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.
Which milestone are you up to?