Last week we discussed why your financial independence figure matters. Now, let’s dive into the practical formula and steps to calculate your personal number.
The Simple Financial Independence Formula
When your investment income (from real estate, stocks, bonds, or other assets) exceeds your personal financial needs, you achieve financial independence. You break the cycle of trading hours for dollars just to survive.
What This Looks Like in Practice
Real Estate Example
Your rental property income covers all your personal living expenses.
Stock & Bond Example
Using the 4% rule: If you have $1,000,000 invested, you can safely withdraw $40,000 annually (4%) for a long period without depleting your principal.
Step-by-Step: Calculate Your FI Number
Step 1: Determine Your Annual Expenses
Start by calculating your current annual spending (refer to our budgeting articles for help). Many people find their expenses actually decrease in retirement, especially if you:
- Pay off your mortgage
- Reduce work-related costs (commuting, professional wardrobe)
- Have more time to manage expenses strategically
Step 2: Apply the 4% Rule
Multiply your annual expenses by 25 to find your target FI number.
Example: $40,000 annual expenses × 25 = $1,000,000 FI number
Step 3: Remember It’s an Estimate
Your FI number doesn’t need to be perfect to be useful. Like any goal, you benefit from moving toward it even if it’s a reasonable estimate that you’ll refine over time.
The Life-Changing Benefits of Financial Independence
Reaching your FI number doesn’t mean you have to stop working—it means the pressure is off. Your assets support you instead of your job.
What changes when you reach FI:
- Renewed creativity and energy emerge
- New opportunities and business ideas become feasible
- Your current job transforms when you’re there by choice, not necessity
- The entire universe of life possibilities opens up
💡 The Best Part
These benefits don’t just appear when you cross the finish line. The journey toward financial independence is exhilarating in itself, whether you’re at the peak or still climbing.
Your Clear Path Forward
Whatever your ideal life means, calculating your financial independence number gives you a clear, focused goal that will help you win with money and design the life you truly want.
“A wealthy person is simply someone who has learned how to make money when they’re not working.” – Robert Kiyosaki
Ready to calculate your exact FI number? Download our free Planner and start mapping your path to freedom today!
Need personalized guidance? Schedule a free financial independence consultation to create your customized plan.
