How much money do you need to attain financial independence? This is the question on the mind of many when it comes to the subject of financial independence. There is no one right answer. The answer differs from one individual to the other depending on your individual circumstances, your desired standard of living and the strength of your desire to be on your own, for those considering quitting their jobs. The stronger the desire, the more you are ready to sacrifice and the lower the amount you are willing to live on. You are the only person that can answer this question, and the earlier you have an answer, the better for you, as it helps you to plan ahead, including determining the size of your emergency fund. How long can you last if you lose your job today? That depends on how much you have saved and how much you need to live on monthly. Attaining financial independence is a milestone you need to plan on attaining earlier rather than later. It is a milestone that is unavoidable. You either attain it intentionally through deliberate financial planning or mandatory when you attain the retirement age, whereby you have no choice but to leave your beloved job. Individual circumstances vary widely. While some live in their own homes fully paid for, some still have a mortgage while some live in a rented apartment. That will determine how much you budget for shelter. Medical circumstances differ; though having a good health insurance creates a level playing field. There is the issue of lifestyle. Some folks go on vacation every year while some have never stepped out of their city of residence. There is also the issue of children education, if applicable. You may be willing to make some sacrifices, especially if you are really pissed off with your current job. You may chose to opt for cheaper holidays, less expensive private or a public school for the kids, let go of cable and mobile (if you have a land line) etc. There is an infinite number of ways to cut costs depending on what you value most, your freedom or status quo. Again, your cost of living normally drops when don’t have to commute to work every day anymore. Your transportation cost, lunch, wardrobe cost, phone bills, car maintenance cost and other costs associated with commuting to work goes down. Some costs also go up marginally e.g. electricity bills if you spend more time at home. After all have been said and done, you have to come up with a number which is often referred to as FIN – Financial Independence Number. This is your secret code to freedom. You are said to have achieved financial independence when your passive income equals or exceeds your FIN. This means you can afford to go to work anymore, if you so choose. Often your FIN is much lower than you think and many have achieved this number without being aware. When it comes to quitting your job, two powerful forces come into play – fear and greed. Fear makes you think your FIN is not enough while greed makes you keep raising this number. The end result is that you keep postponing your independence day (for those who want to be on their own). The mere thought of being on your own scares the living daylights out of you, so you keep postponing the ‘evil’ day. Like the monkey on a tree trapped with a fistful of peanuts inside a hole in the coconut, you are frozen in the valley of decision, faced with the choice between peanuts and freedom.
Posted on: Fri, 13 Sep 2013 09:25:51 +0000
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