Investing Series Part 1 - Financial Independence Demystified: The Magic of Simple Math

The simple math of FI

Investing Series Part 1 - Financial Independence Demystified: The Magic of Simple Math
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The simple math of FI

Getting on the path to FI can feel complicated. Is index funds the best thing to invest in? What about gold, real estate, crypto, or cash?

I'm writing this article assuming a few things. That you are bought and sold on index fund investing and that you eventually want to attain financial independence.

Honestly, it's pretty simple math. You take your base annual expenses and multiply them by 25. For example, if your base living expenses are $40k, you would need $1m to hit Lean FI. Then, add discretionary spending, like travel, etc., to hit your FI number. Boom, the article is done! The math is that simple. Below are the two big ways to start your path to FI.

Base Annual Expenses

The best way to get your base annual expenses is to track your expenses. You can get immediate obligations quickly enough. Food, Utilities, Mortgage/Rent, Transportation, and Clothes, but calculating what you need for home maintenance, car maintenance, insurance, etc., can be tricky. It is best to use something to track your expenses. And if you live in the US, I add medical insurance there, too, as if I was paying for it. Once I figure out these necessities, I calculate, multiply it by 25, and there is your Lean FI number.

Decrease Your Expenses

There are two reactions you might get. One is, "Wow, that's not as much as I thought!" The other is, "Wow, that's more than I thought!" The good news is that knowledge is power. These base annual expenses can be adjusted, and you have control over them more than you think. You could downsize your house, buy a cheaper car, move to an area where you don't have a long commute, go down to a one-car family and get a bike for those short trips, shop around your insurance, and much more! The more this number decreases, the more your FI number decreases. Now it is up to you what is a "necessity," but that's the good thing you are in control of how you craft your prosperous life.

Savings Rate

Next, you need to increase the savings rate you put into your investing plan. The higher your savings rate, the more quickly you will achieve FI. Morgan Housel writes in his book "The Psychology of Money" that one of the highest predictors of being financially successful is your savings rate combined with optimism and patience. To have a savings rate, your income has to be greater than your expenses. We already talked about the decreasing expenses part. But you can also increase your income. Either by natural raises, negotiating a better salary, side hustles, and more. Then, you put that into your investments.


The math is pretty simple to hit your FI number. Take your annual expenses and multiply them by 25, and voila! You have it. Just because it is simple doesn't make it easy, and you'll need to put your savings toward your investments. But now you know!

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This article is informational; it should not be considered Health, Financial, or Legal Advice. Not all information will be accurate. Consult health, financial, or legal professionals before making any significant decisions.

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Updated 11/2/23