Financial freedom
Your financial freedom number, worked out properly
Financial freedom is four different numbers, and most people are chasing the most expensive one without ever saying so. Pick which one you actually want, work out the monthly income that buys it, and the target usually turns out to be smaller and closer than you feared.
Ask ten people what financial freedom means and you get ten answers. Ask the same person twice and you often get two.
That is not vagueness. It is four separate things wearing one name. Until you say which one you want, you cannot work out a number, and a goal without a number is a mood.
The four things people mean
Here they are, cheapest first.
1. A year off
Enough money to stop for twelve months without asking anyone. Not forever. Once.
This is one year of spending in cash, plus whatever you need to feel safe. For somebody spending €30,000 a year that is around €35,000. It is the only one on this list you can reach in a few years rather than a few decades, and it is the one that changes how you behave at work immediately.
2. A bad job stops being a trap
Enough invested that part of your living costs is covered without you. Say half.
At €30,000 of spending, half is €15,000 a year. At a 4% withdrawal that is €375,000. You still work. But you can leave a job you hate on a Tuesday, and you can take the role that pays less and teaches more.
Most people who say financial freedom mean this one. Almost nobody calculates it, because the internet keeps handing them the fourth one instead.
3. Your investments cover your life
Everything you spend, paid for by money you are not working for. Work becomes optional.
At €30,000 of spending and 4%, that is €750,000. At €50,000 it is €1,250,000. This is what most FIRE writing means, and it is the honest headline version.
4. Your investments cover the life you want, not the one you have
The bigger house, the better flights, the school fees. Take your real spending and add the things you have been postponing.
This is where the seven-figure numbers come from. There is nothing wrong with wanting it. There is something wrong with chasing it by accident, which is what happens when you never specify which of the four you are aiming at.
The arithmetic, in one line
Annual spending, times the share you want covered, divided by your withdrawal rate.
That is the whole formula. Somebody spending €40,000 who wants everything covered at 4% needs €1,000,000. The same person who wants half covered needs €500,000, and reaches it far more than half as fast, because the early years are the slow ones.
The withdrawal rate is doing a lot of work in that sentence, and 4% is an American number from research on a thirty-year American retirement. If you are planning to stop at forty in Europe it is the wrong number. That argument has its own page, because it deserves more than a paragraph.
Now the part nobody likes
Your number is decided by your spending, and your timeline is decided by what you earn.
Those are two different levers and people mix them up constantly. Spending sets the size of the target. Income sets how fast you get there. Cutting spending does both at once, which is why it feels so satisfying, and it has a floor, which is your rent.
No amount of switching funds does that. In the first decade the size of what you put in matters far more than what you put it in, because compounding has not had time to take over yet. It takes over later, and by then the habit is already built.
Work out your own, in ten minutes
Four steps, with a pen.
One. What did you actually spend last year? Bank statements, not a guess. The guess is always low.
Two. Which of the four are you aiming at? Say it out loud. If it is the second one, the number you have been carrying around is probably twice what you need.
Three. Divide by a withdrawal rate you are willing to defend. Four percent if you want the standard. Lower if you are stopping early.
Four. Work out what you can invest every month, then how long that takes. The calculator does this part and starts from what your employer spends rather than what lands in your account, which for most people is a different and larger number.
Then look at the years and decide whether you want to argue with the number or with your income. Most people argue with the number. The income is where the years actually are.
Common questions
What is a financial freedom number?
The amount of invested money that covers your living costs without you working. The usual shorthand is annual spending divided by a withdrawal rate, so €40,000 a year at 4% is €1,000,000. That is one definition of four, and it is the most expensive one.
How much do I need to be financially free in Europe?
Work from your spending, not from a round number. Take what you actually spend in a year, decide what share of it you want covered by investments rather than all of it, and divide by the withdrawal rate you are willing to plan on. Somebody spending €30,000 needs less than half of what somebody spending €70,000 needs, whatever they both earn.
Is a million euros enough to retire on?
At €40,000 a year of spending and a 4% withdrawal, a million is the textbook answer. At €70,000 of spending it is not close. The number that decides this is your spending, which is why a million is a headline rather than a target.
What is the difference between financial freedom and FIRE?
FIRE usually means never working again. Financial freedom is broader and most people mean something smaller by it: enough that a bad job is a choice rather than a trap. The smaller versions arrive years earlier and almost nobody calculates them.
How long does it take to reach financial freedom?
It depends far more on what you invest each month than on what you invest it in. In the first decade the size of the contribution does the work, because compounding has not had time to. That is why the fastest lever on the timeline is usually income, not fund selection.
Run your own number
Nine ways of defining the finish line, each with the maths behind it, and a calculator that uses your salary rather than an American average.
The nine FIRE numbers
Who wrote this
Fifteen years in sales, starting at €700 a month. Ranked first of more than 250 account executives globally at Deel in the first half of 2023. Everything you can check is on the proof page, including the parts that cannot be checked.
This is education, not advice, and I am not a licensed adviser. What that means in full is in what this is and what it is not.