4 Financial Metrics To Track If You Want To Achieve Financial Independence

Track these 4 financial metrics so you can achieve financial independence in your life and break living paycheck to paycheck for good.

Four years ago, when I was on the fence about whether or not I should start a blog. I wanted to jot down my thoughts, make financial plans for my family and achieve financial independence. Writing my plan down on my planner wasn’t good enough. What I really needed was accountability. After several frustrations of losing scrap papers & spreadsheets and replacing my old computer with a new one, I couldn’t focus on the family financial plan I once hoped for. So I made up my mind and decided to start a blog. Blogging always keeps my financial plans on the “www” and comes with accountability which I needed. Perhaps my stories will inspire others to turn their things around too.

Little did I know, blogging takes a hell of a lot of time. However, along the way, I learned and gained blogging skills. I made new friends and our finances improved dramatically. I reached my financial goal of becoming and staying debt free. But the most profound thing I learned during my blogging journey is that reaching financial goals is just part of the equation. There’s more to it than that. Here’s the question I asked myself. What do I hope to get out of my life? And why do I want to achieve financial independence?

By blogging and making it accountable, I have greatly improved my family’s finances. After becoming debt free, I should feel fully happy, right?

Surprisingly, I feel as though I missed something. So what’s next? What now? I wanted to be debt free so bad that I didn’t think about the next thing in life. Because I was too focused on paying off debt, I got lost and forgot about everything else in life. I just knew that we wanted to be happy. Being debt free doesn’t make me happy. Being debt free is just a part of the journey to being happy. The same holds true when it comes to Financial Independence (FI). FI doesn’t make you happy. It’s just a small part of happiness.

So before we even talk about the 4 metrics to help you achieve financial independence, it’s essential to ask one important question to yourself. Because at the end of the day, it’s not all about money, is it? It’s rather about your life. It’s about the things that matter most to you. Money is just a tool. It can help you achieve the life that you’ve always wanted to live. What do you want to get out of your life?

Why are you pursuing Financial Independence?

That question might be too broad. Your answer today could be different in the future. Who knows what the future holds? Your goals change as you grow older or as your family situation changes. To help you answer that question, let’s think about what we want in life by answering some of these questions:

What are you going to do when you have reached FI?
Why is FI important to you?
What are the most important things in your life?
What benefits are you hoping to get when you have reached that financial state?
Are you ready to make the changes?
What matters most in your life?
What does it mean to live a life well-lived?
How would you feel after reaching FI?
What makes you happy?
What is your goal for life?

Perhaps by looking at these answers, it can help you figure something out:

I want the freedom to do what matters most in my life.
It helps me live the life I always wanted.
I want to get out of the living paycheck to paycheck.
Time, family, and freedom are the most important things to me.
I want to live a life on my own terms.
I want to be adventurous and pursue my passions.
Life is too short.
I want to live a meaningful life and not to live to pay bills.
It’s not always about money, it’s about the time.
I just want to travel and visit my family
I want to slow down, be lazy and just breathe.
Family and hobbies make me happy.
Meaning, fulfillment, and a life well-lived.

If any of the above answers resonate with you, you already know what you want to get out of your life.

One word about FI, achieving financial independence doesn’t mean you can’t work or are banned from working. It doesn’t mean you are financially safe for the rest of your life. It also doesn’t mean you can stop thinking about money or growing your money. That’s not what FI is all about. Being FI simply means the pressure is off. You don’t have to worry about working for a living ever again. Robert T. Kiyosaki the author of Rich Dad Poor Dad calls it the point where you can exit the rat race. Reaching FI simply means you are no longer in the workforce race.

Now that you’re more focused on what you want in life in general. How do we achieve financial independence, anyway? Let’s move on to the metrics. Shall we?

4 Metrics you need to track if you want to achieve financial independence

1. Financial Independence numbers (FI numbers)

FI means a financial state where you have enough wealth to cover your living expenses without the need to actively work for a living i.e. you no longer need to work for the money. The wealth can be from passive income or investment income or both and that can support you (and your family) for the rest of your life.

FI number means the amount of money that you need to financially live independently. It tells you how much money you need to support your ideal lifestyle. Basically, it’s the point where your passive income is equal to or greater than your living expenses.

So how do you calculate the FI number?

It’s very simple. However, since we don’t know what our life in the future would cost, I’d like to estimate that number from the present. First, you’ll need to gather your financial information, like your current monthly expenses. You can do that by looking at your last bank and credit card statements. Then, sum everything up. You’ll get a rough estimate of your monthly expenses. For me, I use this free online financial tool to get our monthly expenses. From that number, you’ll just multiply it by 12. This will be your annual FI number.

In my case, for example, we currently spend around $3,800 a month. So our annual FI number is $45,600. So we’d need to generate enough passive income equal to or greater than $45,600 a year to call our FI.

Based on the 4% rule, if we need $45,600 a year, we’ll need cash asset equal to or greater than $1,140,000 to become FI. That way, we can safely withdraw the asset at 4% without depleting the money for the rest of our lives.

In summary, using my example above, our FI numbers are:

Annual FI number = $45,600

Life FI number = $1,140,000

Remember this is just an estimate which is based on your current living expenses so it doesn’t have to be perfect. You’ll need to adjust and track it throughout your life because it’ll likely change. Right now, you may have a home mortgage. You have your kids to care for. In the future though, kids grow up and move out. Your home mortgage will be paid off eventually or perhaps you might decide to downsize. What about any health issues? Your actual FI number could be less or it could be more. Whatever the future life circumstances might be, your FI number may not be the same throughout your life. This is why it’s so important to track this number so you know where you stand and what to aim for.

2. Net Worth

Net worth tracking is crucial when it comes to pursuing FI. By definition, net worth means the differences between your assets and your liabilities. The assets are the sum of cash and cash equivalent you own while liabilities are the sum of everything you owe. Basically, it’s a financial metric that represents your financial score on a grand scale.

Tracking your net worth is also necessary if you want to retire early. It can tell you if you’re on the right track and what you need to improve financially. If your net worth is positive, congratulations, you’re ahead of the game. If your net worth is negative, it just means you have more room to improve. What you need to do are to increase your assets and to decrease your liabilities. Think about every financial action you take on a daily basis, and be mindful about your spending.

The ways you spend your money will directly affect your net worth. For example, instead of spending money on things that decrease your net worth (buying a new car every 5 years or taking an expensive vacation every year), perhaps, you may want to spend money on things that increase your net worth (buying low-cost index funds or maxing out your retirement contribution).

I didn’t realize the importance of tracking net worth. For the longest time, I thought being good at budgeting, saving money and investing were the only ways to build wealth. Tracking net worth can truly evaluate your financial health over a period of time. I can’t express how much of an impact tracking our net worth has done to my family. It helped me get out of nearly $100,000 of debt and achieve financial freedom. I’ve been using this online platform called Personal Capital and I totally love it. It’s super user-friendly. Everything is presented on interactive fancy charts. The most important is that it motivates me to increase our net worth. Personal Capital not only tracks your net worth but also provides great tools for evaluating investment fees, predicting your portfolio and managing your budget. The best thing is that it’s totally FREE.

If you’re new on net worth tracking, head to A Beginner’s Guide to Net Worth Tracking to learn everything you need to know about this metric.

3. Savings Rate

To achieve financial independence, you must build wealth. You cannot reach that state without saving money, plain and simple. Furthermore, your savings rate is the metric that will directly affect how long it takes you to reach FI. In the FIRE (Financial Independence Retire Early) community, a 50% savings rate is the norm. It’s whatever you bring home, you save at least half of that.

By savings rate, I mean your savings rate as a percentage of your take-home pay.

According to Networthify, it says if you have a 50% savings rate, you’ll reach FI in about 16 and a half years.

If you increase your savings rate to about 68%, you can get out of the rat race in under 10 years!

Let’s take a look at the social norm of having a 15% savings rate. it would take more than 40 years to achieve FI. That simply means you have to work until you’re in your 60’s if you start working and saving when you’re 20 years old. That’s mainstream. What if you don’t start working and saving until your 30’s? It simply means you’ll need to work until you’re in your 70’s! Crap – really!?!

For most middle-class families in the U.S. with a median take-home pay of $50,000 a year who save 10% of their income, they would need to work more than 50 years. Do you really want to work for that many years? I don’t.

As you can see, the savings rate is a very important metric when it comes to FI. It’s up to you. If you want to achieve FI quickly, you simply need to increase your savings rate. Easier said than done, but remember, everything is impossible but anything is possible.

In my opinion, the most important thing to keep in mind is that cutting your expenses is more powerful than trying to increase your income. I’m not saying that you should not try to increase your income. Here’s the thing. A dollar saved is better than a dollar earned because of the tax advantage. The main 2 reasons are that every frugal lifestyle change not only permanently reduces your spending but also increase your savings rate. The most exciting part is that an increase in savings rate reduces your FI number because it permanently decreases the amount of money you’ll need every month for the rest of your life.

According to the Trinity study or the 4 percent rule, for every $10,000 of annual spending you can eliminate, your Life FI number will be reduced by a quarter million dollars. Imagine if you can reduce your monthly expenses by $1,500 ($18,000 annually), your Life FI number will be $450,000 less. This is where the power of savings rate comes in to play.

So how do you calculate an annual savings rate?

Annual Savings Rate = [ (Total Savings Amount + Employer Matching Contribution) /

(Total Take-Home Pay) + Employer Matching Contribution) ] x 100

Total Savings Amount = Amount of money you save in a year. If you make additional principal payments toward your loan (mortgage, car, personal loan, student loan, and other loans), include them here as well.

Employer Matching Contribution = If you have one, it’s the amount of matching contribution from your employer when you make your retirement contribution at work. If you don’t know, you can figure it out by looking at your pay stub and multiply the number by 26 if you get paid bi-weekly or by 52 if you get paid weekly.

Total Take-Home Pay = Amount of your annual take-home pay you make from your job, side hustles, selling stuff, and other work incomes. If you receive interest and/or dividends, include them here too.

4. Number of years

After determining your FI number, knowing your net worth and calculating your savings rate, you’ll have a better idea as to how long it would take you to reach FI. It’s now a matter of time and discipline.

As each year goes by, your net worth should be increasing. Early on in your path, whether it’s negative or positive net worth, it doesn’t really matter. The most important factor is that your net worth should be going up every year. As long as it goes up, you’re on the right track to FI.

The same holds true when it comes to your savings rate. If early retirement is your main goal, you should aim for at least 50% savings rate goal. Save your raise and maintain the same lifestyle.

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I hope the 4 metrics I shared will help you in some small way to reach your ideal, beautiful life. We’re not yet FI but I already experienced some financial peace of mind as we’ve been living debt free for several years and are slowly on this path to reach our financial independence days.

What is the most important thing in your life?

Would it be so wonderful if we don’t have to think about making a living ever again?

If you want to achieve financial independence and break

the paycheck to paycheck cycle, don’t wait.

Start tracking these 4 metrics today 🙂

4 Financial Metrics To Track If You Want To Achieve Financial Independence

Why are you pursuing Financial Independence?

4 Metrics you need to track if you want to achieve financial independence