How to Achieve Financial Independence With the ‘FU Number’
In this episode, we talk about crafting your escape plan from the 9-5 grind with the “FU Number”—that golden figure signifying your financial independence.
We dive into why knowing this number is important, the pitfalls of setting it too low or high, and the three pivotal questions to help you calculate your personal FU threshold.
0:00 – Intro
1:12 – “FU Number” is the Point Where Passive Income Exceeds Expenses
6:03 – Finding the Ideal Retirement Number
12:23 – The Importance of Having a Healthy Buffer in Case of Unexpected Events
18:53 – Outro
Many dream of reaching financial independence and no longer being tied to a 9-5 job. But how do you calculate the magic number that will allow you to gain that freedom?
In this post, we’ll break down the concept of the “financially unshackled” or “FU” number, why it’s important to find the right figure for your personal situation, and how to go about calculating it.Read More
What is the FU Number?
The FU number (also known as the “financially unshackled” number) refers to having enough passive income from your investments to cover your living expenses.
Once your passive income surpasses your expenses, you have the freedom and flexibility to make major life changes if desired, like leaving your job or taking an extended break.
The idea behind it is that you get to this point where you can tell your boss and the people you don’t care about, like, ‘Screw you, I’m out of here, I’m just gonna live life on my terms.'”
So, in simple terms, your FU number is the income level required for you to live the lifestyle you want without having to rely on earned income.
Why Finding Your FU Number Matters
Having a target FU number is essential because it gives you a tangible goal to work towards.
Without an end figure in mind, it’s easy to keep pushing financial independence further and further down the road.
Knowing your FU number also helps optimise your investment strategy.
You can calculate how much passive income you need your portfolio to generate and invest accordingly to hit that target.
Finally, hitting your FU number grants you flexibility and freedom.
You can make major life changes, take extended breaks from work, or leave your job entirely. This flexibility is invaluable.
The Drawbacks of Picking a Number That’s Too Low or High
When determining your FU number, it’s crucial to find the right balance. Both undershooting and overshooting your target number come with risks:
- Too low: Minimal margin for error, limited financial flexibility, potential shortfalls if your situation changes.
- Too high: Requires heavy savings and high investment returns. More vulnerable to market volatility and black swan events.
Underestimating leads to constant financial stress and compromise. Overestimating may take decades longer to achieve.
The key is finding a realistic FU number based on your lifestyle and values. Don’t let perfection be the enemy of progress.
How to Calculate Your FU Number
Here are three key questions to ask when determining your ideal FU number:
- What do I need today? Review your current living expenses so you have a spending benchmark. Be detailed and honest with yourself.
- What would I do if I wasn’t working? Visualise your ideal life. How would you spend your time and money if you didn’t have to work?
- If things change, will this be enough? Add in a buffer for increased expenses and unexpected events. Give yourself some wiggle room.
Take your time thinking through these questions.
The FU number right for a single 25-year-old will look very different from a 40-year-old with three kids.
Define what freedom means for your situation.
Reaching Financial Independence Is a Journey
You don’t have to wait until you hit your complete FU number to make positive changes.
Even having a portion of that passive income can grant you more flexibility and peace of mind.
So be patient with yourself.
If you’re feeling frustrated and burned out on the path to financial freedom, use your FU number as motivation. And remember, every small step in the right direction counts.
What does your version of financial independence look like? Have you calculated your FU number?
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