating This One Number Set Me on a Path to Financial Freedom. Here’s The Formula

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I didn’t start thinking about retirement until I was 33 years old.

I was unemployed, married with two children, renting in a high-cost living area, and experiencing a global pandemic. Fortunately, I had some money invested in retirement accounts with previous employers from my twenties. But my husband? Well, he was 32 years old without a dollar in a 401(k) or an IRA.

Less than a year later, we’re now on track to become work optional at 47. That’s how quickly a FIRE number can change your life.

## What Is a FIRE Number, and Why I’m on This Journey

FIRE stands for financial independence, retire early.  It’s a movement that encourages people to live below their means so they have more money to invest towards early retirement or part-time work. The higher your savings rate and the percentage of income you don’t spend, the faster you can become work optional.

Before learning about FIRE, I thought retirement was something that only people with pensions could do at the age of 65.

Now, I know that retirement doesn’t magically occur at a certain age, but rather when we can afford to pay our annual expenses with passive income.

Simply put, your FIRE number is the amount of money you need to have invested in order to live off those returns and quit working.

On the one hand, knowing this number left me and my husband  worried. I was scared, wondering whether we would ever be able to retire since we didn’t start investing consistently until our thirties.  But, at the same time, it was empowering.

As I calculated how much we would need to invest to retire early, my husband and I started to view FIRE as a game that would make planning for retirement fun. We realized that even if we did not reach our early retirement goal, we would still be on track to retiring at some point—and considering we had loved ones who could not say the same, we were eager to at least start.

## How to Calculate Your FIRE Number

As soon as I learned that retirement could happen at any age, I needed to determine our personal FIRE number: the total value of assets we would need to accumulate in order to live off passive investment income. As I researched the best way to calculate this number, I came across the Trinity Study, the source of the well-known 4% rule, and this simple formula for calculating your FIRE number:

Annual Expenses x 25 = FIRE number

So for example, if your living expenses are $4,000 per month, your annual expenses are$48,000 and your FIRE number is $48,000 times 25, or$1.2 million.

However, after some additional digging, I felt more comfortable with a different withdrawal rate and chose to calculate my FIRE number based on this formula:

Annual Expenses ÷ 0.03 = FIRE number

## Conclusion

Know that you can retire at any age as long as you have the income to do so. Calculate your FIRE number and create a plan to generate different passive income streams that can subsidize a work-optional lifestyle. If it feels overwhelming, consider creating a FIRE number range. Make sure your goal is reflective of your values and lifestyle preferences. Ultimately, even if you don’t retire at an early age, calculating your FIRE number is a great way to start planning for retirement.

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