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Defining the Most Important Variables in the FIRE Equation

FIRE = Financial Independence Retire Early. 99% of my readers will already be familiar with this acronym. But honestly, a year ago I had to Google what it stood for. This philosophy is thrown around a lot. But what does FIRE really mean and, more importantly, what are the most important variables to achieve it?

That is what the goal of this post is. To lay out a simple (remember, I am a simplifier, not a complexifier!) definition of FIRE and clearly define the 10 most important variables that you need to be aware of in starting and completing your FIRE journey.

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What is FIRE?

I’m gonna keep this real brief.

If you go online to any forum, you will find intense arguments about what FIRE means, what it is and what it isn’t. Is the blogger technically on FIRE if she still blogs to make money?


The thing is that it doesn’t matter at all what anyone else thinks. FIRE is personal. It’s a one woman or man game. You compete against no one but yourself. (And trust me, you are fierce competition enough!)

This is what FIRE is (to me, of course). But I think this is a generalizable definition.

FIRE is living your life on your terms

It has nothing to do with finance per se.

However, finance is likely the biggest restraint to living life on our terms for the average human. This goes for those in both lower and higher socioeconomic levels. Sometimes it’s even easy to wonder if it can be a bigger restraint in the higher SES strata.

(P.S. It’s not. But the fact that some high income earners place themselves in self imposed golden handcuffs is a very avoidable fate…)

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So, that’s what FIRE means to me. I want to reach financial independence to live life on my terms. Honestly, things may not change very much externally when I reach FIRE. But internally, the change will be immense.

The 10 most important variables in your FIRE equation

FIRE variables
Simple, right?

Ok. Now you are convinced that FIRE is a worthwhile cause and destination for you. So you go out and type “FIRE” into Google and are immediately overwhelmed.

So many people saying to do so many different things.

This is again because everyone’s journey is personal. By definition, it applies only to them. And this includes myself. The journey I am sharing will apply only to me. I think the problem with some other FIRE resources is that people forget this. They take their journey and get others to apply it indiscriminately to their situation.

That won’t work.

My suggestion is to break your relationship and journey with FIRE to component parts. Decide what fits for you. Then build your own journey.

However, there will be common variables in everyone’s FIRE journey

Let’s get into them!

1. Savings rate

I put this one first for a reason.

I even put it before income. Because income is important. But it means nothing if there is no savings rate. You need a savings rate to invest. And, as you will see, you need to invest to reach any meaningful level of FIRE.

No matter what kind of FIRE you want or how you plan to get there, no need a savings rate.

My recommendation? Save 20% of your income. Save more if you can. (But don’t go too far into the FIRE end of the FIRE/YOLO spectrum.)

My current savings rate is about 43%.

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2. Income

Ah, yes. Income. A very necessary part of any FIRE journey.

Basically, you can do two things to increase your savings rate. You can either save more money. Or you can make more money.

Our savings is decidedly more in our control. But income is also in our control. It tales a big mindset shift to realize this and make an according change in your life.

But I did it and so can you!

Things to consider:

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3. Margin

When I say margin, I am referring to the difference between your income and your expenses. Is this very similar to your savings rate? Yes.

But, I am making a different point in discussing the margin here.

This margin is your start-up cash. It is your seed money to reach FIRE. You need to treat it as such. Love it. Protect it. Put it to good use.

That’s the point. You can save all you want. But if you don’t treat it like the margin and seed money that it is, you will not move one step closer to your FIRE goals.

This is where a lot of people get held up. It seems risky and even scary to invest this money that you worked so hard to earn and sacrificed so much to save.

And there is risk! There is always risk. But you can invest in a manner that minimizes risk.

(See below!)

4. Investing

That you invest your money is certainly one of the most important FIRE variables.

How you invest your money is also very important. But I mean this less in the sense of the specific investment vehicles that you use. I mean it more in the sense of the overall strategy that you use to invest.

You should invest in a manner that compensates you accordingly for your risk. That’s the simple answer.

Breaking it down further, this means investing in low cost, broadly diversified index funds according to your stock/bond allocation and rebalancing once a year. And that could be it.

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But, if you want to invest in real estate, it means investing passively in REITs or very well better syndications/funds. Or it means investing actively in cash-flowing rental properties. Honestly, in terms of real estate, those are the only options that I consider.

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Things like cryptocurrency, options trading, puts, investing in real estate for market appreciation, angel investing. Those do not compensate me accordingly for the large risk that I incur by investing in them. So I simply just don’t do it.

5. Return on investment

You investment strategy as one of the FIRE variables was discussed above.

Now, the variable that dovetails off of that is how much return on investment you receive from your investments. You want to aim for a real return (after counting inflation) of about 7%. I actually use 5% when calculating my FIRE needs just to be very conservative.

This is what you need to have in mind when deciding how to invest. You can invest in all bonds. But that will likely yield you only 2-3%, no where near the 7% you are going to want. It also shows you that you don’t need to try and hit a home run by joining some angel investing firm that promises guesses a return of 45%.

6. Nest Egg

Let’s extrapolate a bit more on the point I was making above.

You want your investments to average about 7% real return. This turns out to be true on average. But how can you make sure it is right for you?

Well, you need to determine how much of a nest egg you want. To do this, you need to extrapolate out what your expenses will be in retirement (this is always a very rough estimate). This is equal to what your annual “salary” in retirement will need to be.

Multiply this number by 25 (or divide by 4%). This is what your nest egg will need to be assuming a safe 4% withdrawal rate in retirement. (Note that this is the withdrawal rate shown to be safe so that your money doesn’t run out before you die in the famous Trinity study.)

Once you know this nest egg amount, the calculation to figure out how much you need to save and invest each year as well as the return needed on those investments to reach your goal.

I’ll walk you through this calculation here!

7. A plan

I’d like to introduce you to my broken record.

But for now I’m just gonna keep shouting this from the rooftops.

You need to develop a financial plan if you want to get to FIRE. It needs to be thought out and written down. In the beginning of the journey, you will refer back to it a lot more than when you are later on in the journey. But the beginning is the hardest part!

No matter what your plan is, you need one! (I feel like Yogi Berra…)

8. Yourself

Ok, I saved 2 of the real most important variables towards the end of the list.

You are your own financial worst enemy. I am my own financial worst enemy.

It’s the way it is. We are in a constant struggle with ourselves to create and destroy financial stability. One of life’s great paradoxes. I’m not going to try to figure out why. It doesn’t matter. Like I said, it is what it is (seriously, Yogi Berra!…anyone?)

How can we work to optimize this as one of the more challenging FIRE variables?

9. Your partner (if applicable)

You and your partner need to be on the same page about your financial plan. It just won’t work if it’s any other way. Seriously. Selenid and I are very much on the same page but even we have times where we butt heads about finance stuff. It would be way worse if we hadn’t laid the groundwork.

Work on this!

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10. Fun

Were you expecting this one?!

Make your FIRE journey fun! Celebrate your victories. Give yourself grace during any set backs. Share your journey with friends and family! (Or with everyone, like me!) Make it a new shared hobby and interest with your partner!

If you make FIRE fun (funFIRE?), you have a 100% greater chance of sticking with it and being successful.

How many times have you heard of a professional athlete who quits because the game stopped being fun? It’s literally a game! And they (whoever they are) managed to make it not fun! If it can happen to a game, it’s not a stretch at all to suggest it will happen with finance. Some of the initial excitement will wear off once your realize this will take 5, 10, 20, 30 years. How do you combat this and not grow complacent?

Like I said, get creative and make it fun! Remember, investing is about more than money!

What do you think? What does FIRE mean to you? Which are the most important FIRE variables? Have you made your FIRE journey fun? Let me know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected].

    9 thoughts on “Defining the Most Important Variables in the FIRE Equation”

    1. This is an awsome post! I have already read it twice today and my wife has already read it once! Covers so many important areas in such a lucid way!

    2. I’ve now read it three times. This is a must read post!My wife was just saying to me she can’t believe how much stuff like there is freely available on-line that explains so well how to get started in organizing personal finances!

    3. Awesome Tom your wife is on board! My wife could care less, also literally yesterday she wants to buy a new Toyota sienna hybrid Bc we “need” it.

      Then again she does bring in more than half of the household income :). Get paid 500k! Although only 300k after taxes

    4. Rikki,

      Just think if the $35,000 for a Toyota Sienna hybrid is invested in VTI that could be $75,000 in a decade at 8% return.

      Actually, I’m getting less optimistic about return outlook for stocks. Nothing to do given where bond yields are. But I might wind up with more of a value tilt over time. My just drafted financial plan / IPS will make me wait six months to execute 🙂

      I was reading this over the weekend–


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