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Maybe all you need to retire early is a moving van.
The Financial Independence, Retire Early (FIRE) movement has gained steam in recent years. But the most important number in FIRE culture — your annual expenses upon leaving the workforce — is a number that will vary widely from state to state. If you want to retire early in Hawaii, for example, you may need twice the annual budget you’d need in Illinois or North Carolina.
To reach FIRE, enthusiasts save disproportionately high percentages of their incomes. “FIRE helps people get intentional about what they want,” says Portia Jackson, CFP and founder of Wealthy and Fulfilled, a financial consulting company. “[The movement] can help you get intentional about saving and investing.” By saving 30%, 40%, or 50%+ of their monthly incomes, adherents reach partial or full retirement years or even decades ahead of schedule.
If you’ve thought about leaving the workforce before regular retirement age, the state you live in will significantly affect the FIRE number you need to reach. Here’s what a FIRE number is, along with how much it would cost to become work-optional in every state in America.
What Is a FIRE Number?
To start your financial independence journey, you first want to calculate your FIRE number, a wealth benchmark unique to your lifestyle goals. A simplified FIRE number formula is to multiply your annual expenses by 25; this will give you a minimum target of what you need to accumulate in today’s dollars to become work-optional without exhausting your investments.
FIRE Number = Annual Expenses X 25
“Expenses are everything [in FIRE],” says Steven Keys, who achieved lean FIRE at 29 years old with his wife, Lauren. “Many people will tell you that you can earn your way to FIRE. That’s not true if you don’t keep your expenses under control. Do what’s right for you and find ways to work what matters to you into your lifestyle without inflating your expenses.”
How Can I Retire Early?
To accelerate your early retirement and financial independence goals, focus on three things: increasing your income, lowering your expenses, and investing the difference.
By cutting expenses, you can pay off debt and free up extra money each month.
To make more money, consider incorporating a profitable side hustle. Keeping expenses lower is essential, but making more money can speed up the time needed to reach a FIRE number. Some side hustles can …….