Financial Independence Books (2024)

FAQs

What is the average income for financial independence? ›

$94k is notably higher than the average earnings of full-time, year-round workers in 2021, which was $75,203, according to Census Bureau data. While $94,000 per year may be the perceived benchmark for financial comfort, the definition of financial independence can vary significantly from person to person.

“Household formation costs are very expensive, college is very expensive – everything costs more. I have a lot of empathy for people who are just starting out.” That said, the typical age of financial independence should be between 20-23 years old, according to a Bankrate survey.

The 4% rule says that retirees can withdraw 4% of their savings the first year and then adjust for inflation in future years if necessary to not run out of money in retirement. The 4% rule also assumes a 30-year retirement goal, so if you plan to retire earlier than that, this may not work for you.

1: Calculate Your Estimated FIRE Number. To reach financial security, you first have to figure out how much money you'll need to consider yourself financially independent. One way to approximate this number is with the rule of 4, sometimes also known as the 4% rule.

As mentioned, $500,000 can last for over 30 years if budgeted correctly. However, there are a number of caveats to this, including how long you need your retirement savings to last you. For example, if you retire at 40 and need enough retirement savings for another 40 years, you may struggle.

The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.

Older workers and people over 65, who are largely retired, have experienced the sharpest rise in financial hardship among all age groups compared with a year earlier, according to an analysis of U.S. Census data.

The Bottom Line

If you start early enough—say, in your 20s—and follow the steps listed above, you may become financially secure by the time you reach your 30s. If you're older, all isn't lost. You can still reach your financial goals as long as you have a plan and adhere to it.

In this case, financial independence means having enough in your savings and investment accounts — around 25 times your annual expenses — so you can retire early. FIRE devotees are dedicated to saving and investing as much of their paycheck as possible in order to retire long before the traditional retirement age.

It doesn't take an exorbitant salary, either. Americans say they'd need to earn about $94,000 a year on average to feel financially independent. That's about $20,000 more than the median household income of $74,580.

What is the 50% cash rule? ›

The 50% rule advises investors to estimate a property's operating expenses will amount to roughly half of its gross income. While this estimation proves helpful in projecting rental property cash flow, it is not a flawless measurement and should only ever be used as a starting point for further research and analysis.

Known as the 4% rule, Bengen argued that investors could safely set their annual withdrawal rate to 4% of their initial retirement pot and adjust it for inflation without running out of money over a 30-year time horizon.

Financial freedom means you have enough financial resources to pay for your living expenses and allow you to afford many of your life goals without having to work or otherwise commit any of your time or efforts to generating money.

The cost of living comfortably: On average, Americans feel they'd need to earn over $186,000 to feel financially secure or comfortable, a 20 percent drop from 2023 but still more than two times what the average full-time, year-round worker earned in 2022 (about $79,000), according to Census Bureau data.

In this case, financial independence means having enough in your savings and investment accounts — around 25 times your annual expenses — so you can retire early. FIRE devotees are dedicated to saving and investing as much of their paycheck as possible in order to retire long before the traditional retirement age.

The previous numbers looked at income, but what about net worth? An average net worth of $2.2 million is needed to be considered wealthy, according to Charles Schwab's 2023 Modern Wealth Survey, which asked 1,000 adults aged 21 to 75.