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

Do you want to know what your FI number is? 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. 

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 you know your current net worth, you can see where you are on your road to financial independence. 

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 really have no idea what your life will look like when you’re financially free, or you have absolutely zero indication of your expenses, you can look at your current expenses. 

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 to retire or not, to calculate your FI number you need to know how much you plan to spend every year. 

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 freedom to spend on whatever you want? All important questions to indicate what your life after financial freedom 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 healthy 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 you calculate your FI number. 

When it is difficult for you to estimate your expenses, I would 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 makes 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 are reaching your financial independence number in just a couple of years, you don’t need to change much. Assuming your expenses will not change a lot. 

If you reaching your financial independence number is further away, it would be wise to regularly review your expenses. 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.

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. If you want to read more about the safe withdrawal rate, I recommend you do so here.

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 money.

Most people use a safe withdrawal rate between 3-4%. With a 4% withdrawal rate, 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 of. 

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

How Much Money Do You Need?

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

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 calculate 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 REALLY Need?

If you are really striving to be financially independent and retire early, it is important to keep this in mind: the less you are able to 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 are going to 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 incomeThe 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. 

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 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: everything that you earn in retirement you 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. 

All In All

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 in early retirement, a good alternative is to check what are your expenses currently. That combined with your safe withdrawal rate will give you your FI number. 

When you’re striving towards financial independence, learning your FI number is one of the first steps.

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.


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