How Much Money Do You Really Need to Be Financially Independent?

Most people dream of living a comfortable life without worrying about money. Though many people see this as lofty dreaming about yachts and summer homes, more and more people are turning these ideas into an achievable reality and gaining financial independence at a staggering rate.

Financial independence means that you’re able to live comfortably within your means and have a sizable savings pool to draw from. The exact amount of money you need varies based on your expenses but is usually achievable within a reasonable amount of time if planned accordingly.

That doesn’t mean it’s necessarily easy. You’ll still have to work on increasing your income, setting aside enough in a secure savings account, and managing your expenses to keep them within your goals. But it is doable, and that’s the first hurdle to cross when making lifetime goals.

Here’s what you need to know about how to become financially independent and potentially independently wealthy.

What It Means to Be Financially Independent

To understand how much money you need in order to be fully financially independent, you need to understand what that phrase means. Simply put, financial independence is when you’re able to live on your own income and savings without having to have outside help. 

Consider an established adult with a regular salary, capable of owning a home and car. This person would be able to travel regularly and pay for medical expenses and repairs without having to constantly check their accounts or cut anything from their daily life to afford it. They’re able to retire at a reasonable age and continue living as if they still had their job. This is financial independence at its ideal.

Forbes described it as a “state of being in which you don’t have to work to pay your living expenses” (though this isn’t quite right, more on that below) and cites the Financial Independence, Retire Early (FIRE) campaign as a major incentivizing plan among young adults.

FIRE plans rely on achieving a livable net worth as young as possible through frugal living, smart budgeting, and careful investment.

Net Worth by Age

So what is a livable net worth to have? That depends on the kind of living you hope to achieve. Your net worth is a cumulative sum of your assets across all of your accounts and including your debts and properties such as cars and real estate.

Average net worth can be broken down by age.

  • Adults less than 35 years old are worth, on average, $76,300.
  • Adults ages 35-44 average at about $436,200.
  • Adults ages 45-54 average at $83,2000.
  • 55-64-year-olds’ average worth is $1,175,900.
  • 65-74-year-olds’ average worth is $1,217,700.
  • The average worth for adults over 75 years old drops to $977,600.

You can use an online net worth calculator to estimate your net worth and compare it to the average for your age range. This will let you know what your income goals should be and which areas of your budget need the most attention in order to gain financial independence as soon as possible.

How Much Money Do You Need to Be Financially Secure?

The first step to financial independence is financial security. To be financially secure is to be confident that you have enough income to comfortably support your current lifestyle, as well as a large enough savings pool to cover emergency and unexpected expenses. Essentially, it is being able to live without worrying about how to save money on a daily basis.

CNBC reports that, as an average, Americans considered themselves financially secure when they had at least $500,000 saved. This comes from an average of responses from adults with a variety of backgrounds across multiple age and demographic groups.

How Much Money Do You Need to Be Independently Wealthy?

Once you’re financially secure, you can focus on the second part of financial independence: becoming independently wealthy. This means that you’re able to live without having to work at all. 

Independent wealth is different from financial independence. Financially independent people rely on no one but themselves to provide for all of their expenses, but they may still work and have income streams. Independently wealthy people don’t have to work at all and instead rely solely on their existing savings and interest earned from them to live.

Of course, this is the ultimate goal of most FIRE plans, as the highest form of financial independence is independent wealth, as it allows you to be completely free from financial worry.

The exact amount you need to become independently wealthy depends on your monthly expenses and current savings. The general rule of thumb is that, to be considered independently wealthy, you need to have at least 25 times your annual expenses in savings. 

For instance, if your monthly expenses are about $4,000, then you’ll need $48,000 per year to break even. That means, to be independently wealthy, you’ll need $1.2 million in savings.

The 4% Rule

Most experts talking about independent wealth and financial independence, in general, will refer to something called the 4% Rule. According to this rule of thumb, in order to retire comfortably, a person needs to be able to draw on 4% of their savings annually and have that amount exceed their annual expenses.

Say, for instance, that you have a retirement account worth $1 million. According to this rule, you can withdraw $40,000 per year of retirement, adjusting for inflation, and live comfortably for 30 years. This is especially true if you’re able to secure an account with a good rate of return, as this will increase your withdrawal pool, extending the life of your retirement fund.

That being said, the 4% Rule is rigid and doesn’t account for increasing medical expenses as you age or extended retirements. It also doesn’t account for overall increases in life expectancy. Still, it’s a good jumping-off point for planning, as it gives you a savings goal to shoot for based on your current lifestyle.

Setting Financial Goals for Financial Independence

With a basic understanding of what financial independence entails, you can begin to plan for and work toward it. This means setting a timeline, establishing a budget, and setting goals along that timeline within your budget.

How Long It Takes to Become Financially Independent

Looking at it from a realistic standpoint, it can take between five and ten years to become completely financially independent, according to most experts. Thus, you shouldn’t expect to be completely independent until you are in your late twenties or early thirties at the earliest.

This timeline assumes many things. For one, it assumes that you’ve got a consistent income stream throughout that time, which may be untrue if you’re just starting out on your own as a young adult. It also doesn’t take into account pay raises and the chance for unexpected expenses.

You’ll want to take your current yearly income (taxes deducted) as your baseline for calculating your financial independence timeline. Then, set a realistic savings goal (most standard budgets account for a 20% savings per paycheck, but the higher percentage you can manage, the better). Consider the following equation.

  • Annual Expenses x 25 / (Annual Income x Allotted Savings Percent) = Time in Years

Using this formula can help you track how many years you should plan ahead for your financial independence timeline. You may consider adding one or two years to give yourself more wiggle room.

Managing Your Budget for Financial Independence

If you aren’t already, be sure to start keeping a detailed personal budget document. This means auditing your current income and expenses on a monthly basis, which can help you track your yearly income. It also means taking into account your current assets, including cars and real estate, and your current liabilities, including debts and insurance costs.

Once you’ve got an up-to-date record of your current financial situation, sit down with a financial expert and create a personal budget plan. This plan can take many forms but generally includes setting aside money for necessary expenses such as gas and groceries, debt repayment and investments, and savings.

Be sure that you’re prioritizing saving, as your savings account is what will need to be bolstered to become completely financially independent. Remember your target savings percentage from your timeline and incorporate it into your budget plan.

Setting SMART Goals

One of the most important parts of setting a long-term financial plan is setting goals along your timeline to work toward. These smaller goals help to motivate you toward your larger goal by giving you regular updates on your progress. 

A commonly used method for developing intermediary goals is the SMART strategy. A SMART goal is:

  • Specific enough to avoid confusion or procrastination due to a lack of direction
  • Measurable to promote a sense of motivation and reward for progress
  • Achievable within a reasonable timeframe to push toward the next goal
  • Relevant to the broader goals on the timeline to add a sense of importance
  • Time-bound to offer a sense of urgency that might otherwise be lacking from long-term projects

A SMART goal on your timeline might be to pay off a credit card completely by the end of the year or to increase your financial literacy by subscribing to and completing a particular economics course. Whatever it is, be sure that it checks off all of the requirements on the list.

Regularly check in with your SMART goals and with your overall plan to ensure that you’re staying on track. Update it whenever there’s a change to your financial situation, and you’ll see steady progress.

Form a Guestimate Based on Savings and Anticipated Expenses

Figuring out how much money to save for financial independence doesn’t have to be a complicated or unrealistic dream. It doesn’t even have to be intimidating. It means that you’re able to live well within your means, even if something were to go wrong that required you to spend more money than you thought you would.

Having financial independence can give you the freedom you need to express yourself creatively, cater to your mental health, and focus on the larger world. It eliminates one of the biggest sources of stress in modern life. Is it any wonder that more people are aiming to achieve it?

Assess your lifestyle and expenses. See what you can improve and what you need to account for, then write it down. 

Set realistic goals for yourself, both long-term and short-term, and stick to them. As long as you do your research and plan your budget accordingly, you can achieve financial independence relatively early. You may even achieve independent wealth.

This was a guest post from Jessica Schultz is a personal finance writer for and has been helping others become debt free since 2019.

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