Your financial independence number is how much money you think you need to be truly free. But if reaching this number doesn’t change anything in your life, then it’s not a real milestone. You might need more money than you think. It’s common to aim for a liquid net worth that’s 25 times your annual expenses, believing this will set you free. However, many find themselves continuing to work in a job they dislike out of fear—fear of financial instability or market downturns.
Financial independence is as much about mindset as it is about money. Since I left my job in 2012, I’ve noticed that real change requires action. Merely reaching a financial target isn’t enough.
When calculating your financial independence number, consider aiming for 50 times your annual expenses. This level of savings could significantly boost your confidence to make bold life changes. Personally, I prefer to set my financial goals based on a multiple of my gross income, which prevents me from underestimating my needs by cutting expenses too sharply.
Reaching 10 times your annual gross income might start making you feel free, but hitting 20 times can give you the ultimate freedom to do whatever you want.
However, understanding your financial independence number doesn’t come from calculations alone—it’s also about experiencing life at that financial level. If you haven’t reached your number yet, keep an open mind. You might feel differently once you do.
Your financial independence number should also push you to leave suboptimal situations, not keep you chained to them. If you find yourself staying in a job you hate or an abusive relationship, or if you’re unable to stand up for yourself, then your financial independence number might be illusory.
Moreover, if your work life doesn’t significantly change after reaching your independence number—if you find yourself still working long hours or returning to work after a brief retirement—you might be fooling yourself about your financial security.
True financial independence means your assets generate enough income to cover your living expenses without you having to compromise your lifestyle or peace of mind. If your investments can’t support your lifestyle, then it’s time to reassess your financial plans.
Ultimately, financial independence is not just about reaching a number. It’s about having the courage to change your life for the better. Investing in real estate, for example, can be a solid strategy to achieve long-term wealth. Real estate is tangible, generates income, and typically keeps pace with inflation.
It’s crucial to keep a close eye on your finances to understand where you stand. Tracking your finances meticulously can help accelerate your journey to financial independence, giving you the clarity and confidence to make the necessary changes in your life.
Remember, financial independence is a tool to transform your life, not just a number to reach. It’s about making meaningful changes that enhance your freedom and happiness.
