The FI Formula, Explained

Published: 2025 • Reading time: ~6 minutes

Financial Independence (FI) boils down to one deceptively simple formula: your annual expenses × 25 = your FI number. But there’s more nuance behind it— from taxes, to investment returns, to flexibility in your plan. Let’s walk through it.

Step 1: Know Your Annual Spending

Start with your actual lifestyle costs—housing, food, transportation, insurance, travel. If you need $50,000/year, that’s your baseline.

Step 2: Apply the 4% Rule (or 25× Rule)

Multiply your annual spending by 25. This assumes a safe withdrawal rate of ~4% from a diversified portfolio. In our example: $50,000 × 25 = $1.25M.

Step 3: Adjust for Flexibility

• Taxes: withdrawals aren’t always tax-free.
• Healthcare: costs can vary dramatically.
• FlexFI: save more in some seasons, less in others.

Step 4: Revisit Often

FI isn’t one-and-done. Life changes, markets shift, kids grow. Re-run your numbers regularly.