What is Financial Independence (FI) in the simplest terms?

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bigtex
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What is Financial Independence (FI) in the simplest terms?

Post by bigtex »

I see FI being talked about a lot on here. Such as I plan on being financially independent at 45, 55, and so on. Is Financial Independence simply the point when investment income (using 3% withdrawal rate) and /or passive income exceeds your annual expenses? I am on track to have a paid for house and no other debt at 40. That would reduce my expenses down to $24k a year. I realize my health costs would increase no longer being employed. So to generate my $24k expenses am I safe to say I am financially independent if I have an $800k portfolio. I plan to leave corporate america sometime in my late 40's and supplement with part time jobs and such.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by greg24 »

Being able to live your life with zero income.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by Gufomel »

True FI to me would mean 3% SWR from my stock/bond portfolio with no additional supplemental income (earned or passive, including Social Security).

In reality, FI to me means not being reliant on my primary profession for my financial future. Essentially, 3-4% SWR from my stock/bond portfolio and other passive investments (e.g. real-estate), while working a part-time job like substitute teaching, etc.

I’m nowhere near either of the above at 30 years old, but that’s how I look at it. Threads like the one about being laid off in your 50’s means my goal needs to be to at least achieve the 2nd version of FI above by age 55. I think if by age 50 or 55 you can achieve not being reliant on your primary career while still living a comfortable life, that’s FI. Others will probably say that only Scenario 1 above is FI.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by bertilak »

Not having to work for a living.
Enough income now and projected. Enough is hard to define, especially when "projected" is taken into account.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by indexonlyplease »

My idea was and still is:

When you no longer need to work and can maintain the same lifestyle as you did when working. Also, it will not matter what the market does. You may want to work full or part time but you don't have to. So, working will be for fun. Not about the money.

I cant' understand the idea of FI when you income went from 100k to 25k. Beacuse you retired to early. Then health care eat you up. Don't be fooled by the people on line that state they are FI with a low income. Most are making money from the blogs they have. They are the few successful lucky ones.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by ralph124cf »

greg24 wrote: Tue Apr 02, 2019 1:17 pm Being able to live your life with zero income.
I would modify that to "live the kind of life you want with zero earned income".

Some people are happy to spend retirement hiking and camping in the desert. Others feel that they absolutely need that 30 day luxury cruise to Tahiti. When you have enough to live a satisfactory life without further work, then you are financially independent, even if you choose to work further for a higher standard of living in retirement.

I do note that there are many people that no amount of spendable income would satisfy.

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Re: What is Financial Independence (FI) in the simplest terms?

Post by Mr.BB »

FI = Doing what you want, when you want.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by radiowave »

Mr.BB wrote: Tue Apr 02, 2019 6:53 pm FI = Doing what you want, when you want.
That sounds like being retired? Is there a difference between being FI and being retired?
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Re: What is Financial Independence (FI) in the simplest terms?

Post by bengal22 »

FI: Not having to live with your parents or granny.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by bertilak »

radiowave wrote: Tue Apr 02, 2019 6:57 pm
Mr.BB wrote: Tue Apr 02, 2019 6:53 pm FI = Doing what you want, when you want.
That sounds like being retired? Is there a difference between being FI and being retired?
Good point! Ideally you would be FI to retire, but it is possible to retire and depend on family.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by sailaway »

bengal22 wrote: Tue Apr 02, 2019 6:58 pm FI: Not having to live with your parents or granny.
Yes, that is how I understood financially independent as well, until blogs became a thing. What everyone refers to here as FI used to be independently wealthy. Here on bogleheads, many posters claim you can't call yourself wealthy unless you are at least a decamillionaire, though.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by bhsince87 »

There is no universal definition. Heck, people can't even agree on what "retired" means! That's what makes it so confusing.

IMO, it's a very personal thing. If I were single, it would mean one thing. Since I'm married, it means something else. If we had kids, it would have a different meaning entirely.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by TheTimeLord »

radiowave wrote: Tue Apr 02, 2019 6:57 pm
Mr.BB wrote: Tue Apr 02, 2019 6:53 pm FI = Doing what you want, when you want.
That sounds like being retired? Is there a difference between being FI and being retired?
According to this definition I can never be either FI or Retired.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by lostdog »

When having a job is no longer mandatory.

Semi-retire is another good one.

Most people seem to relate better to these terms.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by GerryL »

Not having to rely on anyone else (employers, customers, parents, kids) to provide the financial means to live the kind of life you want.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by pdavi21 »

It used to mean when you no longer need to work. Recently, the meaning changed to young people who think they no longer need to work.

EDIT: Your expenses are somewhat low. There is a decent risk they could increase in an unpredictable way. Also, 800k today might not be as good as 800k in 2009-2011. Otherwise, I guess you are Financially Independent.
Last edited by pdavi21 on Tue Apr 02, 2019 8:36 pm, edited 1 time in total.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by InvestInLife »

Around here it means 25x your annual expenses in a balanced equity portfolio.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by mariezzz »

InvestInLife wrote: Tue Apr 02, 2019 8:33 pm Around here it means 25x your annual expenses in a balanced equity portfolio.
+1 ... it also means the freedom to not have to continue working at a job that is not fulfilling. It doesn't necessarily mean 'retired'; it just means having the financial freedom to choose whether or not to work at a given employer.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by TheTimeLord »

For me it means you do not need to work to live a comfortable, sustainable lifestyle you are happy with. It doesn't mean you can do anything you want, very few of us can actually do that. It doesn't necessarily mean you have a 1 to 1 replacement of your previous income, but you likely need to be able to count on at least healthy percentage of your working salary 70%-80% minimum unless you have transformed your life. Work is optional and compensation does not need to be a consideration.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by TheTimeLord »

InvestInLife wrote: Tue Apr 02, 2019 8:33 pm Around here it means 25x your annual expenses in a balanced equity portfolio.
Funny how that number goes up as you get older. At one point I thought 20x was going to be enough now I keep 20x in Safe Fixed Income Assets.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by InMyDreams »

Strange, no one has mentioned Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence, a book by Joe Dominguez and Vicki Robin about simple living.

nor MrMoneyMustache.com

The book teaches a financial way of life where a person saves money while decreasing spending, When the income from the savings exceeds expenditures, the person is Financially Independent. It also emphasizes the value of personal time and how that is spent, and the exercises given include calculating the true wages you receive from your work (i.e., calculate the costs of working and subtract that from what you earn). Then when you buy something, you stop to think about what it cost from your personal time, not just the dollars in the bank.

MMM has similar ideas.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by MikeG62 »

ralph124cf wrote: Tue Apr 02, 2019 1:34 pm
greg24 wrote: Tue Apr 02, 2019 1:17 pm Being able to live your life with zero income.
I would modify that to "live the kind of life you want with zero earned income".

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Re: What is Financial Independence (FI) in the simplest terms?

Post by GerryL »

MikeG62 wrote: Wed Apr 03, 2019 6:50 am
ralph124cf wrote: Tue Apr 02, 2019 1:34 pm
greg24 wrote: Tue Apr 02, 2019 1:17 pm Being able to live your life with zero income.
I would modify that to "live the kind of life you want with zero earned income".

Ralph
^This
Without earned income? Or without having to rely on earned income?
For some people, FI can mean choosing to work at a job they like. They can be earning an income, but they don't have to stay at it if they don't want to.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by willthrill81 »

GerryL wrote: Wed Apr 03, 2019 2:12 pm
MikeG62 wrote: Wed Apr 03, 2019 6:50 am
ralph124cf wrote: Tue Apr 02, 2019 1:34 pm
greg24 wrote: Tue Apr 02, 2019 1:17 pm Being able to live your life with zero income.
I would modify that to "live the kind of life you want with zero earned income".

Ralph
^This
Without earned income? Or without having to rely on earned income?
For some people, FI can mean choosing to work at a job they like. They can be earning an income, but they don't have to stay at it if they don't want to.
Being FI does not mean that you don't work, only that you don't have to if you don't want to. I have a colleague who is working strictly for the enjoyment of it. He could retire tomorrow if he wanted.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by MikeG62 »

willthrill81 wrote: Wed Apr 03, 2019 2:15 pm
GerryL wrote: Wed Apr 03, 2019 2:12 pm
MikeG62 wrote: Wed Apr 03, 2019 6:50 am
ralph124cf wrote: Tue Apr 02, 2019 1:34 pm
greg24 wrote: Tue Apr 02, 2019 1:17 pm Being able to live your life with zero income.
I would modify that to "live the kind of life you want with zero earned income".

Ralph
^This
Without earned income? Or without having to rely on earned income?
For some people, FI can mean choosing to work at a job they like. They can be earning an income, but they don't have to stay at it if they don't want to.
Being FI does not mean that you don't work, only that you don't have to if you don't want to. I have a colleague who is working strictly for the enjoyment of it. He could retire tomorrow if he wanted.
I agree with willthrill81. If I had to rephrase, I would say "the ability to live the kind of life you want without needing earned income".
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Re: What is Financial Independence (FI) in the simplest terms?

Post by ohai »

I think we need to benchmark "financial independence" against some minimum accepted basket of spending, like median population spending or something. We should also make an allowance for potential future emergencies. You could spend $20k a year now and claim independence, but you will still be wiped out if you receive a $500k medical bill.

If we just define "financial independence" as living how you choose to, then you'll get a lot of odd cases - some mentally ill homeless people would call themselves "financially independent". Wild animals could be "financially independent" and so on.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by mptfan »

bertilak wrote: Tue Apr 02, 2019 7:35 pm
radiowave wrote: Tue Apr 02, 2019 6:57 pm
Mr.BB wrote: Tue Apr 02, 2019 6:53 pm FI = Doing what you want, when you want.
That sounds like being retired? Is there a difference between being FI and being retired?
Good point! Ideally you would be FI to retire, but it is possible to retire and depend on family.
It's also possible to be FI and not retire.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by pward »

The definition that I use is the point when the amount of my annual expenses including inflation is equal to or less than the amount that I can safely remove from my portfolio while maintaining it's long term value perpetually. Once I reach this point I don't plan on retiring, but any money I make in my career beyond that is basically fun money. That's when it's time to safely use my work income to buy vacation property, travel the world, buy a sport car, etc, lol.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by willthrill81 »

ohai wrote: Wed Apr 03, 2019 3:27 pm I think we need to benchmark "financial independence" against some minimum accepted basket of spending, like median population spending or something. We should also make an allowance for potential future emergencies.
The problem there is that households' spending varies tremendously. Josh at www.rootofgood.com has three children and has spent something like $29-$38k annually for the last five years in early retirement, including many trips overseas and cruises. This requires a lot of frugality, but they have the big advantages of living in a local cost of living area and beginning retirement with a home owned free and clear. There are some posters here who claim that you would need well over $100k of income to live that type of lifestyle in their high cost of living area.

Further, the problem with using averages (or benchmarks) in this situation is that you are not an average. Some folks get jittery if they don't have $100k in their checking account, while others don't see the need for a traditional emergency fund at all. Knowing what someone else's expenses are shouldn't really have much, if anything, to do with you determining your own needs.
ohai wrote: Wed Apr 03, 2019 3:27 pmYou could spend $20k a year now and claim independence, but you will still be wiped out if you receive a $500k medical bill.
That's what health insurance and health sharing ministries are in place for.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by SevenBridgesRoad »

ohai wrote: Wed Apr 03, 2019 3:27 pm If we just define "financial independence" as living how you choose to, then you'll get a lot of odd cases - some mentally ill homeless people would call themselves "financially independent". Wild animals could be "financially independent" and so on.
Many of us here are truly wild animals and FI, but if you restrict the definition to Homo sapiens, you’ll get minimal argument from me. Grrrr...
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Re: What is Financial Independence (FI) in the simplest terms?

Post by The Wizard »

greg24 wrote: Tue Apr 02, 2019 1:17 pm Being able to live your life with zero EMPLOYMENT income.
Fixed that...
Attempted new signature...
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Re: What is Financial Independence (FI) in the simplest terms?

Post by 2015 »

indexonlyplease wrote: Tue Apr 02, 2019 1:32 pm My idea was and still is:

When you no longer need to work and can maintain the same lifestyle as you did when working. Also, it will not matter what the market does. You may want to work full or part time but you don't have to. So, working will be for fun. Not about the money.

I cant' understand the idea of FI when you income went from 100k to 25k. Beacuse you retired to early. Then health care eat you up. Don't be fooled by the people on line that state they are FI with a low income. Most are making money from the blogs they have. They are the few successful lucky ones.
What about those of us who have a (much) better lifestyle than when working (more as a result of luck than anything else)?

Work? In retirement? Fun?? Having to be anywhere and having to do something anymore is not fun to me. My improv class yesterday was my idea of fun.

For me, financial independence means I don't have to read anything on investing, personal finance, or microeconomics that monetizes the work of any financial writer, no matter who they are. I'm financially independent by my own definition (and I don't ever have to worry about money again, either).
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Re: What is Financial Independence (FI) in the simplest terms?

Post by Jon H »

All of the above. Whichever works for you.

I found this one recently in a podcast,
“FI = work optional.” I forget who repackaged it, but I like it.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by ohai »

willthrill81 wrote: Wed Apr 03, 2019 4:10 pm
ohai wrote: Wed Apr 03, 2019 3:27 pm I think we need to benchmark "financial independence" against some minimum accepted basket of spending, like median population spending or something. We should also make an allowance for potential future emergencies.
The problem there is that households' spending varies tremendously. Josh at www.rootofgood.com has three children and has spent something like $29-$38k annually for the last five years in early retirement, including many trips overseas and cruises. This requires a lot of frugality, but they have the big advantages of living in a local cost of living area and beginning retirement with a home owned free and clear. There are some posters here who claim that you would need well over $100k of income to live that type of lifestyle in their high cost of living area.

Further, the problem with using averages (or benchmarks) in this situation is that you are not an average. Some folks get jittery if they don't have $100k in their checking account, while others don't see the need for a traditional emergency fund at all. Knowing what someone else's expenses are shouldn't really have much, if anything, to do with you determining your own needs.
ohai wrote: Wed Apr 03, 2019 3:27 pmYou could spend $20k a year now and claim independence, but you will still be wiped out if you receive a $500k medical bill.
That's what health insurance and health sharing ministries are in place for.
Ok sure, of course some people can have lower spending, but there is a limit to how low this can be until it's unreasonable. Let's say you're a hobo living in an alley and eating garbage. You don't spend any money and so you don't need to. Your children rummage for used syringes like rats and live in a cardboard fridge box, but you "choose to" live this way. Are you ok with calling this "financially independent"? At the minimum, we should add a budget for minimal housing, food, clothing and education. Maybe this comes to the poverty line, $10k, $20k, per person, or something else. The methodology can be discussed. However, there is a none zero spending standard that is necessary to live a normal life in any area. Health insurance is a cost too, and some budget should be reserved for that, unless it is provided from elsewhere.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by JoMoney »

FI:
I have all the money I'll ever need, if I die tomorrow...
;)
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Re: What is Financial Independence (FI) in the simplest terms?

Post by Tyler9000 »

ohai wrote: Wed Apr 03, 2019 10:47 pm Ok sure, of course some people can have lower spending, but there is a limit to how low this can be until it's unreasonable.
The thing is, everyone is different so "unreasonable" is a moving target. FI is more about the sustainability of the personal system rather than an absolute measure of spending.

Financial independence to me is the ability to live a happy life (however one defines that personally) with no need for additional outside income beyond what you've already accumulated. It's the joy of riding a bike for the first time without a parent holding the seat, with the wind in your face and the street racing by, and realizing you can even stop pedaling and aren't going to fall. It's freedom that most adults haven't felt in a really long time.
Last edited by Tyler9000 on Wed Apr 03, 2019 11:35 pm, edited 1 time in total.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by MnD »

indexonlyplease wrote: Tue Apr 02, 2019 1:32 pm When you no longer need to work and can maintain the same lifestyle as you did when working.
This by personal experience.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by SevenBridgesRoad »

ohai wrote: Wed Apr 03, 2019 10:47 pm
willthrill81 wrote: Wed Apr 03, 2019 4:10 pm
ohai wrote: Wed Apr 03, 2019 3:27 pm I think we need to benchmark "financial independence" against some minimum accepted basket of spending, like median population spending or something. We should also make an allowance for potential future emergencies.
The problem there is that households' spending varies tremendously. Josh at www.rootofgood.com has three children and has spent something like $29-$38k annually for the last five years in early retirement, including many trips overseas and cruises. This requires a lot of frugality, but they have the big advantages of living in a local cost of living area and beginning retirement with a home owned free and clear. There are some posters here who claim that you would need well over $100k of income to live that type of lifestyle in their high cost of living area.

Further, the problem with using averages (or benchmarks) in this situation is that you are not an average. Some folks get jittery if they don't have $100k in their checking account, while others don't see the need for a traditional emergency fund at all. Knowing what someone else's expenses are shouldn't really have much, if anything, to do with you determining your own needs.
ohai wrote: Wed Apr 03, 2019 3:27 pmYou could spend $20k a year now and claim independence, but you will still be wiped out if you receive a $500k medical bill.
That's what health insurance and health sharing ministries are in place for.
Ok sure, of course some people can have lower spending, but there is a limit to how low this can be until it's unreasonable. Let's say you're a hobo living in an alley and eating garbage. You don't spend any money and so you don't need to. Your children rummage for used syringes like rats and live in a cardboard fridge box, but you "choose to" live this way. Are you ok with calling this "financially independent"? At the minimum, we should add a budget for minimal housing, food, clothing and education. Maybe this comes to the poverty line, $10k, $20k, per person, or something else. The methodology can be discussed. However, there is a none zero spending standard that is necessary to live a normal life in any area. Health insurance is a cost too, and some budget should be reserved for that, unless it is provided from elsewhere.
I don't understand your idea of benchmarking, Ohai. I think most of us here have in mind a starting point of estimating our expenses based on our needs/wants (not medians or other measures) and having a plan to replace our W2/1099 income to cover those expenses. Most of us here plan to live above the hobo level (no children looking for syringes I hope, used or new!) or living in a box made of cardboard. But you are concerned about something and I'm truly interested. Please help us understand. Thanks!
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Re: What is Financial Independence (FI) in the simplest terms?

Post by DonIce »

SevenBridgesRoad wrote: Wed Apr 03, 2019 11:39 pm I don't understand your idea of benchmarking, Ohai. I think most of us here have in mind a starting point of estimating our expenses based on our needs/wants (not medians or other measures) and having a plan to replace our W2/1099 income to cover those expenses. Most of us here plan to live above the hobo level (no children looking for syringes I hope, used or new!) or living in a box made of cardboard. But you are concerned about something and I'm truly interested. Please help us understand. Thanks!
I think the point he's making is that people need to make sure not to lowball their expenses when deciding what FI means. And that it wouldn't be impossible to come up with an actual dollar number that could serve as a bare minimum for FI, as a sanity check if nothing else, perhaps based on a low cost area somewhere in the US.

Retiring and living in a van and driving around the country hiking and climbing sounds pretty awesome right now and I've got enough saved at 32 (if I sold my house) that the expenses associated with this would be sustainable at a ~3% SWR, for example. But it would be unrealistic for me to assume I'm actually FI quite yet, since there are all kinds of plausible scenarios where my expenses could rise significantly in the future relative to this lifestyle.

Personally I would say that anyone basing their FI number on less than about $40k per year (inflation adjusted into the future) ought to very carefully consider if that will really be enough. Some people may need/want much more, but someone looking at their current lifestyle and saying $25k should be plenty for the rest of their life is quite likely mistaken.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by ohai »

What I am trying to communicate is very simple. People have baskets of basic needs for themselves and their families - housing, food, healthcare, education, clothing, and so on. Based on where you live, there should be some commonly acceptable standard on how much it would cost, at a minimum, to provide for these needs in adequate quantities and without concern of current or future deprivation.

If you keep lowering your standards below this threshold, you'll reach a point where you'll just be deprived. What is this level to you? Is it hobo level? Is it $20k, based on where you live? If 99.9% of people agree that being a hobo is unacceptable, then it should be safe for us to establish a common minimum standard for "financial independence" that is somewhere above a hobo's consumption basket, even if a couple of hobos disagree. A societal reference point, like the poverty line as an example, is an important indicator, even if some people are happy to ignore it.
Last edited by ohai on Thu Apr 04, 2019 12:18 am, edited 1 time in total.
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willthrill81
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Re: What is Financial Independence (FI) in the simplest terms?

Post by willthrill81 »

ohai wrote: Thu Apr 04, 2019 12:14 am What I am trying to communicate is very simple. People have baskets of basic needs for themselves and their families - housing, food, healthcare, education, clothing, and so on. Based on where you live, there should be some commonly acceptable standard on how much it would cost, at a minimum, to provide for these needs without concern of deprivation. There is also a societal standard on what we could consider as "adequate" with respect to these basic amenities.

If you keep lowering your standards below this threshold, you'll reach a point where you'll just be deprived. What is this level to you? Is it hobo level? Is it $20k? If 99.9% of people agree that being a hobo is unacceptable, then it should be safe for us to establish a common minimum standard for "financial independence" that is somewhere above a hobo's consumption basket, even if a couple of hobos disagree. A societal reference point, like the poverty line as an example, is an important indicator, even if some people are happy to ignore it.
Honestly, I don't think that this is really an issue. I'm not really hearing anyone seriously discuss being FI or actually retiring early who are planning on spending under about $30-$40k annually. Once our mortgage is paid off, we could live reasonably well right now on $40k ourselves, though we plan on spending significantly more on discretionary categories like travel in retirement.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by ohai »

You just pegged a number yourself - $40k! What if you realized your savings could only provide $10k a year? You would probably say you're not financially independent and would need to find some income somehow, even if some people do live on $10k a year. If 99% of us, for example, say $40k is what we need, that number would be based on something somewhat objective - housing cost, food cost, etc. It's not just a random number. In other words, we would have collectively concluded that $40k is a reasonable benchmark for financial independence.

A benchmark definition is not all important, and there will be exceptional cases for which it is not applicable at all. However, that doesn't mean that there is no value in coming up with a uniform standard for informational purposes, especially if our motivation is to come to some collective definition of an abstract term like "financial independence".
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Re: What is Financial Independence (FI) in the simplest terms?

Post by willthrill81 »

ohai wrote: Thu Apr 04, 2019 12:27 am You just pegged a number yourself - $40k! What if you realized your savings could only provide $10k a year? You would probably say you're not financially independent and would need to find some income somehow, even if some people do live on $10k a year. If 99% of us, for example, say $40k is what we need, that number would be based on something somewhat objective - housing cost, food cost, etc. It's not just a random number. In other words, we would have collectively concluded that $40k is a reasonable benchmark for financial independence.

A benchmark definition is not all important, and there will be exceptional cases for which it is not applicable at all. However, that doesn't mean that there is no value in coming up with a uniform standard for informational purposes, especially if our motivation is to come to some collective definition of an abstract term like "financial independence".
I still don't see the purpose "in coming up with a uniform standard for informational purposes." Household spending is anything but uniform, even with the same household from one year to the next in many instances.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: What is Financial Independence (FI) in the simplest terms?

Post by TheTimeLord »

ohai wrote: Wed Apr 03, 2019 10:47 pm
willthrill81 wrote: Wed Apr 03, 2019 4:10 pm
ohai wrote: Wed Apr 03, 2019 3:27 pm I think we need to benchmark "financial independence" against some minimum accepted basket of spending, like median population spending or something. We should also make an allowance for potential future emergencies.
The problem there is that households' spending varies tremendously. Josh at www.rootofgood.com has three children and has spent something like $29-$38k annually for the last five years in early retirement, including many trips overseas and cruises. This requires a lot of frugality, but they have the big advantages of living in a local cost of living area and beginning retirement with a home owned free and clear. There are some posters here who claim that you would need well over $100k of income to live that type of lifestyle in their high cost of living area.

Further, the problem with using averages (or benchmarks) in this situation is that you are not an average. Some folks get jittery if they don't have $100k in their checking account, while others don't see the need for a traditional emergency fund at all. Knowing what someone else's expenses are shouldn't really have much, if anything, to do with you determining your own needs.
ohai wrote: Wed Apr 03, 2019 3:27 pmYou could spend $20k a year now and claim independence, but you will still be wiped out if you receive a $500k medical bill.
That's what health insurance and health sharing ministries are in place for.
Ok sure, of course some people can have lower spending, but there is a limit to how low this can be until it's unreasonable. Let's say you're a hobo living in an alley and eating garbage. You don't spend any money and so you don't need to. Your children rummage for used syringes like rats and live in a cardboard fridge box, but you "choose to" live this way. Are you ok with calling this "financially independent"? At the minimum, we should add a budget for minimal housing, food, clothing and education. Maybe this comes to the poverty line, $10k, $20k, per person, or something else. The methodology can be discussed. However, there is a none zero spending standard that is necessary to live a normal life in any area. Health insurance is a cost too, and some budget should be reserved for that, unless it is provided from elsewhere.
I think you are taking you point to an absurd level. I don't think anyone in this forum is in danger of confusing being homeless with being financially independent. But realistically there are some people who can very happily live off grid in a sustainable life style on extremely low amounts of money. Not my idea of financially independent or fun but in many ways it might be more financially independent because they produce or harvest what they need instead of purchasing it.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by latesaver »

TheTimeLord wrote: Tue Apr 02, 2019 9:25 pm For me it means you do not need to work to live a comfortable, sustainable lifestyle you are happy with. It doesn't mean you can do anything you want, very few of us can actually do that. It doesn't necessarily mean you have a 1 to 1 replacement of your previous income, but you likely need to be able to count on at least healthy percentage of your working salary 70%-80% minimum unless you have transformed your life. Work is optional and compensation does not need to be a consideration.
I have never understood that. If i spent 70-80% of my salary it would be ridiculous, at least for me.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by RadAudit »

Others feel that they absolutely need that 30 day luxury cruise to Tahiti.
Some folks have come dangerously close to going from preaching to meddling. :wink: Well, maybe not Tahiti; but, ...
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Re: What is Financial Independence (FI) in the simplest terms?

Post by deltaneutral83 »

Mathematically(?) drawing down 3% a year on a 50/50 portfolio with 25x living expenses by age 70, 35x by age 50, or 50x perpetually would be good starting points for my purposes IMO. This all fails to incorporate the Armageddon scenario where guns/ammo/krugerrands are at a premium that so many on here like to bring up as if I can even begin to properly plan for that.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by TheTimeLord »

latesaver wrote: Thu Apr 04, 2019 8:34 am
TheTimeLord wrote: Tue Apr 02, 2019 9:25 pm For me it means you do not need to work to live a comfortable, sustainable lifestyle you are happy with. It doesn't mean you can do anything you want, very few of us can actually do that. It doesn't necessarily mean you have a 1 to 1 replacement of your previous income, but you likely need to be able to count on at least healthy percentage of your working salary 70%-80% minimum unless you have transformed your life. Work is optional and compensation does not need to be a consideration.
I have never understood that. If i spent 70-80% of my salary it would be ridiculous, at least for me.
I should have said working expenses instead of working salary or income. Considering it seems common for BH to save at a rate of 30%-60% of their gross the statement didn't really make sense.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by indexonlyplease »

MnD wrote: Wed Apr 03, 2019 11:35 pm
indexonlyplease wrote: Tue Apr 02, 2019 1:32 pm When you no longer need to work and can maintain the same lifestyle as you did when working.
This by personal experience.
If you are asking yes. Living it now for almost 3 years. But I have worked part time for 3 months then another 8 months for the fun of it. But now not working again.
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Re: What is Financial Independence (FI) in the simplest terms?

Post by indexonlyplease »

2015 wrote: Wed Apr 03, 2019 4:50 pm
indexonlyplease wrote: Tue Apr 02, 2019 1:32 pm My idea was and still is:

When you no longer need to work and can maintain the same lifestyle as you did when working. Also, it will not matter what the market does. You may want to work full or part time but you don't have to. So, working will be for fun. Not about the money.

I cant' understand the idea of FI when you income went from 100k to 25k. Beacuse you retired to early. Then health care eat you up. Don't be fooled by the people on line that state they are FI with a low income. Most are making money from the blogs they have. They are the few successful lucky ones.
What about those of us who have a (much) better lifestyle than when working (more as a result of luck than anything else)?

Work? In retirement? Fun?? Having to be anywhere and having to do something anymore is not fun to me. My improv class yesterday was my idea of fun.

For me, financial independence means I don't have to read anything on investing, personal finance, or microeconomics that monetizes the work of any financial writer, no matter who they are. I'm financially independent by my own definition (and I don't ever have to worry about money again, either).
I believe that is what I said above. You don't have to. Now in FI you have a choice. When not FI you don't have choices.
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