What’s Your Freedom Number? How to Calculate Your Financial Independence Goal

💡 From Dream to Destination

What if money no longer controlled your calendar? What if you could say “yes” to a year-long trip, a passion project, or simply a quiet Tuesday morning, all without worrying about a paycheck?

That’s the power of Financial Independence (FI). It’s not just a distant dream; it’s a tangible destination. And every destination needs a map. On your map, the destination is marked by a number: your personal Freedom Number.

This number is the amount of money invested that allows you to live life entirely on your own terms.

In this article, you’ll learn how to:

• Calculate your FI number using the 4% Rule and the Rule of 25

• Discover Coast FIRE, a milestone that can grant you freedom decades earlier

• Use Net Worth as your scoreboard to track progress

⚠️ A Quick Note Before We Begin:
This article focuses on calculating FI through investing in index funds, ETFs, and mutual funds, since that’s the simplest and most widely-used approach. However, it’s important to know that FI can also be reached through real estate, side hustles, or building businesses (we’ll touch on that later).

🔎 What is Financial Independence (FI)?

At its core, Financial Independence is the point where the passive income from your investments covers all of your living expenses forever.

But FI isn’t just about money. It’s about freedom:

• Choosing work you love (not work you need)

• Traveling without a return date

• Designing your ideal lifestyle

📊 Step 1: The 4% Rule (Why It Works, and Its Limits)

The 4% Rule was first established in the 1990s (often called the "Trinity Study") to determine a safe withdrawal rate for a 30-year retirement period. The research found that withdrawing 4% of your portfolio each year (adjusted for inflation) gave retirees a very high probability of never running out of money.

However, more recent studies have suggested that the 4% rule might actually be overly conservative, especially for well-diversified portfolios. Some financial planners argue that a 5% withdrawal rate may be sustainable in certain cases, while others recommend a variable withdrawal strategy that adjusts depending on market performance.

👉 The key takeaway:

• The 4% Rule is an excellent starting point for estimating your FI number.

• But if you’re planning for FIRE (Financial Independence, Retire Early), where your retirement may last 40–50+ years, you’ll need to monitor, adjust, and be strategic about your withdrawals.

Example:
If you had a $1,000,000 portfolio, the 4% Rule suggests you could withdraw $40,000 per year. But with flexibility and good planning, you might withdraw a little more (or less) depending on the economy and your lifestyle.

✨ Step 2: The Rule of 25 (Your Freedom Number)

If you can safely withdraw 4%, that means you need 25 times your annual expenses invested.

Formula:
Annual Expenses × 25 = Your FI Number

Example:
If your lifestyle costs $50,000 per year:
$50,000 × 25 = $1,250,000

That $1.25 million is your Freedom Number.

🚀 Step 3: Coast FIRE (Your First Taste of Freedom)

That million-dollar goal might feel far away. But you don’t need it all today. Enter Coast FIRE.

Coast FIRE is when you’ve already invested enough that, even if you never save another dollar, compound growth will carry you to your full FI number by retirement age.

Reaching Coast FIRE means:

• The pressure to save aggressively is gone

• Your only job is covering today’s expenses

• You can choose a lower-stress job, work part-time, travel more, or take sabbaticals

Example:

Alex is 35 years old and wants $1.25M by age 65 to reach full FI. Using a 7% average annual growth rate:

• If Alex invests $165,000 today, they can stop contributing altogether.

• By age 65, compound growth alone would grow that balance to about $1.25M.

• That means Alex’s retirement is already “on autopilot”—their only financial job is to cover current expenses.

👉 This is the power of Coast FIRE: you don’t need millions in the bank today to unlock freedom; you just need enough invested to let time do the heavy lifting.

📌 Step 4: Your Net Worth (The Scoreboard for Your Journey)

Knowing your destination is great, but you need a way to track progress. That’s where Net Worth comes in.

Formula:
Assets – Liabilities = Net Worth

• Assets: savings, investments, home equity

• Liabilities: student loans, credit cards, mortgage

Tracking your net worth monthly or quarterly is the best way to measure your progress toward Coast FIRE and full FI.

🔄 Other Paths to FI (Beyond Index Funds)

While this article focuses on stock market investing, your FI journey doesn’t have to look the same as everyone else’s. Many people reach financial independence by combining investments with other income streams, such as:

• Real estate (rental income, house hacking, REITs)

• Side hustles or freelance work (building income streams you control)

• Entrepreneurship (creating a business that runs independently)

The principle is the same: you need enough reliable, ongoing income to cover your living expenses. The exact mix of investments, businesses, or assets can vary depending on your lifestyle and goals.

🏁 Conclusion: Your Number is a Compass, Not a Limit

Your FI number isn’t meant to intimidate, it’s meant to empower. It turns a vague dream into a concrete, achievable goal. It’s your compass, guiding every saving and investing decision you make.

Recap:

• FI Number = Annual Expenses × 25

• Coast FIRE = Enough invested to “coast” to retirement

• Net Worth = The scoreboard that tracks progress

• Other Paths Exist: Real estate, side hustles, and businesses can also get you there

✅ Action Step Today: Take 15 minutes to estimate your annual expenses and multiply by 25. Write it down. That’s your Freedom Number. Now the dream has a destination, and your journey starts today.