The bar for financial freedom may be much lower than you think. Take an ordinary person who spends $60,000 a year. By the 4% rule, they need $1.5 million to be financially free. Spend $100,000 a year and the number is $2.5 million.

The next question is usually: how on earth do I accumulate that? Buffett’s answer is straightforward — invest regularly and for the long term in low-cost index funds, which have compounded at roughly 7% a year. Subtract 3% inflation and you keep about 4% in real terms.

That is the logic behind FIRE: your money earns for you through compounding.

Three steps to get there

  1. Track. Work out what you actually spend every month. No guessing.
  2. Calculate. Multiply your annual spending by 25. That is your capital target.
  3. Save. Push your savings rate above 50% and put the difference into index funds, so compounding does the work.

An example: spend $10,000 a month — $120,000 a year — so your target is $3 million. At a 7% annual return, investing $10,000 a month gets you there in about 15 years.

Stop hesitating. Financial freedom starts with recording your first expense.