“Fuck You” money or more professionally referred to as “Financial Independence” (FI) is that seemingly illusive number that will allow you to tell that toxic boss to shove it because you now have enough money in the bank to not have to listen to them anymore. This can be an incredible motivator and became the bedrock of the FIRE (Financial Independence, Retire Early) movement that followed a guideline typically reserved for retirees.
This general guideline suggests that by calculating 25X your annual expenses, you’ll arrive at your F.U. number that will essentially allow you to withdraw 4% of your investments for 30 years without running out of money. Given this guideline was originally reserved for retirees, it estimated an additional 30 years after retirement at 59½ and therefore creating quite a few gaps for those that were considering retiring much earlier than in their 60s and not accounting for inflation.
So what does this look like in practice? If your annual expenses are $40,000, your calculation would look something like the below:
$40,000 x 25 (or divided by 0.04%) = $1M
In the above scenario, once you’ve reached $1,000,000 in your investments, you can “comfortably” withdraw 4% each year to live that $40,000 lifestyle. This can be a very doable endeavor for someone starting out in their career, setting aside $400 monthly in investments with an average market return of 10% to have accumulated $1.3M by retirement age - hence why this 4% guideline is a good rule of thumb for retirees and we've been sold the idea that we need to devote at least 45 years of our lives to corporate America.
The FIRE movement took this principle and applied it to a different demographic. What if people lived more frugally, were able to save even more and live on less and reach their FU number in their 40s, 30s, and dare we say, even 20s? When I first began dipping my toes in the world of personal finance, like many others, this concept sounded fantastic. I could quit any job from one day to the next without worrying about my finances, be able to just dip into my investments and disappear off the face of the earth? SIGN ME UP AND TAKE MY MONEY.
For months, I obsessively calculated my number, feverishly trying to figure out where I could cut back in my lifestyle and spending so I could also cut down the amount of time it would take me to reach this number. I eventually narrowed it down to 10 years once I reached $100,000 in my brokerage account and essentially do nothing else except watch that number grow as there wouldn’t be much left in the budget to do things like, have fun and live life.
This calculation was also under the assumption that my investments would grow at a 10% rate, my spending would remain the same for 30+ years, and essentially, I would just be extremely lucky and nothing would befall me or my loved one where I would need to direct that money elsewhere. As we all know, life be life-ing and as much as we’d like to have a great plan and control things around us, as cliche as it sounds, “the only constant is change.” While you may start calculating this number on your own, who’s to say you won’t find a partner, get married and have kids after starting your quest or that a medical emergency may force you to redirect your savings/investments into your own health, that of your parents, children or other loved ones?
Uncertainty, especially these days of political, global, and economic turmoil, the only thing we know for certain is that we can’t tether ourselves too much to just one outcome and the more flexible we are, the more we’ll be able to navigate the complexities that are thrown our way.
While many may disagree and I am open to other thoughts and opinions, I’ve found that more than a number, my financial journey is more about the kind of life I want to live, the kind of people I want to surround myself with, and what is within my control versus a specific number in the bank that will determine my lifestyle rather than me determining the lifestyle I want to live now and building up from that.
This starts with becoming financially literate, understanding your numbers right now and what needs to be adjusted (spending or increasing your income, or both), developing a healthy relationship with money by identifying your money attachment and rewriting the stories you've unintentionally been telling yourself about how capable you are of managing your own finances, and having a strong financial foundation to build from. Change never happens overnight but rather from small steps and mindset shifts that compound over time.
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