Reaching financial independence feels unreal, but honestly it’s what we’re all aiming for in our retirement. Getting to a point of financial independence earlier is known as the FIRE movement (Financial Independence, Retire Early).

In this article, we’ll define the steps you need to take in order to get to a place where you can be financially independent, whether that’s by retirement age or earlier.

1. Calculate Your Financial Independence Number

The first step to financial independence is calculating the total savings needed to pay for your annual expenses passively. There’s some math involved, bear with me.

To calculate the total number you need to reach to retire early, use this equation:

[Your Annual Expenses] x 25 = [Your Financial Independence Number]

Seems really simple, right? The idea is based on the findings of The Trinity Study, which found that a 4% annual withdrawal rate from a diversified portfolio (stocks and bonds) historically lasted at least 30 years, in almost all cases.

So how do you get to that number?

2. Build an Emergency Fund

Maybe this seems obvious, like your dentist telling you to floss more, but it’s necessary. Having an emergency fund will help provide a buffer so you never find yourself charging unexpected bills to your credit card or taking out a personal loan and racking up debt.

Generally, you want an emergency fund that can cover six months of expenses (or at the very least three).

3. Pay Off High-Interest Rate Debt

Paying off high-interest debt—such as credit cards or personal loans—is one of the most crucial early steps toward financial independence. High-interest debt compounds quickly, costing far more over time and making it harder to build savings or invest. Unlike manageable, low-interest debt (like some student loans or mortgages), high-interest payments can trap you in a cycle where you're barely covering interest, not principal.

Two popular payoff strategies are the debt snowball—where you pay off the smallest balances first to gain momentum—and the debt avalanche, which targets the highest interest rates first to save the most money long-term. Both are effective, but the key is to start early and stay consistent, so your money can begin working for you instead of your creditors.

4. Commit To Good Habits – Track Monthly Spending

If you don’t have a lot of disposable income, tracking and optimizing your spending can feel overwhelming, in fact a survey in 2024 found that 47% of respondents said that money was negatively impacting their mental health.

But budgeting is one of the most powerful ways to take control of your financial future. Every dollar has a job, and when you start paying close attention to where your money goes, you often uncover small leaks—like unused subscriptions or impulse buys—that add up fast.

The goal isn’t deprivation, but intention: the goal is to free up room to save 20–50% of your income. 

Begin by tracking every expense for 30 days (apps like Mint can help), set a monthly cap on flexible spending categories, and try the "24-hour rule" before making nonessential purchases.

Remember, even a 1% increase in savings now is a big step toward financial independence later.

5. Have an Investment Plan

So what do you do with that 20% – 50% you’re saving every month? You invest it. The dividends from your investments will ultimately provide the passive income that you will need to retire early.

If you’re new to investing, and it feels overwhelming, a good place to start could be with traditional retirement accounts like a 401(k), Roth IRA, or Traditional IRA annually. Why?

Retirement accounts like 401(k)s, Roth IRAs, and Traditional IRAs are valuable because they offer major tax advantages. With a 401(k) or Traditional IRA, you don’t pay taxes on the money you contribute now—it lowers your taxable income—but you’ll pay taxes when you withdraw it in retirement. With a Roth IRA, you pay taxes up front, but all the growth and withdrawals in retirement are tax-free.

6. Protect Your Assets

Okay, you’ve got a budget, an emergency fund and an investment portfolio. You’re on your way to financial independence. To keep yourself on the right track, make sure you are avoiding lifestyle creep as much as possible to keep your monthly expenses consistent.

If you can, try to strategically increase your income over the years. Maybe pursue that new job with the higher pay or compete for that promotion.

And as much as you can, try to outright own your key assets, like your home or your car, to free yourself from large monthly bills. Some of these assets, like a house, may also provide additional equity that you can benefit from down the line.

How Long Will It Take For Me to Be Financially Independent?

Are you ready for more math? This formula is a bit more complicated:

Time to FI=(1+i)/(1−r1 ⋅WR⋅IC )

Where:

• r= savings rate (e.g. 0.30 for 30%)
• I = annual after-tax income
• C = annual expenses (which is (1−r)⋅I)
• WR = safe withdrawal rate (typically 4% or 0.04)
• i = annual investment return (e.g. 0.05 for 5%)

But a simpler and more intuitive approach goes like this. Assuming:

• You invest all your savings
• You earn real (inflation-adjusted) 5% returns annually
• You want to retire when your savings = 25× your annual expenses (based on the 4% rule)

Then the time it takes to reach financial independence is approximately:

Example: Two People Earning $80,000

Making Financial Independence a Reality

While financial independence may seem like a reality for only the very wealthy, it’s something that you can take small steps toward that will have a larger impact over time. You’ve got this!