how to calculate your financial independence figure?

Calculating your Financial Independence figure?

The most important thing to understand here is that your Financial Independence figure is determined by a financial number and not by your age.

Your Financial Independence number is the amount of money you would need to passively generate enough income to cover your living expenses without having to be employed.

This is generally based on your living expenses x 25

For example, if your living expenses are 4,000 per month - Your annual expenses are 48,000 then your Financial Independence Number would be 48,000 x 25, or a total of 1.2 million.

This example applies to investors who have a 30-year retirement window.

Another way to calculate your Financial Independence number is your Annual Expenses ÷ 4% (safe withdrawal rate) = Financial Independence number.

This is based on the principle that you could withdraw 4% of your investments within a mix of stocks and bonds for 40 years without depleting your investments.

Important to note that if your money is invested the remainder of your money will continue to grow as long as you don’t withdraw more than 4% per year .

Apart from the investments of stock and bonds, you can also earn in other ways, like getting rent from property or income from a business or another passive source.

You can of course adjust this number depending on how old you are and the kind of lifestyle you envision living.