Time To FI
There are a couple questions that pop up frequently in the comments sections of posts and forum threads about computing time to Financial Independence (FI):
- What about inflation?
- What about salary raises?
Good news: these factors are essentially already accounted for in most “Time To FI” analyses. Why/how though?
We’ve previously discussed how long it takes to get to Financial Independence (FI) starting with a net worth of $0, and starting with more than $0. But what if you have a NEGATIVE net worth? In other words, what if you have significant debt (e.g. credit card debt or student loans)?
First off, unless you took on student loans to obtain a degree that will power a high paying career, you need to recognize that YOUR HAIR IS ON FIRE! Action must be taken immediately!
In the last article, I described how the time it takes to achieve Financial Independence is based on three factors: 1. Your savings rate (by far the most important factor), 2. the assumed investment ROI (usually something conservative like 5% to 7%), and 3. the withdrawal rate assumed (usually around 3.5 to 4%).
BUT, I used a big assumption: starting with $0.
But really, nobody has a net worth of exactly $0.00 (well, I’m sure there might be a handful of exceptions at any one time on a planet of 7.9 Billion).
50%. Or higher. 70% to 80% is even better.
Am I serious? I can’t possibly be serious. Right?
Actually, yep, I am totally serious. And yes, I know that’s a crazy simple answer and probably seems totally impractical for most readers. But hear (read?) me out.