My wife and I have reached the status of financial independence for our family starting from 2022 as our FI Ratio was 100%.
How to measure financial independence?
I use Financial Independence (FI) Ratio to measure the status of financial independence that my family currently has. Financial Independence (FI) Ratio is calculated by dividing your annual passive income by your annual spending and then multiply by 100.
If your annual passive income is USD$50,000 while your family spends USD$100,000 a year, then your FI Ratio is 50%. It means that your passive income covers half of your annual spending. As soon as your FI Ratio reaches 100%, you are financially free.
When living on passive income, the lower the annual cost of living, the higher the FI Ratio is going to be.
My financial independence results
We have already reached the status of financial independence starting from 2022 when our FI Ratio is forecasted to hit 100%. This means that our current Passive Income streams entirely cover our annual family expenses.
Despite being fully financially independent, we are planning to continue working in the next several years to generate more capital for investments. We want our savings to continue growing to enlarge the wealth snowball, and we like our jobs too.
Here is the summary of our FI Ratio (Passive Income divided by total annual expenses), starting from 2012 until 2023:
2012: 0% (No Passive Income whatsoever)
2013: 0% (No Passive Income whatsoever)
2014: 3% (Everyone starts somewhere. That 3% comes from tiny interest from bank deposits)
2015:17% (Much better!)
2016: 0% (No Passive Income again)
2017: 28%
2018: 108% (We were financially independent, (…), for just one short year)
2019: 30%
2020: 62%
2021: 88%
2022: 100% (Financial independence starts from here with having two independent Passive Income sources)
2023: 157% (Financial independence continues)
In the next couple of years, our Financial Independence (FI) Ratio is forecasted to be 150%-200% each year. All of the figures between 2024 and 2025 are quite accurate estimations:
2024: 177% (More financial independence. Oh, yeah!)
2025: 189% (Even more financial independence, and this number will continue growing after 2025)
However, due to the growth of our family, our spending will increase for sure. Therefore, realistically, I am looking at our FI Ratio to be around 150% each year on average. This will get us 50% margin of safety which is decent.
What will happen to our financial independence after 2025?
After December 31, 2026, we could easily retire early anywhere in the world joining the financial movement FIRE – Financial Independence Retire Early (FIRE). With appropriate Cash Flows from our investments, at some point in the future, we are hoping to live off Passive Income entirely as the family.
In summary, despite being financially independent, we will perhaps continue working our full-time jobs and part-time jobs in the next few years because we want to, not because we have to. I like teaching business management, however do not enjoy doing too much paperwork very much. I also want our savings to grow even bigger bringing more peace of mind.
