Defining financial independence – for me

Defining financial independence…for me.

There are a ton of blogs that will define FI for you. Below is my formula for FI.  This might work for you…it might not. Everyone and every family is different. That’s ok.

Variable definition:

CI = Corporate Income. Monthly income from the job I do. My primary income source.

FIN = Financial Independence Number. The amount of monthly income I need to be financially independent.

II = Independent Income. Total monthly income from everything exceptCI

NCI = Non corporate income. This can be side jobs, a side gig, whatever. Stuff I or my wife or my kids work on outside of my real job I do  that brings us income.

PI = Passive income. Monthly income I receive from investments. Examples of investments include dividends, rental income, income from a website,  etc. Not that I have all of these right now.

E = Expenses. The stuff that costs my family money every month. How much we need to live.

EFI = Expenses of Financial Independence. These are extra monthly expenses I will have if I ever decide to quit my job. This includes things like insurance..

M = Margin. This is the multiplier on my expenses that I want to have covered by NCI and PI.

Formulas:

II = NCI + PI

FIN = E + EFI + (E + EFI) x M

My formula for determining when I am FI (note: this is not when I quit my job, but when I am eligible to quit my job because I am FI)

NCI + PI > E + EFI + (E + EFI) x M

Real life example:

I don’t have a great grip on my monthly expenses, but I am starting to track them to get an accurate view of my month over month expenses.

I think they are around $3200. That’s E.

If I quit my job I have to pay independent health insurance of around $1200 for my family. That’s EFI.

I’m comfortable with a 20% cushion. That’s M

As of 9/25, my FIN is $5280. Calculation: $3200 + $1200 + ($3200 + $1200) x .2

My wife Beth and my boys earned $120 in dog sitting in September. That’s NCI.

We earned $0 other income. That’s PI.

As of 9/25, my II for September is $120.

$120 is not greater than $5280, so I am not financially independent. That’s ok. The goal is to be FI by September 25, 2019.

Tony

 

Starting out

Today is the starting point.

September 25, 2014.