A Better Financial Freedom Yardstick?
Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten.
This is what your net worth should be. As an example, a 30yr old person making $100k/year should have a net worth of $300k [(30 x $100k)/10].
I've recently had in my head that I like a different simplified measuring stick a little better:
Take 3-5% of your net worth and compare that to your annual expenditures.
This in my mind gives you a better indication of where you are at relative to your expenses and risk tolerance. I think that 5% is an aggressive withdraw rate that has a reasonable possibility of wiping out your net worth over 30 years and 3% as a conservative withdraw rate that has a high probability of lasting 30+ years so the range gives an indication of where you are at depending on risk tolerance.
I know that if I can get our annual expenses to near the $25.6k-$42.7k/year range or increase our net worth so that our expenses of ~$60k/yr are at the low end of the withdrawal range I have a reasonable view that I'm financially free. We are clearly shooting for the latter with our $2million net worth goal. With a $2 million net worth goal we would be in the $60k-$100k/yr range.
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