How to Calculate your FIRE Number

Hi everyone, this is a guest post from Hardbacon. They are here to talk about one of my favourite topics that I like to pontificate about, financial independence, specifically how to calculate your FIRE number.

Coined in 1992 by Vicki Robin and Joe Dominguez in their book ‘Your Money or Your Life’, the FIRE Movement has gained substantial traction and popularity in the media and with the millennial and Gen Z demographic in particular. Short for Financial Independence, Retire Early (FIRE), the basic premise of the FIRE Movement is that by exercising a high degree of discipline in personal spending and investing large sums of disposable income into compounding assets starting from an early age, practitioners can retire early from their jobs instead of the traditional retirement age that is usually in the 60s. 

Related: The Ultimate Recipe for FIRE

There are many merits to the FIRE Movement and there have been a significant number of people who have applied it successfully to retire from their jobs in their 30s and 40s. However, one of the most important considerations to make when contemplating whether the FIRE Movement is right for you is your ‘FIRE number’.

The FIRE number is essentially the threshold at which you can reasonably afford to live the rest of your expected life making steady withdrawals to fund your lifestyle each year without encountering any shortfalls. 

Different people have different FIRE numbers based on their ages, lifestyle preferences, geographic locations, and a host of other factors. There are three main schools of thought though when it comes to calculating a FIRE number. 

Related: When Can This Single Mom Retire?

Different Types of FIRE

As mentioned above, there are three different types of FIRE philosophies that people follow. Each of these philosophies will yield a different FIRE number for each user as they all assume differing levels of income and expenses that the practitioner will make each year.


In a nutshell, FatFIRE is when a person chooses to live a higher standard of living in retirement than they do currently. Depending on the type of person you are, you may wish to take extravagant vacations in retirement or acquire new experiences which can be expensive. FatFIRE is therefore a state where you spend more in each year of retirement than you do currently. 


This is somewhat the opposite of FatFIRE. While there are obviously minimum expenses that each person needs to pay for (such as food, transport, etc.), the LeanFIRE philosophy assumes that the person will live the same or slightly lower standard of living in retirement than they do currently.

Alternatively, it could also mean that the person may choose to live in a geographical location that is less expensive than their current one. For example, if a resident of San Francisco wants to retire in a Southeast Asian country like Thailand that has a lower cost of living than SF, that person can also be thought to be pursuing a LeanFIRE philosophy.


The BaristaFIRE assumes that the level of expenses in retirement more or less match current levels of spending.

However, the main differentiator in this philosophy comes from the fact that the person continues to work as a barista or other such job that provides them with a living wage that enables them to ‘get by’ without being overly arduous on their daily schedule. This philosophy is particularly useful in ensuring that periods of high inflation do not erode the value of your nest egg and derail your individual FIRE movement.

Calculating the FIRE Number

The most popular way to calculate your FIRE number is the rule of 25.

The rule of 25 essentially states that the number you arrive at when you take your annual expected expenses and multiply them by 25 is the amount you need to have accumulated before you start withdrawing each year. For example, say your monthly living expenses comes out to be about $5,000. In that case, your annual expenses are $5,000 x 12 = $60,000. Next, we multiply that $60,000 by 25 to get $1.5 million. 

The significance of this $1.5 million is simple: for someone with expected annual expenses of $60,000, they will have achieved financial independence (i.e., they do not need to work any more) the day that their net worth hits $1.5 million. 

This rule of 25 approach was conceived by 3 finance professors teaching at Trinity University who rationalized that a person who has invested into a diversified portfolio of stocks, bonds and other assets, (with stocks making up at least 50% of total assets) and withdraws 4% (100% divided by 4 equals 25) will have enough to live on until the end of their life.  

Modifications to the FIRE Number

There are several modifications that can be made to arrive at the optimal FIRE number for yourself. If you want to be extra cautious, you can assume a 3% withdrawal rate instead of 4%.

This would translate into multiplying your annual expenses by 33.3 instead of 25. For example, in the situation above with a person incurring $60,000 in annual expenses, the new FIRE number would be $60,000 x 33.3 = $1,998,000. 

You can also determine what type of FIRE philosophy you want to follow:

  • People who want to enjoy a more extravagant retirement (i.e., FatFIRE) would have a higher amount of annual expenses in their equation. The precise number is generally up to the person themselves based on what they feel they will spend each year in retirement for the experiences they want to indulge in. However, a good proxy to use is a 20% premium. As such, a person with $60,000 in current annual expenses and a FatFIRE philosophy would likely use an annual expenses figure of $60,000 x 1.2 = $72,000.
  • On the flip side, LeanFIRE practitioners may be able to tone down their annual expenses from what they spend currently. The $60,000 could become $50,000 or even lower in retirement depending on the lifestyle that the practitioner chooses to live.
  • Given that there is additional income flow in BaristaFIRE, a good approach would be to subtract the job income from total expected annual expenses in retirement. For example, if a person who expects to spend $60,000 annually in retirement plans to become a barista earning a $35,000 salary to supplement his/her income, then the annual expenses would be $60,000 – $35,000 = $25,000.

Calculating expenses

The last piece of the puzzle is figuring out what your annual expenses truly are and what they would be in retirement. Some of the key expense categories most people face are as follows:

  • Rent: Cost of the roof over your head each month. If you are a homeowner or planning to become one, a lot of proponents of the FIRE movement advocate for paying off the mortgage before retiring. In that case, your annual expenses for your house become zero. Use a mortgage comparison tool to find the best mortgage rate for yourself if you are aiming to become a homeowner in due course.
  • Groceries and food (restaurants, coffee shops, bakeries, etc.)
  • Utility and hydro bills
  • Cell phone bills
  • Personal care (skincare, hair, deodorant, etc.)
  • Memberships and subscriptions to magazines, gyms, streaming platforms, etc.
  • Transportation costs (and associated insurance)
  • Entertainment 

If you want to avoid using a spreadsheet, you can use a FIRE Calculator to gauge how long you have to continue working to be able to hit that goal of financial independence.

Now that you know how to calculate your FIRE number, it’s time to get started on your FIRE journey so you can retire happy.

Happy (early) retirement planning!

Get the Young Money Bootcamp PDF FREE

Free Dividend Yield Spreadsheet Tracker Download and Blog Updates

4 thoughts on “How to Calculate your FIRE Number”

    • @Maria- Yeah, I agree. I am enjoying my ‘BaristaFIRE’ sort of lifestyle right now and will enjoy it even more I think when kids are both in school, haha! I think that variety is definitely the spice of life and having different projects (even if that means work but at less hours of the week or if it means consulting or if it means volunteering) gives one purpose and meaning, or at least something to work towards.

  1. I think I’d be more of the BaristaFire person. I don’t do ‘chillax’ the day away too well since I get bored easily, lol. This is definitely what I’m trying to teach my sons to think about and they’re taking steps, baby steps but it’s a start. Awesome info! thank you for sharing. 🙂

    • @Gin- So good you are teaching your children about FIRE and a work optional lifestyle later in life. Having this knowledge at such a young age is like.. kindling for a massive FIRE later on! They will be so thankful that their mom taught them such a valuable lesson in life.


Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.