How to FI? Calculate Your FI Number + 3 Basic Strategies to ACHIEVE It!

how to fi

Are you wondering what it takes to be financially independent? The first step is to calculate your FI number and then develop a plan to be financially free. So, if you’re asking, “How to FI?” Here are three basic strategies to help you reach financial independence!

What is a Financial Independence Number?

The financial independence number is used to analyze your retirement preparedness, also called the FI number. It’s a benchmark for retirement savings and will help you answer the question: “How much money do you need to retire full-time?” This number is helpful as an initial guide to saving for retirement. But many people modify it to optimize their long-term objectives and handle any unexpected financial crisis.

Before calculating the FI number, you should consider the following factors:

  • Total monthly expenses
  • Monthly income
  • Savings rate
  • Current investment and its performance

4% Rule of Thumb

Additionally, calculating the FI number assumes a withdrawal rate of 4%. This withdrawal rate is based on three professors from Trinity University reforming research by William Bengen in 1990 through their published paper on safe retirement withdrawal rates. Their writing became famous as the Trinity Study.

The study elaborates that a retiree can safely withdraw 4% of his or her expected investment or assets annually without being insolvent. It relies on compound interest and an annual return to not deplete one’s investment.

Today this theory is famous as the 4% rule of thumb and is also used to calculate the number to become financially independent. Therefore, the 4% rule of thumb is an effective tool for retirement planning and is used by many financial advisors and investors.

For instance, if an individual starts retirement planning with $3 million of investment and assets, he or she can withdraw $1,20,000 annually to cover living yearly expenses for 30 more years without being insolvent.

How to Calculate FI Number

The FI number is the total amount of money needed to meet the expenses of your life after retirement. It is a baseline formula, but people can modify this number according to their financial situation.

Financial Independence Number Formula:

FI Number = Annual household spending / Safe withdrawal rate per annum (4%)

You need to determine your annual household spending first. Consider your total expenses for the year or calculate the average costs per month. Make sure you estimate and add post-employment healthcare expenses since you will no longer receive employer benefits in retirement.

Next, you’ll divide annual spending by the safe withdrawal rate (SWR) of 4% (0.04). You can also multiply your annual spending by 25. Both calculations will be equal.

For example, if your annual spending is $40,000 and your safe withdrawal rate is 4%, your financial independence number will be ($40,000 / 4%), or ($40,000 x 25) = FI Number $10,00,000.

Additionally, the years to FI formula is below:

Years to FI = (FI Number – Amount Saved) / Annual savings

Financial Independence Calculator

Below is a FIRE calculator. You can easily input your numbers, such as living expenses, to see how well you’re working towards financial independence, so you don’t have to wait till the legal retirement age. This FI calculator will also help determine how many years it will take to reach financial freedom. 

3 Basic Strategies to Achieve Financial Independence

1. Pay off debts

According to a report given by The Pew Charitable Trusts, 80% of US citizens carry debts on their shoulders. Nearly 44% have mortgage loans, 39% are taking up high-interest credit card debts, 37% are struggling with car loans, and 21% have outstanding student loans. Overall, the average household is carrying nearly $68,000 in debt. 

Taking huge debts is harmful to your budget, and it may reduce your savings every month. Each month you have to pay interest, which becomes a total waste of money. The longer you carry debts, the more interest you pay on credit card balances, and the less your savings will be.

Getting out of debt can make you free from substantial financial burdens and improve your current net worth. Debts cover a significant part of your monthly budget, so as soon as you pay them off, such as loans, credit card debt, etc., you will be able to free up more money. 

As a result, you may increase your monthly savings, and your nest egg grows fast, reaching Financial Independence Retire Early (FIRE). However, if you are in debt and need help finding a plan that suits your finances, go to for a free consultation.

2. Boost your income

It is straightforward—the more you can earn, the more you can save or invest. So, focus on areas where you can yield extra income to set aside enough for your retirement account. Let’s check some places to dig in:

Your primary job

There are few ways to increase your annual income from your 9 to 5 job. If you are an hourly employee, you can work extra hours or get approved for overtime. If you’re paid by salary, you may work hard and request your employer for a pay raise. You can also develop your skills or learn new ones to earn a promotion or find a new, better job.

Side hustles

Apart from your primary job, you can do some side hustles to earn more in a month. Side hustling ideas such as blogging, online content writing, social media marketing, affiliate marketing, online tutoring, or freelance photography can quickly help you earn a decent income every month.

Passive income streams

With less effort and active participation, you can start a continuous stream of income. This additional income can help you boost your savings per month.

For example, revenue from rental properties, royalties from your creative works such as books or music, and money generated from ads on your blog or website.


Suppose you have an existing investment portfolio with a variety of investments. In that case, you may use the income from those investments to save as much as possible. Assets in the stock market (i.e., index funds, bonds, ETFs), insurance, and real estate can give you a good return on investment over time.

Apart from the above options, you may also sell the unused stuff you don’t need, such as old furniture, jewelry, books, CDs, artifacts, antiques, sports equipment, and many more things on websites like eBay or Amazon.

3. Reduce your expenses

When you start reducing or cutting back current expenses, you are making space for savings, which gives you more opportunities to lower your costs rather than increasing your income.

Apart from that, reducing your costs also helps you live on a smaller budget, meaning you need less to reach your FIRE number. Areas you can cut back on costs are:

  • Household expenses – Cable, internet, utilities, household supplies, credit card bills
  • Meals – Groceries, alcoholic and non-alcoholic beverages, dining out
  • Personal care costs – Subscriptions, gym memberships, shopping, hobbies, childcare, pet care
  • Transportation costs – Maintenance, fuel, registration, insurance
  • Community Care – Charitable donations, gifts, remittances, etc.

Can you customize your Financial Independence number?

One crucial part of determining the Financial Independence number is the 4% rule of thumb. This rule of thumb indicates that an individual should withdraw 4% of the retirement balance per year (adjusting for inflation and future expenses after the second year). 

Following this rule, your retirement funds will last nearly 30 years without depending on social security benefits. But many experts suggest this rule is not appropriate for every retirement case, and it’s risky. 

How the 4% rule works is the retiree must keep a “portfolio of 50% stocks and 50% immediate-term treasuries”. And the retiree’s annual expenses must remain constant.

The 4% rule would push a retiree towards higher annual withdrawals. As a result, they would deplete their retirement savings much faster. Therefore, the 4% rule is a conservative benchmark. Although this withdrawal rate goes a long way, it might be too risky for people interested in early retirement. 

So, reducing the withdrawal rate can be a safer, more effective way to reduce risk. Currently, the safe withdrawal rate is considered to be 3%.

If you’re someone who has to have a certain amount, 3% is the new 4%. Because you don’t have a cushion if things do go poorly.”

David Blanchett, the head of retirement research at Morningstar Investment Management

“There are many other factors built into low-risk withdrawal rates. Age, health, life expectancy, and the amount of guaranteed monthly income from sources like Social Security and pensions are also important considerations.”Allan Roth, a certified financial planner at Wealth Logic,

However, retirees can use the higher withdrawal rate of 4% to make room for cutting back expenses. With the change of safe withdrawal rate, you will modify your number and potentially reach financial independence sooner.

Final Thoughts

Reaching your financial independence (FI) number does not signify that you should stop building wealth. On the contrary, this benchmark means you can rely on your saved assets instead of your job and seek new opportunities when you reached financial independence.

So, as you work toward financial independence and reach your goal, I suggest you work on more opportunities. For example, research investment options, try an actively managed mutual fund, seek ways to generate passive income and save more.

Lastly, it’s essential to leave a financial legacy you can pass down to your children or a dear family member. Therefore, your nest egg needs nurturing while you are pursuing financial independence journey.

There is a large FI community all working on their personal finance to reach FI. Are you going to join the movement and choose FI?

The following two tabs change content below.
Good Nelly is a financial writer who lives in Milwaukee, Wisconsin. She has started her financial journey long back. Good Nelly has been associated with Debt Consolidation Care for a long time. Through her writings, she has helped people overcome their debt problems and has solved personal finance-related queries. She has also written for some other websites and blogs. You can follow her Twitter profile.