Last update: 2019-09-25

The $1,000,000 goal post

How much do you need to be financially independent? To me, financial independence (the FI in the FIRE movement) means being able to live your life without having to rely on traditional employment. It means that if things go bad, you lose your job, or you actively decide to retire, you can keep paying the bills and maintain an acceptable standard of living without any financial issue.

The first step to finding out the necessary amount is to figure out how much you need, or your average spending. Since I've been budgeting for over 5 years, for me it's easy to figure out. I spend $30,000 per year now, and once my mortgage is paid off, that will drop off to $20,000. This includes the regular monthly bills, yearly bills like city taxes, some discretionary spending for things like 2 trips per year, and a few extra for emergencies. Following the 4% rule this means I need $750,000 invested to ensure this standard of living forever. Add to that the value of my home, and we get this $1,000,000 net worth goal post.

While it may seem like a lot, thanks to things like compounding interest and regular savings, it's a very achievable goal. But how long will it take? I'm still fairly early in my FIRE journey, and there are a lot of unknown variables, so it's hard to predict. Instead of trying to come up with a single value, let's look at the best case and worst case scenarios. First, the unknowns:

  • We're in a late cycle of the stock market, so the average 7-10% market return could drop into the negative if a recession hits.
  • I may lose my job, or I may get a substantial pay raise.
  • An emergency or unexpected spending may come up.

Based on those variables, for the worse case I picked a monthly saving rate of $2,000 with a conservative return of 3%. The result gives us 20 years until I reach a $1,000,000 net worth:

On the other hand, an aggressive calculation based on getting a higher salary and a better market return, I doubled the saving rate and increased the return to 7%, giving me 10 years:

The result that I get from this is that in order to reach my goal of being financially independent, it will likely take between 10 and 20 years. It's a fairly long term goal, and there may be other factors that I could change in the future, but for now I think it's a good representation of what I can expect. Everyone should have their own goal post, and see what they can do to reach it. There are some variables that I have control over, while others are out of my hands, so I'm focusing my efforts in maximizing the ones that I do have control over in order to be closer to the ideal time frame, but at least the goal is in sight.

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