The Financial Independence Number Formula

The 4% Rule constitutes the core of The Financial Independence Number Formula, or FIN Formula, but a few other items need consideration. Take a moment to answer the next three questions to the best of your ability and remember them for The FIN Formula further down:

  • What are your monthly expenses?
    • Total them up and don’t forget to include everything that you would have to pay in a month to make sure bill collectors will not knock at your door.
Monthly ExpensesAmount
Housing Costs (Rent/Mort., Taxes, Ins., Maint., Utilities)$XXX.XX
Transportation Costs (Loan, Ins., Gas, Maint.)$XXX.XX
Food Costs$XXX.XX
Clothing$XXX.XX
Entertainment$XXX.XX
Travel Expenses$XXX.XX
Health Insurance Costs$XXX.XX
Income Tax Expenses$XXX.XX
Total Monthly Expenses$XXX.XX
  • Would you say you are a low, moderate, or high consumer of goods and services?
    • Think about your spending habits. When the newest gadget debuts or you experience that moment after work without energy and you do not want to cook, would you spend the money or not?
Consumption MultiplierMultiplier #
Low level of consumption1.1
Moderate level of consumption1.2
High Level of Consumption1.3
  • Are you risky, moderate, or conservative?
    • This is in terms of your financial willingness to take risks by investing your retirement funds, not your political affiliation.
FI Risk MultiplierMultiplier #
High level of risk25
Moderate level of risk
30
Conservative level of risk35

Take your numbers from above and use the accompanying formula below:

FIN Formula -> Monthly Expenses * 12 * Consumption Multiplier * FI Risk Multiplier

Example: Let’s say you figure out that your expenses total $4,500.00 per month, you are a low consumer of goods, and you are okay with a moderate level of risk. Plugging that into the formula equates to:

FIN = $4,500.00 * 12 * 1.1 * 30
FIN = $54,000.00 * 1.1 * 30
FIN = $59,400.00 * 30
FIN = $1,782,000.00