Where are you on your journey to FI/RE?

One of my favourite podcasts is ChooseFI and over the weekend I listened to a cracking episode with with Joel of Financial 180.   The topic was the “Milestones of FI” and I thought it would be interesting to think about where each of us is on our journey.

Milestone 1:  Positive net worth

You hit your first milestone when your debts no longer outweigh your assets.  Some folks are fortunate and never start out with debt but, for most of us, we will normally start out with some debt e.g. a student loan.

Milestone 2:  $100K net worth

If you are a Personal Capital (financial tracking tool – US only so not much use for us) user then apparently when you hit $100K they start phoning you up to try and sell you their paid services.  It’s a somewhat arbitrary point but I think there is something deeply satisfying about hitting round numbers so I think it applies to us Kiwis as well.

Milestone 3:  F#$% U! money

F#$% U! money is classified as having about 2-3 years of expenses saved up.  Your amount will vary depending on your risk tolerance.  I’m reasonably risk averse so for me it would probably be at least 5 years!  It’s called “F#$% U” money as it enables you to walk away from a bad job if necessary.

Milestone 4:  Half FI

You need to know your “number” in order to know when you hit this mark.  You need to know how much you spend/want to spend and multiply that by 25 to get the standard FI amount.  Divide that by 2 and you have your half FI milestone number.

Milestone 5:  Lean FI

Lean FI is the amount you need to basically just survive with very little discretionary spending.  This is a bit extreme for me as I like some of life’s little luxuries but some folks are quite happy being relatively hardcore.

Milestone 6:  The crossover point

This is where you start to earn more from your investments than you are managing to earn from your salary.  You may feel that this makes you FI but realistically investment income can fluctuate so it is just a milestone.

Milestone 7:  Flex FI

Flex FI occurs when you are close enough that you are likely to be safe especially if you retain flexibility in your spending patterns or are willing to return to some form of work if your investment returns drop dramatically.  The value for this milestone is a net worth of 20x your annual spending.  I personally exclude my home from my net worth as it doesn’t generate an income but you may wish to include it if you are happy to sell up to support RE.

Milestone 8:  Financial Independence

You are technically financially independent when you hit a net worth of 25x your annual spending.  Any work you do now is by choice.  You could retire early and be reasonably sure you would not run out of money.

Milestone 9:  Fat FI

Fat FI is what you aim for if you are very risk averse or you want a retirement that has room for a large amount of luxuries.  The value for this milestone is a net worth of about 30x your annual spending.

The journey to FI can often seem long and boring.  Having a list of milestones that you can tick off seems like a good idea.  I’d strongly urge you to listen to ChooseFI and visit Financial 180.

Which milestone are you up to?

Books we love: How to Fail at Almost Everything and Still Win Big – Scott Adams

One of the books that had a really big impact on me was a book by the cartoonist behind Dilbert – Scott Adams.

The book basically goes through his various failures, how he overcame them and ended up being wildly successful.

Along the way he espouses a few principles that are particularly relevant for those of us seeking to become financially independent.  The one that resonated the most with me is that…

…one should have a system instead of a goal. The system-versus-goals model can be applied to most human endeavors. In the world of dieting, losing twenty pounds is a goal, but eating right is a system. In the exercise realm, running a marathon in under four hours is a goal, but exercising daily is a system. In business, making a million dollars is a goal, but being a serial entrepreneur is a system.

In FI terms saving more than you spend is a system.  Trying to save a specific figure is a goal.  Both have value but the system results in long-term habits that consistently move you forward.

For our purposes, let’s agree that goals are a reach-it-and-be-done situation, whereas a system is something you do on a regular basis with a reasonable expectation that doing so will get you to a better place in your life. Systems have no deadlines, and on any given day you probably can’t tell if they’re moving you in the right direction. My proposition is that if you study people who succeed, you will see that most of them follow systems, not goals…

For me, this book was really valuable as it reinforced the importance of mindset. I’m not naturally frugal and have had to work at it.  However, being frugal has become a system in my life and now I get a buzz every time I choose not to waste money.

“Goal-oriented people exist in a state of continuous pre-success failure at best, and permanent failure at worst if things never work out. Systems people succeed every time they apply their systems, in the sense that they did what they intended to do. The goals people are fighting the feeling of discouragement at each turn. The systems people are feeling good every time they apply their system. That’s a big difference in terms of maintaining your personal energy in the right direction.”

Definitely worth a read.  Try your local library!

How much do I need to retire?

One of the biggest questions for anyone contemplating retiring early is how much money do I need to retire?  Even if you don’t want to retire early, it is useful to know at what point do you become financially independent?

To figure this out you need to know how much you spend – or how much you want to spend when you are retired.  When I first started this journey I always did my retirement sums on my income and figured I’d have to be working forever to generate that kind of income from my investments.  However, the reality is that you only need to generate enough income to cover your spending without eating into your stash.

Reddit has  a good summary answer to this question:

The short answer: 25 times your annual spending (with caveats)

The long(ish) answer: In 1998, three professors at Trinity University released what became known as the Trinity Study. The study examined the U.S. stock and bond markets over every 15-30 year return period between 1925 and 1995 (the data was recently refreshed in 2009). They concluded that by starting with 4% of your portfolio, and withdrawing that amount (increasing yearly with inflation) every year, you would have a 96% chance to not run out of money during a 30 year period.

  • Assumes only a 30 year retirement period. Longer retirements likely need a lower withdrawal rate.
  • Assumes a mixture of stocks and bonds
  • Assumes $1 in the bank account is “success”. So some 30 year periods had lower ending balances.

4% became known as the “Safe Withdrawal Rate” (SWR). The nature of the stock market (and historical returns) means that in most cases, the portfolio grew faster than the withdrawal rate. 4% of a portfolio is the amount you can withdraw, or reversing the math, 25x your withdrawal amount is equal to the amount you need to save.


  • I need $40k in retirement. Therefore I should save (at least) $40k*25 = $1M
  • I have $1M in my retirement accounts. Therefore I can spend $40k yearly ($1M * 4%) for ~30 years.

A couple great articles on this topic

The Trinity Study was based on US data but it seems to hold true for the NZ market as well.  I’m personally quite risk averse so I’ve been doing my sums on a 3% SWR and am hoping to reach a point where even a 2% SWR becomes viable.

A handy tool to test various scenarios is FireCalc.  FireCalc tries to answer this question:  “With what you have today, and what it costs you to live, can you retire and maintain the same lifestyle?”

I recommend you work out how much money you need to live at your desired lifestyle level and start working towards it.

Millionaire Habits

I read this post from Budgets Are Sexy recently and I thought the habits of millionaires that were outlined applied to us Kiwis as well.

8% shopped at Goodwill stores

I just bought 2 nice jackets at the Dove hospice shop.

20% used coupons

I use coupons when I can find them.  Especially if I’m buying stuff online – I always do an online search for discount codes for the retailer.

64% said they lived in a modest, middle-class home

Hmm, I live with my in-laws in a very big house.  Think I fail on this one.

28% mowed their own lawns to save money

Yep, don’t pay anyone to mow my lawn and don’t think I ever will.

44% only purchased used cars

I’ve never bought a new car in my life although my last car was only 3 months old – I still got close to 20% off the sticker price so I was happy.

19% managed their investments themselves – they do not use financial advisors in order to save money


60% said they were frugal with their money


I’m definitely improving on this one.  My wife has always been super frugal and I’ve been the spender but now it is very rare that I will buy something that I don’t need.

81% used credit cards that offered reward dollars — this way they could get something for free

I definitely do this.  I look with envy at the US credit card hackers as we have very few opportunities for travel hacking etc. in NZ.

And lastly, 41% spent less than $3,000 on their annual vacation

I’m not sure about this one.  Is it per person?  Then I’m ok.  If it is for the whole family then I probably spend more.

How about you folks?

Hello folks who want to set themselves free!

This blog is set up to be a community hub where Kiwis (and the odd Aussie) of all means can learn tips and tricks to becoming financially independent so that you no longer have to work for money.

If you’d like to contribute (via blog posts, links or what have you) use the contact form below and I’ll add you in.