Money & FIRE, in plain English

Glossary

FIRE

Short for Financial Independence, Retire Early. The goal is to save and invest enough that your investments can cover your living costs, making paid work optional. Compound Joy's planner projects your own path toward it.

Financial independence

The point where your assets produce enough income to cover your expenses for good, so you no longer depend on a paycheck. It is commonly estimated at about 25 times your annual spending.

Your FIRE number

The amount invested at which you become financially independent. A common estimate is 25 times your expected annual expenses (the inverse of the 4% rule). Spend $40,000 a year and your number is about $1,000,000.

The 4% rule

A guideline from the Trinity study: in your first year of retirement you withdraw 4% of your portfolio, then adjust that dollar amount for inflation each year. Historically that gave a high chance of lasting 30 years. Treat it as a starting estimate, not a promise.

The 25x rule

A shortcut for your FIRE number: multiply your expected annual expenses by 25. It is just the 4% rule turned around, because 1 divided by 0.04 equals 25.

Safe withdrawal rate

The percentage of your portfolio you can take out each year with a low chance of running out of money. The 4% rule is the best-known estimate; longer retirements often use a slightly lower rate.

Net worth

Everything you own (cash, investments, property) minus everything you owe (debts). It is the clearest single snapshot of financial progress, and the number Compound Joy tracks over time.

Savings rate

The share of your take-home pay that you save and invest. It is the biggest lever on any FIRE timeline, because saving more both grows your investments faster and lowers the number you need.

Compound interest

Earning returns on your past returns, not only on the money you first put in. Over decades it is the engine behind every FIRE plan: small, steady investing snowballs into large sums.

Coast FIRE

When the money you have already invested will grow to your FIRE number by your target age on its own, with no further contributions. You still work to pay today's bills, but you no longer need to save for retirement.

Barista FIRE

A halfway point where part-time or lower-stress work (classically a job with health benefits) covers some of your expenses, so your portfolio only has to cover the rest.

Lean FIRE

Reaching financial independence with a smaller portfolio by keeping expenses low, often under about $40,000 a year. An earlier finish line with less margin.

Fat FIRE

Financial independence with a larger portfolio that funds a more comfortable, higher-spending lifestyle. It takes longer to reach but leaves more cushion.

Emergency fund

Cash set aside, commonly three to six months of expenses, for surprises like job loss or a medical bill, so you never have to sell investments or borrow at the worst possible time.

Sequence-of-returns risk

The danger that a market drop early in retirement, while you are withdrawing, hurts a portfolio far more than the same drop later would. It is why your withdrawal order and a cash buffer matter.

Bridge period

The years between retiring early and the age you can tap most tax-advantaged accounts without penalty (about 59½). You fund them from taxable savings or strategies like a Roth conversion ladder or Rule 72(t).

Tax-advantaged account

An account such as a 401(k), IRA, or HSA that lowers the tax on retirement savings, either now through pre-tax contributions or later through tax-free Roth withdrawals. Using these well is central to a FIRE plan.

Monte Carlo simulation

A way to stress-test a plan by running it through thousands of randomized market scenarios and reporting how often it succeeds. Compound Joy uses it so your plan does not rest on a single optimistic average.

Debt snowball vs. avalanche

Two orders for paying off debt. The snowball clears the smallest balances first for quick, motivating wins; the avalanche clears the highest interest rates first to pay the least total interest. Compound Joy compares both.