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It occurred to me last week that I have been looking at this whole FI thing the wrong way. Building your wealth is a long process and it takes time…1,979 more days in my case but who’s counting?! In an effort to not feel overwhelmed, I decided to flip the script. What if I started looking at FI from what I have already saved? What if I start looking at it with an attitude of abundance and not destitute (a tad dramatic but I love the striking opposition it induces 😉 ).
The basic formula for FI is 25 x yearly expenses. Whatever that number equates to is considered safe to use a 4% rate of withdrawal. If all these numbers are true, we can instead flip it around to calculate how much I would receive each month if I quit working today based on what I have already saved! Here’s a semi-random example:
Bianca has $333,000 in assets. Divide that number by 25 and you’ll get $13320 per year which is equal to $1110 per month.
$1110 per month. That is how much all my years of work combined have afforded me to live. For reference, I have been working and earning a W2 since 1993 when I was 14. That’s 24 years of working for the man and all those years of labor have afforded me 1110 dollars per month of FREEDOM. Isn’t that incredible?! Not from a high or low standpoint but just that it is actually calculable?! Isn’t it strange to compare your future life’s enjoyment based on the number of hours you worked to earn such jubilee? It’s hard to wrap my brain around!
So the question is, forgetting all tax implications, could you live off $1110 per month? If forced to do so, I’m fairly certain my answer would be yes. I’ve crafted my life in such a way that I have few responsibilities which result in my cost of living being lower than most. Granted, my studio is paid for and I would likely have to stay there, I’d have to remove all travel from my agenda, sell my car in favor of my bike, eat a shit ton of beans and rice (which I do anyway), and never get sick. Pretty risky with some of those variables but I could probably make it work, and many people do.* Continue reading “An Aha Moment… Reverse Engineering FI”