Friday, 14 August 2015

FI-number

If you have calculated a net worth number, you can calculate your Financial Independence number.

The next step is to calculate an annual budget, or (and this is not the same thing) calculate the amount of money you spend every year. You can make this an incredibly detailed process but that will take time to get it right. Do it simply, and assess a total amount spent for a year.

This is what you need to have in order to keep yourself for a year (including whoever are in your financial responsibility). I usually think of this as my annual budget. It is common that it varies annually and most certainly between different persons.

If you have a positive net worth, divide your annual budget with your net worth. This is how many years (months, days?) you can keep yourself on your funds.

Do you have pension coming in? Calculate how much that is expected to be and know exactly when it will be paid out.

You may need to work really hard for some years, doing anything you can to make money and save in order to get assets available in order to create a stable financial future.

If you will be able to live on your pension and if your net worth divided with your annual budget reaches your pension payments (or thirty years, more later) you can call yourself financially independent.

It may not be a glamorous life, it is probably not very impressive in the eyes of others, but you are financially self-supporting.
It all starts with knowing your net worth.

It goes on with making as much money as possible to increase the net worth to the point where your Financial Independence number is more than 30.

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