What Is Your FI Number – How Much Money Do You Need

Do you want to know your FI number? Exactly how much money do you need to retire & be free? That’s what you will learn in this post today!

Your Financial Independence number, or your FI number, is a very important metric when you want to become financially independent and retire early. Knowing this number is a key component in having financial freedom that will help set up the nest egg for your life.

Your FI number is the exact amount of net worth you need to be financially independent. 

Why is that number important? If you know your target net worth (your FI number) and know your current net worth, you can see where you are on your road to financial independence. It’s just one step, but it’s a giant leap for your financial freedom. 

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Let’s go into how to calculate your financial independence number, so you know exactly how much money you need to be free!

What Is Your FI Number?

When you’re starting your journey towards financial independence, one of the first things you do is calculate your FI number. This is your end goal. 

If you reach that FI number, you’re financially free. 

But, how exactly do you calculate your FI number? 

Simply put, your FI number is entirely based on the expenses you have when you’re financially independent. It’s a tiny bit more complicated than that, but this is the essence. 

What Is Your FI Number [How Much Money Do You Need To Become FI]

The Basis For Your FI Number Calculation

When you’re calculating your FI number, there are essentially two ways to do that.

  1. Looking at your expenses when financially independent – future expenses. 
  2. Looking at your current expenses. 

Ideally, we’ll be looking at your expenses when you’re financially free. You may want to travel more, go out to eat more, or simply know that you will spend more. This way, the FI number you end up with is most accurate. 

If you have no idea what your life will look like when you’re financially free or have zero indication of your expenses, you can look at your current expenses and save for retirement.

We’ll discuss both options in more detail. 

Your Expenses When Financially Independent

The most used strategy when calculating your FI number is based on your expenses when financially independent. Whether you plan on retiring or not, you need to know how much you plan to spend every year to calculate your FI number.

Do you plan to take long trips? Do you plan to go out to eat more? Are you planning to visit friends? Do you want to have the freedom to spend whatever you want? All important questions to indicate what your life after financial freedom or during retirement will look like.

Important costs to factor in are:

  • Health care costs – how does that work for the country you currently live in? How will your health progress when you get older?
  • Taxes – most likely, the taxes you need to pay will drop, especially income tax. Does your country have capital gains tax? How will your taxes change when you retire?
  • Work – there will be no more costs to work. You may spend less on transportation and less on business clothing for example. 
  • Housing – what is your desired living situation when you retire? How much will that cost you? 
  • Food – do you plan to go out to eat more? Will your lunch costs drop? How do you think your food budget will change?
  • Hobbies – what new hobbies do you plan to take on once you retire? Here are a couple of frugal hobbies that you may want to try!
  • What other things do you want to do with your time? Do you want to travel? Factor in those costs as well!

It’s okay if you don’t have a detailed cost perspective at this moment. No one can predict the future, so don’t worry. 

The important thing is that you’re thinking about it and that your expenses are as accurate as possible when calculating your FI number. It depends on your lifestyle and your cost of living on how you would be able to manage your expenses and start saving for retirement. Retiring early could be one of your financial goals, and reach the financial freedom you dream of for your future.

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When it is difficult for you to estimate your expenses, I suggest adding a buffer on top of it. There will be years where you will naturally spend more and some years when you will spend less. Adding a buffer can reduce stress and make sure that you are safe down the road.

Your Current Expenses

The other way to calculate your FI number is to take into account your current expenses. This is an easier approach that will be faster. Unfortunately, this approach is a bit less accurate. 

If you reach your financial independence number in just a couple of years, you don’t need to change much. Assuming your monthly expenses will not change a lot. 

If you reach your financial independence number further away, it would be wise to review your expenses regularly. That way, it will be automatically adjusted for things like inflation and lifestyle updates that you intend to leave in place once financially independent. 

Side note: be sure to have some extra buffer built-in when you’re calculating your FI number based on your current expenses. That will give you a LOT more peace and calm.

[Related Read: The Rule Of 25 To Know How Much You Need For (Early) Retirement]

What Is Your Safe Withdrawal Rate?

Your safe withdrawal rate, together with your expenses, is the input for your financial independence number. 

The safe withdrawal rate is the percentage of your net worth that you can safely withdraw from your portfolio, so you will never run out of money. Read more about the safe withdrawal rate.

Personally, I use the 4% safe withdrawal rate. This means that every year I get 4% of my portfolio to live on. There is a 98% chance that you won’t run out of money on the 4% withdrawal rate. 

If there will be years where the market is not as favorable, I will simply spend less, or I will take up some extra side hustles to make some fast cash. I wouldn’t mind that. 

The safe withdrawal rate does NOT factor in ANY income. It only factors in investment returns (7% inflation-adjusted per year). That means when you earn a little extra money a year, this is all additional spending on your finances.

Most people use a safe withdrawal rate between 3-4%. With 4% withdrawals, you take out 4% of the value of your portfolio every year to live off of. With a 3% withdrawal rate, you take out 3% of the value of your portfolio every year to live off your expenses. 

The lower your safe withdrawal rate, the more you need to save if you want to retire early. You will take less out of your portfolio, so you need to save more money upfront. 

Finding Your FI Number

The result of what we have done until now is that you have a somewhat accurate estimation of your living expenses when financially free. This is the base for your FI number. Besides that, you have decided what your safe withdrawal rate is. 

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The basic formula: FI number = your yearly expenses / safe withdrawal rate.

In my case, I would spend $12,000 per year and use the 4% safe withdrawal rate. 

$12,000 / 0,04 = $300,000

Another option is to multiply the amount of money by 25, which has the same effect. 

$12,000 * 25 = $300,000

That means my financial independence number is $300,000. When my net worth reaches that level, I am financially free, and I can quit my job!

When you want to withdraw the safe rate of 3.5% per year, to be extra sure you will also be covered when the economy is in a low market, you will need to have total investments of $12,000/0.035 = $342,857. If you want to multiply it, you should multiply by 28.5. $12,000 * 28.5 = $342,000.

Having a FI number makes it measurable. When I calculated my FI number for the very first time, I was surprised it was so low. 

Since that day, I track my progress every month, and I LOVE IT!

What Is Your FI Number -How Much Money Do You Need To Become FI
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How Much Money Do You Need For Your FI Number?

If you are striving to be financially independent and retire early, it is important to keep this in mind: the less you can spend on living, the faster you’ll be financially free.

I know $12,000 is very low for most people – know that this only accounts for me and not for my partner. For this purpose, let’s look at what you need if you spend more than $12,000. 

Let’s say you want to spend double, or $24,000 per year. $24,000 / 0.04 = $600,000. $24,000 * 25 = $600,000. That means you need $600,000 to retire. 

Logically, when you spend double the amount of money in a year, you need to save double that amount of money upfront. 

As you can see, these amounts are significantly higher than the amounts above because we look at higher spending here.

The fastest way to cut your time towards financial independence or early retirement is to cut your spending or live on half your paycheck. The story of the Mexican fisherman illustrates perfectly how you can live on less and be happy.

The less you need in early retirement, the less you need to save now. 

[Related Read: How Much Money Is Enough?]

Your FI Number Is No Holy Grail

This is your quick reminder that your FI number is no holy grail. Your FI number may change over time, your retirement goals in life may change, or the situation you’re in changes. 

Regularly check in with your FI number to see if you still resonate with it. What is your projected spending? Do you still feel comfortable with your safe withdrawal rate?

If your FI number still sounds like A LOT of money. How the hell will you get there? Here are a couple of tips:

Besides that, you should keep in mind that everything you earn in your retirement savings can subtract from your FI number. This can be income from peer-to-peer lending, rental income, or another side hustle that you plan to continue. 

Frequently Asked Questions – What Is Your FI Number?

Now that we discussed everything about your FI number, you need to know a couple more things to make it clearer. Here are some of the frequently asked questions about your FI number.

What Will Be Your FI Number?

We’ve talked a lot about your FI number. It is one of the most important metrics when you’re working towards financial independence. 

When computing your FI number, you should think about:

  1. What do I expect my expenses in retirement to be?
    • Optional: What are my current expenses?
  2. What is my safe withdrawal rate?

If it’s difficult for you to estimate your expenses during your retirement, a good alternative is to track your current expenses. That, combined with your safe withdrawal rate, will give you your FI number. Having all these numbers will help you have a safe projection on the numbers during your retirement years.

When you’re striving towards financial success, learning, understanding, and knowing your FI number should be your priority to reach the summit of financial success.

What If You Did Not Reach Your Desired FI Number?

As discussed, your FI number is likely to change over time. There are unavoidable circumstances and variable factors that happen before and during your retirement. So, be flexible, create a budget or plan for these situations.

Being able to adjust when the situation calls for it is as important as the goal itself. Always remember that your end goal is financial independence, but know that it’s okay to take a little longer if you want more safety built-in. 

For instance, part of your retirement plans is investments where the returns on these investments will contribute to your nest egg. But there may come a time that these investments do not pan out and that, rather than adding to your retirement money, they may lose value over time. 

So if that is the case, there are a couple of ways to help you out on this. You could help ease the need to withdraw your investments while they are down by adding a side hustle or extra income stream. 

You could also decrease your spending. Retirement means relaxing and free of stress, but you need to cut some of the not-so-important expenses if this is the case. Knowing your end goals mean making tough decisions along the way.

If you want to make sure that you’re going to make it with your money, you could work a little longer initially and make your retirement nest egg bigger than strictly necessary. In this way, you can save more and be able to build your wealth.

Evaluate what situation fits your needs best, and make sure to take that route.

How Can Your FI Number Help You To Retire Early?

FI number is simply the money that you need so you can retire early. To calculate your FI number, take your yearly expenses divided by your safe withdrawal rate. And that’s it. You get to spend your retirement the way you want it to be.

Having financial independence is a good feeling, and you will be able to enjoy your retirement benefits. You can do anything that will make you happy. Let’s do away with the old thinking that retirement is not about being old. Retirement is about enjoying all the fruits of your labor without having to overthink anything. 

All In All – What Is Your FI Number?

Most of us are dreaming of having financial independence or being able to retire early. This goal is side by side with being able to enjoy what we have worked hard for. Knowing your FI number can help you achieve this. You will be able to understand how much money you need for retirement. 

Retirement planning may have a lot of steps needed, but the rewards outweigh all the initial challenges. Your FI number represents your ticket to how your life down the road plays out. So punch that ticket and enjoy your ride! 

What is your FI number? How do you calculate it?

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What Is Your FI Number How Much Money Do You Need To Become FI

2 thoughts on “What Is Your FI Number – How Much Money Do You Need”

  1. Good post and I particularly liked the side hustle part. Thanks for the basics of FI.

    I initially tried leanFI on ~700,000USD. For one person it’s fine. I managed to travel internationally for 240-300 out of 365 days and still buy the newest gimmicks. Then my priorities have changed and include a family now. So back to work, trying to get to USD 2M now and keep investing around 80k a years from savings and grow the pie for the family.

    Reply

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