So for anyone that has been following the Financial Independence, FI, movement the term F U money is probably familiar. Basically, it’s the amount of money you personally would need to have to feel comfortable walking away from your J-O-B. In other words, what amount of savings would make your standard of living sustainable without having your current steady stream of income. For me, I have decided my number is $4 million. I know, seems high and from my current point possibly hard to obtain, but yet it would provide the level of income to allow me to maintain my current lifestyle.
How did I determine this number and how can you determine your own? Well it’s pretty easy assuming you have a budget or at least a firm grasp on your finances. I determined my number by reviewing how much of my monthly income it took to cover my bills and spending money then adding a buffer for an anticipated increase in travel and health insurance coverage and then annualizing. Personally, I assume that social security will never be a factor in my financial future. Obviously I hope to be wrong about that, but I believe based upon today’s status of the program it’s the safe way to plan. The math told me that $120k per year would be comfortable and I am planning to live off of a 3-4% withdrawal rate, not touching the principal, just the dividends and annual earnings. As long as a I have a couple of years of expenses in a savings account, that should allow me to avoid withdrawals from the bulk of the investments in any down years. Assuming the low end, a 3% withdrawal, and a minimum annual living rate of $120k, your run the math ($120,000/.03) and it provides the $4 million answer!
I hope this helps you to find your own number. I think having a goal to plan toward is a prerequisite to being successful, so for me, knowing this number was critical. It also tells me that I must 10x my current savings and to do it in time to retire in my mid to late 50’s leaves me with a lot of work to do! Determining this number and understanding my budget were 2 keys to help me determine how to make this possible and I believe they can help you as well. Looking forward to your comments and questions!