What Is FI or Financial Independence?

At A Glance – Financial Independence gives you freedom and options. FI can mean work is optional and YOU choose how to spend your time and money.

Definition of FI

FI or Financial Independence means having enough money saved and invested to cover your living expenses without having to work again.  This means your assets and investments are generating enough income that you are no longer dependent on a paycheck.

These assets could be one or more of the following: money that is invested, passive income from a business, or rental real estate.

Why Would You Pursue FI?

Being financially independent means you have choices. It means the freedom to pursue your dreams. To spend your time the way YOU choose.

FI could mean traditional retirement, but it doesn’t have to. FI can provide a multitude of options.

Having the ability to pursue a passion project. You might have a hobby, charity or project that lights you up, but you don’t have enough margin in your current life to pursue it.

Having time to spend with your family. I don’t think anyone ever reaches the end of their life and says, “I wish I’d spent more time at work.”

Having the freedom to travel. Are there places you’d like to visit, but you can’t fit it into your limited vacation time at work? How would you like to spend a month living like a local in your favorite destination?

Being able to take a job you love, but with lower pay. Is there a job that you know you’d love, but you can’t take it on because it won’t pay enough? With financial independence, you can have a job you love no matter the pay scale.

Being able to walk away from a toxic job, or not being afraid of the next layoff. If you are living paycheck-to-paycheck, a layoff is a catastrophe. If you work in a toxic situation, you might feel you have no choice because you NEED the job. Fi gives you some cushion to find another job or negotiate a better situation at the one you have.

How Does FI Compare To The “Normal” Path?

The Normal Path

Most of us have drifted into the “normal” path for our lives. It’s what society expects and what everyone around us is doing.

Here’s the scenario. Get good grades so you can get into college. Get the college degree that will usher you into a good job – along with the five or six figures of student loan debt. Get the big house, buy 2 new cars, and trade those cars up every few years. Then remodel the house to be HGTV worthy. Buy the boat and the toys, but you won’t use them much because you’re working 50-60 hours/week. Work for 40 years and retire.

It’s the American Dream, right? But with the payments and stress that comes with that lifestyle, it can easily become the American Nightmare! I know – been there, done that. Read my story here.

Stephen and I started our lives on the typical consumer treadmill. We had good jobs with middle-class pay. We immediately bought a house and a car. Then a boat and a yacht club membership. Because we started out with a card table and a hand-me-down loveseat, we thought we were being frugal!

Everyone around us was in the same consumer trap, so we didn’t think there was a problem. We were like the frog in the boiling water – we didn’t notice we were getting cooked.

The FI Path

What if you could turn the “normal” path into one where you are in control of your destiny? What if working was an option. What if vacation was on your terms?

Financial independence offers you SOOO many options. In addition to those stated above, it brings peace and joy. You have the time, the mental bandwidth, and the resources to pursue your dreams and your goals. You can align the way you spend your time and energy with your values.

How Do You Calculate Your FI Number?

As I mentioned above, being FI is when you have enough money saved and invested to cover your living expenses without having to work again. So how much money is that? How do you calculate your “FI Number?”

There is a rule of thumb that is generally accepted as the way to calculate your FI number. It’s called the 4% Rule. The 4% Rule says if you withdraw approximately 4% of your invested assets per year, you will not run out of money. You can calculate the amount of money needed in investments by multiplying your annual expenses by 25.

Annual Expenses x 25 = Amount needed in savings


Savings x 4% = Amount you can withdraw per year

For example, if you have annual expenses of $40,000, you will need $1,000,000 in savings. Or, stated another way, if you have $1m in savings, you can withdraw approximately $40,000 per year and not run out of money.

Calculating Annual Expenses

This means you need to know what your annual expenses are. If you already know what you spend per month or per year, Great! If you don’t, you will need to look at your spending to find out.

One way to get this number is to Track Your Spending for a period of time. You really need to track your spending for more than one month to get a good feel for what your life costs. Life is lumpy and no two months will be exactly the same. I would suggest you track for at least three months. Six would be even better. Then you can catch big things like insurance premiums or property taxes.

Another way to get a feel for what your life costs is to look back at your expenses. Look through your checking account and credit card statements. Any place that shows where money has left your hands. Add it up for a period of time and then see what that would be for a year. For example, if you have tracked or looked back for a six-month period, multiply that number by 2 and you will have what an entire year costs.

Now, take that yearly number and multiply it by 25. This gives you your FI number!

If this is a much larger number than you were expecting, you may need to evaluate your current situation. Can you cut back on your spending? Can you increase your savings rate? Either of these tactics will help get you to FI faster. For every $100 you can cut out of your overall spending, you will need $2,500 less in your investments.

How Do You Achieve FI?

Reaching FI is about your mindset and your savings rate. You can increase your savings rate by increasing income and/or decreasing spending. If you are young, you can manage with a lower savings rate and take a little more time. Or, you can increase your savings rate and get to FI sooner. If you’re not so young, like me, you need a hefty savings rate to get to the goal line. Either way, YOU choose, because YOU are in control.

Be aware, I am NOT suggesting that you live a life of depravation to get to FI. That is not the point. I don’t want you to be miserable for the next 10 years while on the path to FI. Enjoy your life as it comes. But with a few modifications and some intentionality along the way, you can optimize your life now in order to build a prosperous and meaningful future.

There is a cornerstone article I’d like you to read on the Mr. Money Mustache blog that explains how your savings rate and FI are related. It’s called The Shockingly Simple Math Behind Early Retirement. The first sentence in this post says, “This is the blog post that shows you how to be wealthy enough to retire in ten years.”

Again, FI is not necessarily about retirement. It can be, but it’s more about choices and freedom.

Types Of FI

There are as many different types of FI as there are people in the FI community. Here is the description of a few.

Half FI

Half FI is just what it sounds like. This would be your yearly expenses x 12.5. Congratulations! You’re halfway there.

Lean FI

Lean FI is when you have 25 times a “lean” budget saved. You could stop working, but you would be living lean.

Coast FI

Coast FI is defined this way. You have enough in savings that if you never added another dollar to it, you could retire at a normal retirement age. This means you have enough to “coast” into retirement. You only need to earn enough to cover your current expenses without saving any more.

Barista FI

Barista FI loosely means you have enough money to be “mostly” FI. It could mean you work a part-time job to have something to do or to supplement the amount of money you are withdrawing from your investments. That way you could withdraw something less than 4%. Along with your part-time pay, it will provide enough income to give you the lifestyle you desire.

Another reason for pursuing Barista FI is health insurance. Some folks have enough in savings to retire to the lifestyle they choose but would like help with their health insurance. There are a few companies that provide healthcare insurance coverage to part-time employees. In the past, one example of this has been Starbucks. I believe this is where the term “Barista” FI came from.


Regular FI is our normal definition of 25 times annual expenses saved. You don’t have to work again if you don’t want to.

Fat FI

Fat FI is when you have more than you need for regular FI. This would be defined as, say 30 times annual expenses, instead of 25 times. You have enough saved to have a life full of richness and generosity.

What Does The Bible Say?

God calls us to be good stewards of all He has given us. The bible tells us God loves a cheerful giver. It also says we are to be wise managers. I don’t want you to think I’m endorsing accumulating wealth just for the sake of wealth. Or that we should accumulate wealth only for our own comfort and pleasure. How much can you do for the Kingdom if you have the freedom to use your resources and your time for Him? How much can you do for the Kingdom when you are free of debt and financial burdens? We can’t do much for God if we are living paycheck-to-paycheck. That is bondage that affects our family, our witness, and our own relationship with the Lord. God wants us to give generously. Not only of our money, but of our time, our resources, and even our skills and talents.

Reader Responses

I recently asked my Started At 50 Facebook group, “What does FI mean to you?” Here are a few reader responses.

Randall: Freedom to live and give. I’ve discovered that giving to worthy causes and individuals in need is a lot more fun and fulfilling than spending.

Ashley: Having enough money that I don’t have to work if I don’t want to.

Brenda: I had time to enjoy my newborn grandchild this week, without thinking about a work schedule.

BL: Freedom and peace of mind.

Diana: Able to book one-way ticket to help someone and not worry about having to be somewhere to cut stay short.

Michelle: Being able to retire and not have to worry.

Key Takeaway – Financial Independence gives you freedom and options. FI can mean work is optional and YOU choose how to spend your time and money.

Assignment 1 – Calculate your annual expenses. Then find your FI Number. Congratulations! Now you know where you’re headed. You have a goal to work towards.

Coming Soon – What To Do If You’re Just Getting Started


  1. Good explanation of the different types of financial independence, or FI. Everyone’s needs will be a little different, but congratulations to those who put in the work to get their finances in order. The good news is that it’s not too late! As Mr. Money Mustache noted in his article that you linked, it’s possible to become financially independent in as little as ten years! That’s great news if you’re older and trying to catch up retirement savings.

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