How to Calculate Your Financial Independence Number Step by Step

Six Steps to Your Financial Independence Number

Calculating your financial independence number sounds complicated. It's not. You need six steps, a calculator (or a 60-second online tool), and 10-15 minutes of honest number-crunching.

By the end of this guide, you'll know exactly how much you need, how far along you are, and when you'll get there.

Step 1: Track Your Monthly Expenses

This is the most important step, and the one most people skip. Your financial independence number is based entirely on what you spend — not what you earn.

How to do it

Pull your last 3 months of bank and credit card statements. Categorize everything:

• Housing: Rent/mortgage, property tax, insurance, maintenance
• Food: Groceries and dining out
• Transportation: Car payment, insurance, gas, maintenance, public transit
• Insurance: Health, dental, life (not included in housing/auto)
• Utilities: Electric, gas, water, internet, phone
• Subscriptions: Streaming, gym, software, memberships
• Personal: Clothing, haircuts, gifts, entertainment
• Irregular: Annual fees, car repairs, medical costs, travel (divide annual total by 12)

Add it all up. This is your true monthly spending. For most people, it's higher than they expect. That's okay — honesty now saves you from a false sense of security later.

Example: After tracking everything, you find you spend $4,800/month.

Step 2: Adjust for Post-Work Life

Some expenses disappear when you stop working. Others appear or increase.

Remove

• Commuting costs ($200-500/month)
• Work wardrobe ($50-100/month amortized)
• Work lunches and coffees ($100-200/month)
• Payroll taxes like Social Security and Medicare (these are on earned income only)

Add or increase

• Health insurance if losing employer coverage ($300-600/month individual, $800-1,500/month family)
• Hobby and recreation spending (more free time = more spending opportunities)
• Travel (if that's part of your retirement vision)

Example: Remove $350 in work costs, add $400 for health insurance. Adjusted monthly expenses: $4,850.

Step 3: Apply the 25x Rule

Multiply your adjusted monthly expenses by 12 (to annualize), then multiply by 25.

The 25x multiplier comes from the 4% safe withdrawal rate. With 25 times your annual expenses invested, you can withdraw 4% per year to cover your costs indefinitely.

Example:

• Monthly expenses: $4,850
• Annual expenses: $4,850 × 12 = $58,200
• Financial independence number: $58,200 × 25 = $1,455,000

That's your target. Your FIRE number. Your Quit Number.

Step 4: Subtract What You Already Have

Your financial independence number is your destination. Your current invested savings is your starting point. The gap between them is what's left to build.

Add up all invested assets:

• 401(k) / 403(b) / TSP balance
• Traditional and Roth IRA balances
• Taxable brokerage account balances
• HSA balance (if invested)

Don't count your emergency fund, home equity (unless you plan to sell), checking account, or car value.

Example: You have $320,000 across your 401(k), Roth IRA, and a taxable account. The gap: $1,455,000 - $320,000 = $1,135,000 remaining.

Your Quit Score: $320,000 ÷ $1,455,000 = 22%. You're roughly a fifth of the way there.

Step 5: Calculate Monthly Savings Needed

How much do you need to save each month to close the gap? This depends on your timeline and expected returns.

Assuming 7% annual returns (a reasonable long-term average after inflation for a stock-heavy portfolio):

• To retire in 10 years: you need about $5,200/month in new investments (your existing $320K grows to about $630K, leaving ~$825K to build from contributions)
• To retire in 15 years: you need about $2,800/month (your existing savings grows more, carries more weight)
• To retire in 20 years: you need about $1,500/month (compound growth does most of the work)

These numbers feel large at first. But remember: you're already investing something. The question is how much more you can redirect.

Step 6: Find Your Date

Given what you currently save each month, when will you hit your number? This is the most important output of the entire exercise.

Example: With $320,000 invested and saving $3,500/month at 7% returns, you'll hit $1,455,000 in approximately 13 years. If you're 33, your Quit Date is roughly age 46.

That's not a vague dream. That's a date you can plan around.

What If the Numbers Don't Work?

If your projected Quit Date feels too far away, you have three levers:

1. Reduce expenses

Every $100/month you cut reduces your annual spending by $1,200 and your FIRE number by $30,000. It also frees up $100/month for investing. The double effect is powerful — a $500/month expense cut can move your Quit Date forward by 3-5 years.

2. Increase income

A raise, a better-paying job, a side income stream — extra earnings invested directly accelerate your timeline. The key is investing the increase, not spending it.

3. Consider a partial step

You don't have to go from full-time work to zero work overnight. Coast FIRE (stop saving, let growth finish the job) and Barista FIRE (work part-time for benefits and fun money) are intermediate milestones that come much sooner than full FIRE.

The Shortcut: 60 Seconds

You just walked through the manual version. The faster version: use the Quit Number calculator. It takes 60 seconds, handles all the math, and gives you your Quit Number, Quit Score, and Quit Date instantly.

Either way, the hardest part is now done: you know the process. The rest is execution — saving consistently, investing in low-cost index funds, and checking your progress periodically.

Financial independence isn't complicated. It's just not easy. But now you know exactly where you're going and how to get there.