Introduction

When you think about reaching financial independence, it can feel a little abstract — like a destination that’s hard to picture. But what if you could put an actual number to it?

Your FI number is that target. It represents how much you need invested to cover your living expenses for the rest of your life. Once you know that number, the journey becomes a lot clearer.

The FI Number Formula

At its core, financial independence means having enough invested to cover your living expenses through sustainable withdrawals. Your investments should be large enough that you can withdraw a small percentage each year to fund your lifestyle — without depleting your nest egg over time.

The most common guideline is known as the 4% rule, based on long-term research of historical investment returns. It suggests that you can withdraw about 4% of your portfolio per year and have a high probability of sustaining your money over decades.

• 4% withdrawal rate → multiply your annual expenses by 25

• 3% withdrawal rate (more conservative) → multiply your annual expenses by 33.33...

• At 4%, you’d need about $1.5 million
• At 3%, you’d need about $2 million

Why the 3–4% Rule Works

Your withdrawal rate is designed to be lower than your expected investment return rate. That means even while you withdraw money each year, your portfolio continues to grow over time.

For example, if your investments average a 7% annual return and you withdraw 4%, that extra 3% continues to compound, helping your wealth increase instead of decline.

This is what makes financial independence so powerful — your money isn’t just lasting, it’s still growing quietly in the background.

Example FI Numbers Table

Below is a quick reference showing how much you’d need at both 3% and 4% withdrawal rates for different annual expense levels:

Know Your Real Expenses

The first step in finding your FI number is understanding how much you actually spend. Start tracking your monthly expenses — everything from groceries to subscriptions. You can do this with a spreadsheet or any budgeting app you like.

After a few months, multiply your average monthly spending by 12 to estimate your yearly expenses. This will give you a clearer picture of what your lifestyle truly costs.

It’s also worth thinking about how your spending might change once you stop working. Retirement can look very different from your current lifestyle.

Adjust for Retirement Life

When you reach financial independence, your spending patterns will likely shift. Some expenses naturally go away, while others take their place. The key is to start thinking about what life will actually look like when you’re no longer working full time.

Expenses that may decrease:

• Commuting, gas, and parking
• Work clothes and daily lunches out
• Possibly housing costs if your mortgage is paid off

Expenses that may increase:

• Health insurance and medical costs
• Travel or new hobbies you finally have time for
• Helping family or giving back
• Occasional big repairs or unexpected costs

When estimating your future spending, it’s smart to build in a little flexibility — maybe 10–15% more than you expect. Life won’t always go according to plan, and having a cushion gives you freedom and peace of mind instead of stress.

The Power of a Paid-Off Home

If you plan to enter retirement with a fully paid-off home, that can make an enormous difference. Without a mortgage payment, your required FI number may drop significantly.

For example, if your mortgage is $2,000 per month ($24,000 per year), eliminating it would reduce your annual expenses by that much — which means you’d need about $600,000 less saved at a 4% withdrawal rate.

Owning your home outright doesn’t just lower expenses — it also provides emotional comfort and stability as you enter this next phase of life.

Planning for Semi-Retirement

Not everyone wants to stop working completely once they reach financial independence. Many people choose semi-retirement, using their savings to gain freedom while still earning some income from part-time work, freelancing, or a small business.

This hybrid approach allows you to start enjoying more flexibility sooner — and it can significantly reduce the total amount you need invested.

For example, if you plan to spend $60,000 per year but expect to earn $20,000 from part-time work, your investments only need to cover $40,000. That’s a difference between needing $1 million instead of $1.5 million at a 4% withdrawal rate.

The True Cost of Spending

As you work toward financial independence, every spending decision carries more weight — not just in dollars, but in time. Is a more expensive house or your dream car worth the extra years of freedom you’ll trade to afford them? Start viewing your spending in terms of the time it costs rather than the money it takes.

Time and health are the two things money can’t buy back. Every dollar you spend today represents hours of your life — hours that could have been spent doing what matters most while you’re healthy enough to enjoy it.

• Is this something I truly need or simply want?
• Is it worth the time I’ll have to trade to pay for it?

When you begin viewing money this way, your priorities start to shift. You’ll naturally gravitate toward choices that buy you back time — not take it away. You start to see that time is far more valuable than money — and that the longer you wait, the harder it becomes to reclaim both your freedom and your health.

Your FI Number Will Evolve

Your FI number isn’t a fixed target. It changes as your lifestyle, goals, and family needs change. You might spend more in your early retirement years when you’re traveling, then less later on. Or you might downsize your home, move to a lower-cost area, or start a side project that brings in income.

Revisit your expenses and goals every year or two and update your number accordingly. The more intentional you are, the more accurate — and motivating — your FI plan will be.

From Number to Freedom

Your FI number gives you direction. It helps you see the connection between your spending, saving, and freedom. It’s not about chasing a huge number — it’s about defining enough for the life you want.

Once you know your number, you can reverse-engineer your plan. How much do you need to save each month? How might lowering your expenses bring your goal closer?

Every dollar you save and invest moves you one step closer to financial independence — to the point where work becomes optional, and your time truly becomes your own.