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In other words, they reverse-engineer their target net worth from the 4% rule.
Keys knows a thing or two about financial independence and early retirement he and his wife retired at 29.
Still, setting a net worth often makes the process feel daunting and non-intuitive.
By focusing onincome and expenseswith your FI ratio, the goal feels more tangible.
Santiago said, Your net worth fluctuates based on market conditions.
Your FI ratio paints a more vivid picture on where you are on the path to financial independence.
Expenses are half the equation, said Stephen Kates, principal financial analyst forRetireGuide.
If you are spending too much, you need far more assets and passive income to reach financial independence.
Joe DiSanto, founder ofPlay Louder, offered another lens to look through.
You might work part-time or on passion work, while covering some of your expenses with passive income.
Earlier in your life, its more important to prioritize growth than income.
Because income-oriented investments tend to deliver lower returns.
You need growth and high returns more than you need stable income while youre working a full-time job.
Some investors pursuing FI opt for real estate, because it can generate both high returns and passive income.
Together, these three numbers provide a snapshot of both where you are and where youre headed.
You dont have to track these manually with a spreadsheet, although that can help, too.
I useQuicken Simplifito track metrics like my passive income and expenses, added DiSanto.
Other options includeYNAB(You Need a Budget) andEmpower.
They say that which gets measured gets done.
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