A common question you get when you write about financial independence is – what is your FI number? Taking a step back, FI stands for financial independence. And your FI number is the amount of money you need to have invested so that your money theoretically can last you forever. In a perfect world, once you’ve hit your FI number, you’re financially independent – the money you’ve saved should be able to cover your living expenses for the rest of your life.
Like many people, I discovered the financial independence movement because of something inherently wrong with my life. I was unhappy with my job and was looking for a way out. Financial independence gave me a pathway I could follow. All I had to do was spend as little as I could, save as much as I could, and hit my FI number as fast as I could. My FI number, then, became my all-encompassing goal. Hit that number and I’d be free.
I’m a little older and wiser than I was when I first discovered the FI movement. And as I’ve gained more life experience, I’ve also gained a more nuanced view of what financial independence really means to me. Today, if you ask me what my FI number is, my response is that I really don’t have one anymore.
Let’s look at three reasons why I don’t have a FI number these days. Maybe some of these reasons apply to you too.
I Think Life Is Too Fluid
If you’re analytical enough to think about concepts like financial independence, there’s probably a natural tendency to try to distill everything down to numbers. I get it – I try to do the same thing too. But I think life is far too complicated to really do that. There’s simply too much going on with who we are and who we become as time passes.
As people, we tend to think of things linearly. We sort of think our life looks one way and it’ll probably change a little bit, but not by that much. We sort of slowly move towards different goalposts, completing each achievement as the years go on.
But any of us with life experience knows life doesn’t actually work like that. It’s not a straight line. Life is fluid. It changes as we change. Sometimes dramatically.
10 years ago, I was an early 20-something kid that just graduated from college. I barely knew who I was as a person. My goals in life were completely different.
And when I look back at who I was even just a few years ago, I might as well be looking at a different person. When I think about it, I basically am looking at a different person – a 20-something-year-old with a girlfriend and a dog. Today, I’m a 30-something-year-old with a wife and a kid (and the same dog that’s just a little older and slower now). Is it any wonder that what my life looks like now is very different from what it looked like 5 or 10 years ago?
When I first created my FI number, it was based on the idea that life and the person I was would sort of stay consistent or move slowly in a certain direction. But there have been a lot of twists and turns along the way. For most of you reading this, your life is probably going to have a lot of twists and turns along the way too. Unfortunately, I think it makes it difficult to create a realistic FI number. You just don’t know what life will look like for you down the road.
I Need To Account For Lifestyle Inflation
One of the best things you can do coming out of school is to live like a student for as long as you can handle it. Here’s the thing though – it doesn’t mean you have to live like a student forever. No matter what you do, even if you’re really cognizant of lifestyle inflation, it’s still going to happen.
If you don’t believe that lifestyle inflation happens, look at the way you lived in college. If you’re married, look at how you lived when you were a young, single person. And if you have kids, look at your lifestyle before you had kids. I imagine that in every stage of life, your lifestyle went up at least a little bit and you can’t imagine living the way you used to live.
10 years ago, I could live in a small 1-bedroom apartment with a futon and a crappy table and chair that I fished out of the trash. Today, with a family and people to care about outside of myself, that type of lifestyle simply isn’t realistic.
I’ve tried not to inflate my lifestyle but it has happened. My finances have done well over the years because my lifestyle inflation has been slow – creeping slowly upward, but at a level where I’m still able to save a lot of money.
But at some point, there’s going to be a reckoning. I don’t live in a house that’s my forever house. At some point, I’m going to upgrade it. That’s going to dramatically increase my cost of living. It’s the nature of my life right now. I want different things in my mid-30s compared to what I wanted in my mid-20s. And it means my FI number – if I had one – would be very different too.
I see a lot of people creating their FI numbers when they’re at a different point in their life, under the assumption that they’ll be happy living that way forever. It’s not impossible – but it’s not easy. Lifestyle inflation isn’t necessarily a bad thing. It’s just a sign that something has changed in your life. The key is to control it so that it goes up in a way that you can afford.
What lifestyle inflation does mean is that whatever FI number you have might not be the one you want later down the road.
The Future Is Too Unknown
Not only is the future for you too unknown, but the future, in general, is also too unknown. Even if you’re aggressively chasing your FI number, you’re still looking at a timeline a decade or more into the future. It’s pretty hard to plan your life that far in advance.
A decade ago, if you’d told me that my dream life would be to write and deliver food to people on my bike, I’d have no idea what you were talking about. I’d never written anything at that point in my life. I barely rode a bike. I didn’t even have a smartphone. At 22 years old, my idea of a good life was to go to a good school, get a good job, and live an upper-middle-class lifestyle like a normal person.
Back then, I basically thought that there were only two jobs in the world – doctor or lawyer. It never occurred to me that there were many other paths that I could take. I didn’t know what I didn’t know back then. I certainly had no idea what the future would look like.
And since I didn’t know what I didn’t know, I didn’t have much of a framework about what type of life I really wanted to live or the type of work I really wanted to do. I had never really written anything when I first discovered financial independence. How could I know it would light me up? And these gig economy apps that I have so much fun with now barely existed back then. How could I know that these things would be the things I’d like to do?
It turns out there is an infinite number of ways to create the life you want. Setting a FI number and aiming to save your way to the life you want is one way you can do it. A few years ago, I thought that was the only way you could do it. Getting exposed to new things completely changed how I thought about the world. Over the decade or more that you’re saving towards your FI number, you might get exposed to new things that completely change how you think about the world and yourself too.
Create Your Own FI Instead
When you get at the heart of it, the point of financial independence is to allow us to do the things we really want to do. It’s not about sitting around on a beach doing nothing.
The beauty of this is that we don’t necessarily have to wait around to hit the magic FI number before we go do the things we want to do. Instead, we can figure out what we want to do now and create a life that lets us do that.
Creating your own FI isn’t easy. There’s no formula or numbers you can use. There’s no blueprint or path you can follow. I can’t tell you how to create your own FI. That’s something you have to figure out on your own. It’s going to be scary. Fear might hold you back. But remember, the worst-case scenarios that we all fear rarely happen.
If you have a FI number and your goal is to hit that mark, that’s completely fine. But my thinking is to get beyond that. There’s a lot more to life than just numbers. What is it that you really want? You might not know yet. Give yourself time. The world is a big place with a lot of options.
Financial Samurai says
You make a great point, and I too, wasn’t able to properly forecast my lifestyle inflation.
I thought I would be happy with about $100,000. But With lifestyle inflation, now two children, and inflation over the past 12 years since I left work in general, I think we’d like $300,000 a year!
As a result, I went back to the grind after the pandemic hit. Because why not make more money with less things to do?
I’m hoping my FI number will no longer inflate as rapidly!
Financial Panther says
I feel like, at some point, the lifestyle inflation probably starts to flatten out, right?
Average Joe says
Great article panther. I think some people have FI number just at least have some kind of goal to work to. It does not have to be precise number, but 25 X current expenses is great estimate. Once people hit the FI number, they can raise the number higher or retire. You cant lose here, even if you dont retire after you hit FI #, you still end up with tons of cash saved. In the end, it is all about saving big piles of money.
Accidentally Retired says
Love it! My worst case scenario is that I simply have to go and get a regular job. I doubt that’ll ever happen, but if that is the worst case scenario, I am fine with it.
I never had a FI number until I “retired” – it just sort of happened. Sure I would probably like to have MORE, but I also enjoy the flexibility I have now. There is more to life than just numbers. Cheers!
Great article. I agree, and fairly recently, I revised our plan to have four different milestones that would guide us to live the life we enjoy, allow some space for lifestyle inflation, but keep us conscious of our spending and investing goals year over year. We’re well past those hazy days of our early 20s but I know that the lifestyle we enjoy now will not likely be what we’re looking for when we’re 50, 60, and beyond. Our target for when I turn 50 is quite a bit higher than our first FI milestone number. When we hit our first FI milestone (should be this year or next, woohoo!), we plan to scale back on working full-time and do some budget-friendly slow travel.
No FI number for us either. I guess we march to FatFire to insure against uncertainties.
This: “Instead, we can figure out what we want to do now and create a life that lets us do that” — is eventually the goal, right? I guess at some point in all our FI journeys, we build enough to let go off on the salary to do exactly that.
You are already doing that – bravo you. But most are not built as strong 🙂
Dividend Power says
There is always lifestyle inflation it is very hard to avoid it.
YES! This is where I think so many young people on the road to FIRE get caught. But it’s not just lifestyle inflation. It’s also lifestyle NEEDS. Now that I’m in my 50’s (still very strong and fit) I can continue to do what I can to take amazing care of myself, but I may still need medical support down the road. I may need meds that aren’t covered by insurance. I may need a therapist.
I may need to fly somewhere to be with someone else who is in need.
Assuming you can cap your income at something crazy like 40K per year for the rest of your life is incredibly naïve.
Agreed. We hit FI at the end of last year and began getting some of those tasks done that we had been neglecting, like organizing the old file cabinet and photos. It came to light that our estate papers were 10 years out of date. So that was an expense, same as needing to help out our daughter with a few thousand. We have a contingency fund so these things were not a problem, but how many other things may come our way as life goes on?