How to become financially independent in 5 years – Jun. 6, 2017 – CNNMoney

Those who are on track to be "financially independent and retiring early" -- or "FIRE" -- are.

You'd need to be fired up to sock away enough money to quit your job and retire in just five years. But it's not impossible.

Some people, like Claudia and Garrett Pennington take extreme measures like saving 67% of their income and making big lifestyle choices. They almost never eat out, have no cable subscriptions and even dramatically downsized their home.

While that's probably too much sacrifice for most people, see if you're on track to make it to financial freedom in 10, 15 or 20 years.

This couple is on track to retire -- before they turn 40

Being financially independent means that income from your investments alone is enough to cover all your expenses.

So how do you get there?

The sunshine that makes most retirement funds grow is compound interest. And it takes time to grow. But if you plan to retire early, you might not have as much time as someone targeting a traditional retirement.

As a result, the most important accelerant when working to be on "FIRE" is your savings rate. Most people targeting FIRE are living well below their means and saving more than half their income.

Identifying the percentage of your after-tax income that you're saving to get to your retirement target is key. Finding the right savings rate will get you to financial independence whether you're earning $50,000, $100,000 or $200,000 a year.

In order to make simplified calculation, we'll start with your after-tax income. We'll also assume you have nothing saved right now. You're starting from zero. And we'll assume that your investments earn a rate of return of 5%, and that you'll take 4% a year from your investments to cover your expenses.

You can also use an early retirement calculator like the one at Networthify to fill in your own numbers.

But given our assumptions, here are your target savings rates and a simplified financial picture of what it would take to retire in 5, 10, 15 and 20 years.

To retire 5 years from now

In order to be financially independent in five years, you're going to need to ratchet your savings rate all the way up to 82% of your income.

It's a pretty spartan life if you're earning $50,000 after taxes. Your annual expenses will need to squeeze in under $9,000. Yes, that's for the whole year. It is the sacrifice you'd need to make so that you can bank the other $41,000. Out of your monthly income, about $3,500 will go to savings. You'll need to have a sharp plan to get by on just $750 a month.

Even if you earn closer to $100,000 after taxes, you'll still be living a fairly basic existence on $18,000 a year while pocketing $82,000. Start thinking of creative living arrangements to stretch that monthly living budget of $1,500.

No matter your income, this savings rate is going to be possible only for those people with virtually no debts. That's why many people working toward FIRE start by paying off their mortgage first, or live a car-free life.

To retire 10 years from now

If you want to give yourself a little more breathing room and still become financially independent 10 years from now, you're going to need to boost your savings rate to 66.5% of your income.

That means if you're earning $50,000, your annual expenses will need to clock in under $16,750 a year so that you can sock away the other $33,250.

Out of your monthly income, $2,771 will go to savings and you'll have $1,396 to live on.

Again, housing costs will cut significantly into that money. But if you have incredibly low-cost or subsidized housing, you may be able make this work.

If you make $100,000 it gets a little easier. You'll have $33,500 for living expenses because the remaining $66,500 is going toward your future. You'll need to manage your expenses so you can live on $2,800 month.

To retire 15 years from now

You're up for saving hard to be financially independent, but maybe you have other debts you're carrying or aren't willing to make the extreme adjustments needed to save at a higher rate. Financial independence 15 years from now may be a reasonable goal. You're still saving over half your income, but only just. Your savings rate is 53.7%.

For those earning $50,000, your annual expenses will need to be under $23,150 a year so that you can save the other $26,850.

Out of your monthly income, $2,200 will go to savings. You'll have $2,000 to live on.

If you're earning closer to $100,000, you'll be living on $46,300 a year. You're saving a slightly larger portion: $53,700.

That means you're living on $3,858 a month and pocketing $4,475.

To retire 20 years from now

If you've got a little more time and want to set your sights at being financially independent 20 years from now, you can drop your savings rate to under half of your income and land at 43%.

If you're earning around $50,000, you're going to need to live on $28,500 a year. You'll pocket the other $21,500.

Out of your monthly income, $1,792 will go to savings and you'll keep the larger portion, $2,375, to live on.

For people earning closer to $100,000, this savings rate will leave you with $57,000 for living expenses annually, while you put $43,000 away for later. You'll have $4,750 for monthly living expenses.

This may be the most manageable savings rate of these options, but even this plan, if started early enough will put you on FIRE.

Are you working toward FIRE? Already there? Tell us about it and share your monthly budget, and you could be featured in an upcoming story on CNNMoney.

CNNMoney (New York) First published June 6, 2017: 11:50 AM ET

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How to become financially independent in 5 years - Jun. 6, 2017 - CNNMoney