I've noticed a common theme when talking with friends and peers (mostly in the 25-40 range) about the idea of financial independence. Many have wonderful dreams for what that means to them: "I'd love to retire and move to Europe one day," or "It'd be awesome to own a house in [insert HOCL area]" or even "I just want a simple life."
But when I ask how they're planning for it, it's clear they haven't done the math to connect that dream to a number, let alone a path to get to that number.
It makes me think there are two main ways to approach this, and I'm curious how this community does it.
Camp A: The "Number-First" Approach You pick a big, round number first (e.g., "$3M," "$5M"). The thinking is, "If I can just get to this number, I'll have enough money to figure out the goals and dreams later." It's about building the war chest first and foremost.
Camp B: The "Goals-First" Approach You start with the specific goals. You research the actual cost of that house, calculate the actual cost of living in Portugal or Spain, and add it all up. You work backward from those concrete life goals to create a highly specific, custom "number" you need to hit.
So, my questions for you all:
- Which camp are you in? Did you start with a number or with your goals?
- If you're in Camp B, how did you actually calculate the cost of your future goals?
- Did you find your "number" changed drastically once you itemized your actual life goals?
Thanks! I'm genuinely curious to hear how this community turns hopes into an actionable plan.
How do you plan your "number"?
byu/Mostly-Toastly22 infinancialindependence
Posted by Mostly-Toastly22
6 Comments
I read the fast lane book and followed their guide, coming up with 36 million to fund my dream lifestyle.
Then I toned it down to 5 million, which would give us an annual income of double what we earn now, and is actually achievable.
So I guess I jumped from camp B to camp A?
I’m early on in my journey right now and I’m camp 1. As I get closer and hone in on my number, I imagine I’ll be more in camp 2
Build the habits first. Any number is imaginary if you’re not spending less than you earn, and investing the difference.
Then, as the saying goes, **Build the life you want and then save for it**. Your life will undoubtedly evolve, so it’s pointless at 25 getting caught up about real estate prices in Spain when you’re 45 (and as someone who had Brexit thrust upon me, this specific example is real!).
Right now, for example, we’re pretty close to hitting “our number” (annual expenses / SWR %). Our goal once FI/RE is to travel the world full-time … so we have started doing that in advance, and what we’re learning is that a lot of our spending assumptions may be off. More specifically, the things that actually make us happy are not quite the things we thought were most important; and our money doesn’t stretch as far as we thought. Next year we’re going to wander South East Asia because it seems to tick the lifestyle boxes we have learned are important, and that will tell is whether our FIRE budget is realistic or not.
Had we crunched those numbers 2/5/10 years ago, we would have been way off – not least because what we thought would make us happy turned out to be wrong.
Camp B. We estimated our expenses and multiplied that by 33. Not 25 because we anticipate a 40 year retirement so went more conservative.
Now retired for 2.5 years and traveling full time, we’ve been pretty spot on with our estimates. In fact we could be spending more but just haven’t needed it (SE Asia, Latin America are pretty inexpensive).
Let’s be honest. Most people are not going to change their spending drastically from current life. I’d say look at your life style and spending now.
Compare taxes changes, travel changes, and housing changes from when you retire and make small adjustments up or down. Then add 10% to your annual spend.
Finally decide if 4% withdraw rate is good for you and pull the trigger.
I tracked my spending for 2 years + created a list of expected one-off expenses for the next 10 years. Multiple the expected yearly expense by 25 and that’s my FIRE target. I can’t plan for more than 10 years, because all my future decisions at that point will depend on my portfolio performance, any supplementary income I get (e.g. I have a ~25% chance to inherit some money within 10 years), etc.
So I’m definitely the planning type, although I also like round numbers (even though my FIRE target is not a round one).