Your FI number

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 Fl 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 $Fl$ number is your ACL multiplied by $25.$

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 Fl 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 FI$.$ 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.