How to Calculate Your Financial Independence Number

Think you need $2 to $5 million to retire early?
That’s a myth, and it’s keeping too many people stuck in jobs they don’t love.

The real path to financial freedom isn’t about chasing a big net worth. It’s about figuring out your financial independence number—the amount of passive income you need each month to cover your living expenses.

In this article, I’ll show you exactly how to calculate your FI number, explain what the FIRE movement gets right (and wrong), and help you build a plan that works whether you’re a high-earning doctor or just getting started.

👉 Want the quick version? Watch my full breakdown on YouTube:

---

---

What Is a Financial Independence Number?

Your financial independence number (or FI number) is the amount of money you need invested or cash-flowing to cover your monthly expenses for the rest of your life without needing a job.

It’s the most important number in personal finance, yet most financial advisors never talk about it. Why? Because they’re focused on selling you financial products, not helping you build passive income streams.

Your FI Number = Monthly Expenses × 12 × 25

Here’s the basic formula using the well-known 25x rule, based on the Trinity Study:

Annual Expenses × 25 = Your FI Number

So if your monthly spending is $8,000, your annual expenses are $96,000. Multiply that by 25, and you’d need $2.4 million saved to retire under the 4% safe withdrawal rate.

But here’s the twist…

Why Net Worth Doesn’t Equal Financial Freedom

Owning a big house, having money in a 401(k), or investing in the stock market doesn’t mean you’re free. Those things might build your net worth, but they don’t create enough income to stop working.

For example, if you’re a dentist making $400,000 a year but spending $390,000, you’re not financially independent—you’re trapped by your lifestyle.

On the other hand, a teacher with $3,500/month in rental property cash flow and $3,000 in monthly expenses can walk away from their day job right now.

The truth: Cash flow pays your bills. Net worth doesn’t.

That’s why chasing your financial independence number is a better path to early retirement than endlessly growing your savings or portfolio balance.

Step 1: Know Your Current and Future Expenses

Before you can calculate your FI number, you need to get clear on your monthly expenses—both now and in the future.

Start With Your Current Expenses

Track what you spend now. Include:

• Housing

• Utilities

• Food

• Insurance

• Debt payments

• Entertainment

• Travel

• Any other recurring costs

Don’t forget to factor in irregular expenses like car repairs, home maintenance, and holidays.

Project Your Future Spending

Will your lifestyle stay the same in early retirement? Or will you travel more, downsize your home, or pick up part-time work?

Estimate your retirement lifestyle costs, including things like:

• Health insurance or out-of-pocket medical

• Student loans (if applicable)

• Future expenses like kids’ college or relocation

Knowing these numbers helps you avoid surprises and calculate a more realistic FI number.

Join the Passive Investors Circle

Step 2: Choose the Right Withdrawal Strategy

The classic FIRE approach uses the 4% rule, which says you can safely withdraw 4% of your portfolio each year and not run out of money.

But this rule isn’t one-size-fits-all.

Should You Use a More Conservative Withdrawal Rate?

With longer retirements, rising inflation rates, and the possibility of a bear market, many early retirees are using a 3.5% or even 3% withdrawal rate to be safe.

Here’s how your FI number changes with different withdrawal rates:

• 4% rule = 25x annual expenses

• 3.5% = 28.6x

• 3% = 33.3x

So if your annual spending is $100,000:

• You’d need $2.5 million at 4%

• Or $3.33 million at 3%

That’s why using cash-flowing assets—instead of just relying on market withdrawals—can be a smarter and more flexible strategy.

My favorite cash-flowing asset is real estate. Check out this video for more:

Step 3: Use Real Estate to Accelerate Your FIRE Journey

One of the best ways to hit your financial independence goals faster is by building passive income through real estate.

Why Real Estate Beats the Stock Market for Early Retirement

• Cash flow: You get paid monthly, not just when you sell

• Tax advantages: Use depreciation and cost segregation to reduce or eliminate taxes

• Appreciation: Over time, properties can increase in value

• Leverage: You can control a large asset with less of your own money

• Inflation hedge: As inflation rises, so do rents

You can build enough income to retire without ever worrying about a safe withdrawal rate.

What If You Don’t Want to Be a Landlord?

You don’t have to be.
That’s where real estate syndications come in.

You invest passively in larger properties—like RV parks or mobile home parks—and receive monthly or quarterly cash flow, without any of the headaches of managing tenants.

For high-income professionals with limited time, this is one of the best ways to hit your FI number faster.

Related: What Is Real Estate Syndication? A Beginner’s Guide

Step 4: Consider Your Investment Portfolio Strategy

Your investment strategy should reflect your time horizon, risk tolerance, and lifestyle goals.

Use a Diversified Portfolio

Don’t put all your eggs in one basket. A healthy mix of:

• Index funds

• Real estate

• Dividend stocks

• Private placements

• Roth IRA or brokerage accounts

…can help you build wealth for the long term while still generating income today.

Don’t Forget the Role of Compound Interest

The earlier you start investing, the more time compound interest has to work for you. Even small amounts add up over time when you’re consistent.

But compound growth alone won’t get you to early retirement—you need income you can actually use.

Step 5: Boost Your Savings Rate and Income

Your savings rate—how much of your income you keep—is the biggest factor in how fast you reach financial independence.

If you’re saving 10% of your income, it could take decades. But if you save 40–50% (especially with additional income from side hustles or cash-flowing investments), you can reach FI in a fraction of the time.

Cut Costs That Don’t Add Value

High-interest debt, luxury cars, and consumer culture are FIRE killers.
Spend on what matters, cut what doesn’t, and use the extra to buy freedom.

Increase Your Income

Don’t just save—earn more.
Whether it’s through a side hustle, building a digital product, or investing in real estate, the more income you create, the faster you’ll get there.

Step 6: Know Your Own Number

Different people have different goals.

Your FI number isn’t a fixed number—it’s personal. Some people want bare-bones freedom. Others want luxury and travel.

Don’t copy someone else’s journey.
Run your own numbers using a financial independence calculator or spreadsheet based on your unique lifestyle.

You might be closer than you think.

Step 7: Track, Adjust, and Stay Flexible

Reaching financial independence isn’t a one-and-done decision.
It’s a series of financial decisions over time.

You’ll hit milestones, make mistakes, and have to adjust your plan as life changes.

Use Financial Tools to Monitor Progress

Track your:

• Net worth

• Cash flow

• Savings rate

• Investment returns

Use tools like Mint, YNAB, or spreadsheets to stay organized.

Reassess Yearly

Check your assumptions every 6–12 months.
Are your current expenses accurate?
Has your FI number changed?
Are you on track to retire early, or do you need to make a shift?

Join the Passive Investors Circle

Final Thoughts

Your financial independence number is the most important number in your entire personal finance journey.

It tells you how close you are to freedom, not someday, but soon.
It tells you whether you can cut back to part-time work, leave your traditional job, or design a life that works on your terms.

And the beautiful thing?
It’s probably lower than you think.

Most people are just a handful of income-producing assets away from covering their expenses—and once that happens, you’re free.

Join the Passive Investors Circle