Question: On your journey to FIRE, how do you know what progress you have made?
It’s easy to say you are FI or not FI but surely there is more than that? Well, depending on who you talk to there is. The folks over at ChooseFI had a podcast (32 and 32R) about the milestones or checkpoints on the way to FI along with Joel from FI180.
What I want to do here is to explore these milestones, see where Cat and I are on the way to Fi and what the next milestone is for us, and perhaps illustrate how sometimes its not that straightforward. Having milestones and checkpoints helps to keep us on track and provides a marker as to where we are in our journey. Occasionally it is good to stop and take a look back to see how far you have come.
It has been proposed that the journey to FI starts from positive net worth/debt free, meaning no consumer debt, but may include having mortgage and student loans. These are the proposed milestones:
- Debt free (Starting Point)
- Personal Capital Phone Call – $100k net worth
- Fuck You Money (1-2 years expenses)
- Half FI
- Lean Fi – survival expenses only
- Flex FI – 20x annual spending (5% rule)
- FI – 25x annual spending (4% rule)
- Fat FI – 30x annual spending (3% rule)
JD Roth also wrote an article on this; JD Roth 6 stages of financial freedom but his milestones were a little less well defined.
So how does this apply to us?
Assuming that our sprint to FI started when we became debt free, that would be the end of 2018. However we have been working on this for sometime before we even knew what FIRE was. We had maxed out our 401ks back in 2017 and had an emergency fund back in 2015. We also had debt back then, but even with the debt we had a positive network worth. As I wasn’t really paying attention then I couldn’t tell you what it was but I think about the time we sold the house, we would have has a positive net worth of probably about the $100k mark.
Our drive to FI looks more like this:
1, Personal Capital Phone Call – $100k net worth
As a couple, Cat and I actually don’t know when we hit $100k net worth but Cat got the phone call last year when she opened a personal capital account, and I got one this year when my 401k went over the $100k mark.
2, Debt Free
We became debt free in December 2018 when we paid our final payment on the Crosstrek. At that time out net worth was about $375k.
3, Fuck You Money
Given that Cat and I both have a salary, and we have designed our life to survive on one salary, the FU money is less of an issue for us. We keep ~6 months of spending in bonds which is about $20k. If one of us lost a job we can survive with not too much trouble indefinitely.
4, Half FI
This is simply the FI number you have calculated divided by two; the half way mark!
In some ways this means, if you are a couple, one of you is at FI. Of course this is not really correct, but it is fun to think of. For Cat and I, our FI number is currently $1.1M so our half FI number is $550k. We just recently hit $520k so we are very close to our half FI number.
5, Lean Fi
Lean FI is defined as expenses only with no discretionary spending. It is a bare bones existence, but it covers all of your needs as such. For Cat and I that number would be about $630k. We would have to eliminate a lot from our lives including moving to a much smaller apartment, but we would survive.
6, Flex FI – 20x annual spending (5% rule)
Flex FI is that point where you could pull the trigger on leaving employment but there is some risk over weather the money would last. I believe the success rate is about 82% (I think JL Collins has a post about this). Combined with a little geographic arbitrage, it is likely that this level of FI will work out for most people, but (and here is where the flex bit comes in) you may need to be flexible about expenses and even (gasp and clutches at pearls) consider employment again for a little while if luck doesn’t go your way. For some perspective; the worse case scenario here is everyone else’s daily scenario.
Based on our current spending of about $3,700/mth, our Flex FI number is $890k.
7, FI – 25x annual spending (4% rule)
This is the level for FI where the success rate runs in the very high 90s so essentially unless you are extremely unlucky, your money will last as long as you need it to. Based on our current spending our FI number is $1.1M
8, Fat FI – 30x annual spending (3% rule)
FatFi is as good as it gets as the chances of failure are over 99%. This effectively means that unless you are struck with a whole stack of bad luck, you are not going to run out of money. Our FatFI number $1.33M
So where are we on our Sprint to FI?
At the time of writing, we are just below half FI. I consider 2017 the time we started our sprint to FI as that is when we made the choice to sell the house, downsize and change our lives. This means we will reach half Fi in about 3 years, and we think FI should be in about another 5 years. We will track this and see where it goes!