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?

7 Replies to “Where are you on your journey to FI/RE?”

  1. I like the idea of milestones! Milestone 6 will never happen for me because I don’t intend to ever spend that much (savings rate 67-70%). Just wondering if ‘net worth’ needs to change to ‘income-producing net worth’ as we can’t eat our Auckland house? 🙂 In this case I might be close to number 4

    1. I agree with you that number 6 needs a bit of clarifying. I don’t plan on ever spending as much as I earn either. I like your idea of “income producing” net worth.

  2. Up to three, working on 4 (I like the idea of a half FI goal – it gives an achievable near term objective).
    Because of how silly Auckland house prices are then arguably we could sell up, move to a small place in some quiet beachside town and jump straight to 5 – but happy where we are right now. 🙂

  3. This is a great checklist. I guess it should only be used as a guideline though as I’ve found that in the US FIRE aspirants have a lot more option to go where there is cheap housing and ALSO jobs. This is not always the case in New Zealand, especially Auckland and increasingly other urban centre like Wellington. You hear about teachers and nurses not even being able to afford to live in Auckland because of the housing cost.

    Also having kids makes a big difference if they plan to go to uni in another town. That slows the FI process down considerably!!

    Very helpful to keep these stages in mind, although I find the emergency fund amount they suggest of 3x your expenses OTT. That would be a waste to keep that amount out of the market at the moment. We plan to live on a 6 figure retirement expense budget (not gonna rough it too much in FI -well that’s the plan-) and I am not going to put 3x that figure in an emergency fund. Anyway a very thought provoking article that I will pull out every January… BTW we are probably about 2/3 FI on milestone 4.

  4. Number 1… just bought a house, but savings should outweigh debt in 2/3 years. Love the idea of lean/fat FI – can live on it but it might not be a comfortable life.

  5. Point six – the cross over is actually when investments produce more than your expenditure, not salary. See Your Money or Your Life where the concept comes from.

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