In my last post, I introduced the concept of achieving financial independence while working a regular 9-5 job. Today we're going to talk about calculating your "Freedom Number" - essentially, how much money you need saved to be able to quit your job and maintain your current lifestyle.
Why Your Freedom Number Matters
Knowing your Freedom Number is crucial because it determines when you can realistically break free from reliance on your 9to5 income. It's the finish line you are working towards. Having a clear target makes creating a savings plan much easier.
Your Freedom Number is calculated based on your annual expenses and the rate of return you expect from investments. We'll cover the formula shortly. Do note your Freedom Number is highly personal based on your spending habits and desired lifestyle.
For me, reaching my Freedom Number means having the freedom to spend more time with family, work on passion projects, and not be chained to a desk and commute. What does freedom look like for you? Keep that vision in mind as motivation.
How to Calculate Your Freedom Number
Figuring out your number involves just three key variables:
Annual Spending - This includes all your living expenses, debts, and discretionary spending averaged over the past few years. Be brutally honest here!
Safe Withdrawal Rate - The percentage you can safely withdraw from savings each year. A rate of 3-4% is commonly used.
Expected Investment Returns - The annual return you expect on investments like stocks, bonds, etc. 6-7% is a reasonable average.
Here is the simple formula:
Annual Spending / Safe Withdrawal Rate = Freedom Number
So for example, if your current average annual spending is $50,000, and you use a 4% safe withdrawal rate, your Freedom Number would be $50,000 / 4% = $1,250,000
This means once your total savings reach $1.25 million, you'll be able to retire!
Next Steps
Knowing your Freedom Number is a huge first step. Next, we'll talk about saving strategies and how to invest wisely so you can work towards hitting your number. The key is consistency and optimizing every area of your finances.
Now you have a specific savings target - let the quest for financial freedom begin! Share any thoughts in the comments.
Top comments (2)
I work a 9-5 and I absolutely love it, what is it with people hating it? I think this has more to do with people hating their job rather than the hours
Nothing is wrong with 9-5 and I also love doing my job. I think about expansion in terms of respect, money, and unlimited challenges.
It is more about control, growth, and matching compensation to skills. With 9-5, my raise evaluation is done by a business-centric thinker, whereas in business, pay matches skill level.
Creative expression through products and strategy - no policy will hinder my experimentation. Of course, legacy building is a dream.
Not to mention, my journey never says to leave 9-5 before feeling comfortable doing so. :)