How to reach financial independence 5 years earlier

Troy Shu
8 min readFeb 9, 2020

Learning about the path to financial independence leaves me in dazed confusion sometimes with all its buzzwords, such as tax-deferred investment accounts, geographic arbitrage, and Monte Carlo simulations.

Taking a step back from the details, there are really only a few things that truly impact how early you’re able to reach financial independence.

Change those variables, and you reach financial independence years earlier (or years later!).

So, what if you knew what you needed to do next to reach financial independence and retire 5 years sooner? What if you knew where to direct your attention to FIRE in the shortest amount of time?

The four factors that matter most for reaching financial independence sooner

To better understand what you can do now to FIRE sooner, you need to understand the four factors that matter most:

Reaching financial independence is when you save up enough money such that even if you stop working and stop saving money at that point, you could live off of withdrawing from your existing savings for the rest of your life.

The amount of money you need to save to reach that point is called your FIRE target. The age when you reach your FIRE target is called your FIRE age.

Let’s look at how each of the four factors impacts your FIRE target and your FIRE age.

Your income and expense levels determine how quickly you get to your FIRE target.

This graph shows how your total savings grow over time, and how it relates to your FIRE target.

If you save more money, either by increasing your income or decreasing your expenses, your savings will grow faster (green line), and you will reach your FIRE target (purple line) sooner.

Did you know that once you know your savings rate -or the percentage of after-tax income that you save-you can ballpark how many years it’ll take for you to retire?

If you start working and save 10% of every paycheck, you can reach financial independence in about 51 years, assuming your income and expenses don’t change over time for simplicity. You can reach financial independence sooner if your savings rate increases. If you started working and saved 50% of every paycheck instead, you would FIRE in only 17 years!

The return on your investments also determines how quickly you get to your FIRE target.

Higher investment returns, or how more much your savings and investments grow in value (outside of you saving more), also means that you’re able to reach your FIRE target faster, and thus FIRE earlier.

This effect of helping you reach your FIRE target sooner is similar to how increasing your income or decreasing your expenses affects your FIRE age.

If you will spend less money after you FIRE, you won’t need to save as much money to FIRE.

Planning to spend less money after you FIRE means that your FIRE target is lower: you won’t need to save as much money to reach financial independence. And a lower FIRE target amount means you can get there sooner, assuming your income and expense levels don’t change.

You can see this effect if we shift the FIRE target (purple) line down in the graph. The age at which you’ll reach your FIRE target is lower now.

Four life scenarios where you reach FIRE 5 years sooner

Now that you understand the main factors behind how quickly you can reach financial independence, let’s look at concrete scenarios to illustrate what kinds of life changes we’d need to make in order to FIRE 5 years sooner.

I used the “When can I retire? Calculator” or “FIRE Age Calculator” here, with some hypothetical numbers to create four scenarios where we could retire 5 years sooner.

The hypothetical numbers I used were a $70k annual income, $40k annual expenses, $40k annual expenses after retiring, investments 100% into stocks which return 8% a year, and the standard 4% withdrawal rate after retirement (which corresponds to your retirement lasting about 30–40 years).

Here are the four scenarios and the required changes in income, expenses, and investment returns in each. I call them the “Baller Income”, “Feeling Frugal”, “Lean Retire”, and “YOLO Investment Returns” scenarios.

The “Baller Income” Scenario

In the “Baller Income” scenario, if we increase our after-tax income by 50%, we’ll reach financial independence 5 years sooner!

Increasing your income that much is never easy, but your income level is uncapped to the upside. There are also lots of creative ways to increase your income.

For example, you could do it by getting paid more at work, either by getting raises, promotions and/or changing jobs. This Redditor studied art in school, got a design job at a startup for $31,000 a year, and 8 years later makes more than $250,000 a year as a senior designer.

You can also grow your income beyond just the compensation you receive for your time. For example, you can build software, manufacture and sell goods, or write blog articles that have the ability to reach millions of people. This scales your value and also the income you receive for it far beyond the additional time you spend to design and promote your creations. Even smaller-scale side hustles increase your income and can help you reach financial independence faster.

You can make thousands or even tens of thousands of dollars a month from writing online or selling access to tools that you’ve built. Or you could start a pet waste removal business, create an online course, or rent out your property on Airbnb. Not to sound like an infomercial but the opportunities to increase your income outside of a traditional job are endless. Here’s one of my favorite podcasts about all the unique side hustles people do.

The “Feeling Frugal” Scenario

As we learned, another way to FIRE sooner is to cut expenses. So that’s what we do in the “Feeling Frugal” scenario: we decrease our spending.

An interesting phenomenon is that with decreasing your current expenses, you might also expect to keep that expense out of your life after you reach financial independence. For example, my wife and I recently decided to cook at home more and eat out or order in a lot less. We’ve really enjoyed the cooking experience, and not to mention the money it saves, so we’ll likely continue to cook after we retire.

So reducing your expenses now can have a “double effect” on how soon you can reach financial independence. That’s why, in this scenario, reducing current expenses by 30% also means a 30% reduction in retirement expenses, which together result in being able to FIRE 5 years sooner.

If you’re already living frugally though, cutting expenses can be harder to do. You’re also working with a limited set of opportunities when you want to cut expenses because you can only reduce the expenses you already have. There are countless ways to increase your income though.

The “Lean Retire” Scenario

In this scenario, instead of cutting our current spending, we cut our expenses only after retirement. We’d need to cut our retirement spending by almost 50% to retire 5 years sooner (again, with our hypothetical numbers).

The “Lean Retire” scenario is similar to the “Feeling Frugal” scenario in that both require cutting expenses by a lot, and thus a pretty large lifestyle change. Maybe in the “Lean Retire” scenario, we fly off to live in another part of the country-or even the world-after we reach financial independence, where living is a lot cheaper.

The “YOLO Investment Returns” Scenario

The “YOLO Investment Returns” scenario requires us to more than double our investment returns, increasing their annual return rate of 8% to 18%. Doing so will let us FIRE 5 years sooner.

7% — 8% is on average what the US stock market returns every year, over the long run. There are ways to have your investments grow more than that and still be diversified, some perhaps easier to implement than others.

One example of a common method to increase the average rate of return on your investments is to invest in real estate. On average, residential real estate has about a 10.6% return on investment in the US. But the returns to buying any rental property depend a lot on specific factors like the location, building type, price, and financing. Maybe you find an amazing (and rare) deal, and get 20% on your investment instead! Managing real estate isn’t effortless though because you still have to deal with tenants, maintenance, and paperwork.

Knowing what you have to change to reach FIRE sooner is just the first step.

It looks like in order to reach financial independence 5 years sooner, we’ll need to increase our income, decrease our current and/or retirement expenses, or increase our investment returns, all to a pretty large degree. Or we can do some combination. No surprise there: nothing worth having in life comes easy!

Think about how you might make those changes. Reflect on your values as well as the opportunities and constraints that you face.

For example, maybe you and your family love traveling and have always wanted to live abroad. Something like the “Lean Retire” scenario where you plan to cut your post-retirement expenses by half (by, for example, moving to a much more affordable country to live in) could be a good fit.

Or, maybe you love creating jewelry and so decide to try realizing the “Baller Income” scenario. You start an online store that sells the jewelry you make and work on it during nights and weekends outside of your day job.

What kind of creative solutions can you come up with?

Your numbers and situation will be different from the hypothetical ones used in this blog post. Use the FIRE age calculator yourself to see what kind of changes you need to make in order to reach financial independence and retire sooner.

Originally published at on February 9, 2020.