The CliffsNotes of FI

There are a lot of blog posts out there with all the detail you would ever need to understand the concepts and the math of Financial Independence (FI). This post is designed to provide a quick, easy read to summarize the concepts in play. Again, this is our interpretation and not meant as the end-all-be-all on FI-xpertisness.


First of all, if you don’t know what CliffsNotes are, you’re definitely a lot younger than the OGs.

Definition of FI

1)         Figure out what your income/annual spend will be in retirement. A lot of the minimalists or frugal types already early retired are generally in the $30-$40k/year range. OG2 is using $100k annually. Right now this is just a nice round number for me. It will become more clear as I research actual costs of where OG2’s family is going move after retirement. Additionally, we are doing some cost logging this year to capture where our money is actually going. cost logging…I think I made this phrase up and hereby declare ownership and all royalties hereto hither.

2)         You are Financially Independent (FI) when you have 25 times that number in liquid assets (cash, bonds, stocks or other income). I don’t count real estate or other illiquid assets. Your sweetie may have a $50k rock on her hand, but you’re not cashing that thing out to grocery shop.

·         Thus, $100,000 x 25 = $2.5M to be FI. There is some assumption built in, that your assets are invested in some sort of vehicle like low cost index funds.

3)         What makes the above number work is based on The Trinity Study and only drawing down 4% of your FI pile of money each year. Big ERN does all sorts of cool historic models and at 4% you have an 89% chance of never running out of cash. If you reduce that to 3.2-3.5%, the percentage of success goes up to nearly 100%.

Now, how do you get to the FI number?

1)         This may seem obvious, but it really is no more complicated than save your income and don’t spend money. Poof! The magic genie is out and this is all you need to know. Now go enjoy your retirement.

2)         Of course there are many other details, but start here:

1.    Maximize any pre-tax saving plans (401k, HSA, etc.) This lowers the amount of taxes you owe while maximizing your retirement savings.  Research the math if it makes you feel better. Just know that the more you put into pre-tax savings, the better off you will be and it’s not as big a hit on your take-home money as you likely perceive.

2.    Maximize your post tax savings and invest that money in a low-cost, total market index fund (Vanguard, Fidelity, Schwab all have excellent choices).

Some other highlights:

·         This is a generalization, but it should get you thinking. Assuming your current standard of living continues to be the same in retirement:

·         Saving 50% of your income allows you to hit FI in 10-15 years. A 75% annual savings rate will drive meeting that goal in less than 10 years. This is the other part of the magic to ‘FIRE’ (Financial Independent Retire Early).


This is where those whipper snappers are making a conscious choice to not work for 30+ years. The goal isn’t necessarily yachts and mansions, but a comfortable retirement life that is much longer than the standard concept of starting when you’re 65.


A big reminder… this is a VERY high level overview. There are a lot of other details and many avenues to explore to maximize your FI journey. This post is intended as the caveman club to hit people on the head with the simplicity of the basic FI concepts. In peeling back the layers you’ll want to start understanding IRAs, concepts of Backdoor and Mega Backdoor Roth contributions, Health Savings Account mechanics, consumerism, minimalism, frugality and dozens of other details. It can be like a firehose, but I assure you it is all worth your while. There are plenty of blogs and podcasts that delve deep into these subject for which you can educate yourself. Again, the OG’s suggest you start with ChooseFI. These guys do an awesome job with interviews, which will send you down lots of rabbit holes of other blogs.


Have fun! – OG2


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