How to calculate the years to reach financial independence

The article may contain affiliate links from one or more partners. Learn how we make money to continue our financial wellness mission.
  1. Home
  2. Knowledge Base
  3. Personal Finance Fundamentals
  4. How to calculate the years to reach financial independence

How can you calculate the number of years it will take to reach financial independence?

Follow the steps below to determine the number of years to become financially independent:

Step 1: Your Financial Independence Number

It is the total amount of money required to give you a sufficient income to cover your living expenses for the rest of your life.

Financial Independence Number (FI Number) = Yearly Spending / Safe Withdrawal Rate

Learn more: How to calculate a financial independence number

Step 2: Years to Achieve Financial Independence

Use your FI Number to figure out how many years it will take to reach FI:

Years to FI = (FI Number  – Existing Portfolio Amount) / Yearly Saving

Existing Portfolio Amounts = the total amount of money already saved that includes retirement accounts, investable accounts (brokerage, stocks, etc), pensions, and other savings accounts.

Yearly Savings = the amount of money you save and invest per month multiplied by 12 months.

Step 3: Calculate the Years to Financial Independence

Now, let’s calculate the Years to FI

For example:

  • FI Number: $1,000,000
  • Existing Portfolio Amount: $250,000
  • Yearly Saving: $25,000

Years to FI = (FI Number  – Existing Portfolio Amount) / Yearly Saving

($1,000,000 – $250,000) / $25,000 = 30 Years to FI

If your FI number is $1,000,000 and you’ve already saved $250,000, then all you’ll need is $750,000.

Also, if you’re going to save $25,000 per year, then it will take you 30 years to reach your FI number.

Things to keep in mind

If your lifestyle cost is lower, then you’ll have a lower FI Number. And if you’re saving a lower amount per year, then it’ll take you more years to reach FI.

This is a simplification of the FI process but can help you understand the concept. If you’re keeping your money in a savings account, then you’re not growing your savings compared to having investments in the market. Investing your money for growth can shorten the number of years you’ll need to reach your FI Number.

Related Articles

Shop the Financial Marketplace Discover the Best Money Apps

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.