For most of us, financial independence won’t come easy. It takes years of spending less than you earn. If you’re curious just how long it will take for you to reach this stage, give this calculator a try.
If you’re a fan of the popular money blogger, Mr Money Mustache (MMM), you’ll appreciate this tool, which was built by fans and readers of his site. MMM discusses the topic of financial independence quite a bit, breaking down both the numbers and psychology behind it. He’s pretty straightforward about what it takes to reach this stage. For example, in a recent post on early retirement, he wrote:
How could anyone possibly complain about having money problems, while simultaneously paying tens or hundreds of dollars per month to have passive video entertainment and commercials streamed into their house? People are simultaneously robbing themselves of money and the necessary mental quiet time that is a prerequisite to getting ahead — building skills, meeting people, getting better jobs or starting better businesses. The average person spends over 95% of what they earn and burns most of it on necessities that aren’t really necessary.
Like most personal finance blogs, his is about cutting back and doing what it takes to get out of debt, build wealth, and, eventually, become financially independent. This happens when the passive income you earn — money from investing, for example — is equal to or greater than your basic expenses. In basic terms, it means you earn enough passive income that you don’t need to work any more.
If this resonates with you, check out the Financial Independence calculator, which tells you how long it will take for you to earn enough passive income that your expenses are paid for without having to work. It’s sort of like retirement, but most retirement calculators focus on what you need based on the amount of time you have. This calculator, on the other hand, focuses on how much time you have, based on what you’re saving and withdrawing.
First, you’ll enter your yearly expenditures and withdrawal rate — the per cent of your net worth you’ll pull from every year. Then, you’ll enter your current net worth and yearly savings. It assumes an inflation rate of 3% and an interest rate of 7%, but you can adjust those numbers.
From there, the calculator will tell you how many years you have until you’re financially independent. Check it out for yourself at the link below.
Financial Independence Calculator [Mustache Calc]