The Defining Dollar

The FIRE (Financial Independence, Retire Early) movement has been spreading like wildfire (pun intended). One of the first steps you’ll take on your own FIRE journey is to calculate your FI number. Well instead of call it our “FI Number”, we like to refer to it as our “Defining Dollar”.

If you’re new to the idea of FIRE, we first recommend reading our blog post, What is FIRE: Financial Independence, Retire Early. Then continue on with this post. 🙂

What is a FIRE Number or Defining Dollar?

As we mentioned above, we use the phrases FI Number and Defining Dollar interchangeably. The idea of this number is that it’s the specific dollar amount you need in order to retire. No matter if you’re retiring early or at the traditional age, you’ll need to know what this number is BEFORE you retire.

Calculating Your Defining Dollar

You can calculate this number a couple of different ways depending on your goals. Generally speaking, the standard practice amongst the FIRE community is to take your annual expenses x 25.

1. Total up all of your expenses for the entire year

Now the first step is the hardest and is one that the majority of the world’s population never accomplishes. If you’re on top of your finances, chances are you already know how much you spend each year. But if you’re not a total money nerd, this may be something new to you. Over the next 3 months, keep track of every single thing you spend money on. Then multiply the 3 month total by 4 to get an estimation of 12 months of expenses.

2. Apply the 4% rule

Now this step is the easy one. Simply take the number you totaled up in step one and multiply it by 25. Short and sweet, this number is the total amount of money you will need to retire – aka your Defining Dollar!

Coming Soon: To learn more about the 4% rule and how it works, we highly recommend reading our blog post, What Is The 4% Rule and How To Use It.

What is Your Defining Dollar?

Once you’ve calculated your Defining Dollar, let us know what it is down in the comments! And if you’re interested in learning about what our Defining Dollar is, hop over to our Financial Updates category to learn more about what our goals are and how we’re doing.

Disclaimer: We are not financial experts and this is not financial advice.

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