Your FI number

$10$min

There's a concept in personal finance known as your FI number, where $Fl$ stands for financial independence. Your Fl number is the amount of money you need to accumulate $($e$.$g$.,$ in savings, retirement, and investment accounts$)$ in order to quit your job and live off the earnings $($e$.$g$.,$ dividends, growth$)$ of that stash of money. A safe withdrawal rate from your stash is $4\%$ because the rate of growth of your investments $($historically $>8\%$ in the stock market$)$ outpaces your withdrawal rate $(4\%)$ plus inflation Hence, this withdrawal rate ensures that you won't run out of money before you die and your stash can grow and handle the periodic downturns in the market.

It's fun to calculate your FI number. You may be surprised to see just how soon you can retire provided you are a disciplined saver.

Determine your annual cost of living, ACL, which is the annual amount your lifestyle ACL$=$ requires $($clothing$,$ food, shelter, entertainment$).$

Your FI number is your ACL multiplied by $25.$

$FI=$

For example, if you require $$20,000$ per year to maintain your lifestyle, then your $FI$ number is $$500,000$ because $4\%$ of $$500,000$ is $$20,000.$ On the other hand, to maintain a more expensive lifestyle of $$80,000$ per year requires an $FI$ number of $$2$ million.

Your FI number might feel big, yet due to the magic of compound interest, it is very achievable and can even be done quickly if you are a good saver. In fact, your savings rate, the percentage of your take$-$home pay that you save, is what determines how long you need to work before reaching Fl$.$ By the end of the book, once you learn about definite integrals, you'll be able to explain where the numbers in the table to the right come from.

$\backslash$table$[[\backslash$table$[[$Savings$],[$rate$],[($percent$)]],\backslash$table$[[$Working$],[$years until$],[$FI$]]],[5,64],[15,42],[25,31],[35,24],[45,19],[55,14],[65,10],[75,7],[85,4],[95,<mn\; id="EditorElement\_537512">2</mn>$