Formula for F-You Money

[lifeafterliquidity]

Hi Everyone,

Getting really excited about this community of financial badasses! Second thread I'm starting here...

I've been doing a lot of thinking about F-You Money recently. For those who are not familiar, F-You Money (according to me and most of you) is the amount of wealth you need to buy your freedom, so that you can choose to work, start a company, or just say 'screw you' to your boss and travel the world for the rest of your life.

The common understanding of the F-You formula is pretty simple: (amount of money you need each year) x 25

However, I think that this formula is too simple and doesn't account for the fact that you have to pay capital gains taxes when you withdraw from equities, or in some cases pay for unexpected issues like health problems. Thus, I argue that the right F-You Money formula should be: (amount of money you need each year) x 1.5 x 25, to cover your lifestyle plus other additional expenses.

Would love to get some perspective on how you guys calculate your F-You level. I wrote a lengthy article about this issue (http://lifeafterliquidity.com/2014/04/04/f-you-money/) if you want to get a fuller sense of my perspective.

What is your F-You formula?

[AJ]

Meh. I think that's a slippery slope. Why 1.5x? Why not 1.25x, or 2x, or 10x? Is there any special reason to choose 1.5x, or is that just what makes you feel safe?

And while I agree that health care costs should absolutely be considered (in the US), why capital gains tax? Isn't that just regular tax (or, if long term, ever better than regular tax)?

[lifeafterliquidity]

1.5x appeared to be the rough calculation I came up with to account for federal and state taxes. You're correct though, this is arbitrary on my part. I'm curious about whether others have better formulas than what I came up with.

[warfreak2]

http://jlcollinsnh.com/2011/06/06/why-you-need-f-you-money/

I first accumulated the modest amount I needed around 1989.  Not enough to retire on perhaps, but enough to say F-you if needed.

I don't think "Fuck You Money" is synonymous with the amount you need to retire; I'd define it as enough money that you could continue living (although not necessarily at the lifestyle you intend for retirement) without having to do a job you hate (although not necessarily without having to do any job at all).

That is, enough money to say "Fuck You" to anyone that you want to, but not necessarily enough to say "Fuck You" to everyone with no financial consequences, which would be financial independence.

[matchewed]

Also I think you're defining FU money differently. My search-fu is failing me but there has been a couple topics about the difference between FIRE and FU. FIRE is generally the assets or income exceeding expenses deal. FU is harder to define because it is a comfort level for people to take chances and branch out to other career options or hitting reset buttons.

[matchewed]

Previous discussion - https://forum.mrmoneymustache.com/ask-a-mustachian/how-much-is-your-fu-%28not-fire%29-money/

[AJ]

I first accumulated the modest amount I needed around 1989.  Not enough to retire on perhaps, but enough to say F-you if needed.

I don't think "Fuck You Money" is synonymous with the amount you need to retire; I'd define it as enough money that you could continue living (although not necessarily at the lifestyle you intend for retirement) without having to do a job you hate (although not necessarily without having to do any job at all).

That is, enough money to say "Fuck You" to anyone that you want to, but not necessarily enough to say "Fuck You" to everyone with no financial consequences, which would be financial independence.

That's what I think of when I hear FU-money as well. Enough that, on a really bad day, you could walk out the door and still survive. But not enough that you'd do so without a really good reason.

1.5x appeared to be the rough calculation I came up with to account for federal and state taxes. You're correct though, this is arbitrary on my part. I'm curious about whether others have better formulas than what I came up with.

Well, I count taxes in my projected expenses when working out an FI budget. But even beyond that, I would want a buffer above my regular expenses before pulling the plug early in life. To that end, 1.5x makes a lot of intuitive sense. Maybe even on the low end, for folks who retire very young and want to travel.

[zarfus]

My understanding is that Fuck You money is the amount where I can comfortably quit my job, and start doing something I'm passionate about, without being concerned over what the wage is.

To me, that amount is when I have no debt (for sure no student loans...ideally mortgage) plus enough in investments (roth, 401k, etc) such that I don't have to contribute anything more...it will grow on its own and will be enough for when I'm ready to retire.  The idea here will be that I'm mentally retiring, but still have a job that pays the monthly budget that gives me enough free time to do what I want.

Who knows, I may just stay where I am and go to part time.

[TomTX]

1.5x appeared to be the rough calculation I came up with to account for federal and state taxes. You're correct though, this is arbitrary on my part. I'm curious about whether others have better formulas than what I came up with.

Why would I be paying federal taxes? My family of 3 will need maybe $30k/year after the house is paid off.

$30,000
-$11,700 (personal exemptions)
-$12,200 (standard deduction)

That takes me down to $6,100 AGI

Tax table says $613 in Federal taxes.

$613
-$1000 (Child Tax credit)

Fed ends up paying me $387, without even doing anything to mitigate taxes whatsoever.

[arebelspy]

FU money is generally referred to in the ER community as enough to quit your job if you want to pursue something else (maybe 6 months - two years expenses, typically).  FI money is what you have defined.

Also I don't like the 1.5 multiplier.  It's cleaner, IMO, to determine how much you need including taxes and multiply that by 25, rather than say "figure out how much you need without taxes, then multiply 1.5 then 25" - 1.5 is so wildly ballpark it's unnecessary.  One ought to figure out their taxes as well, and calculate that into the spending.

Many ER people will have nowhere CLOSE to a 50% tax rate.. a lot may have none in taxes.

Heck, you might be spending 90k and pay $0 in taxes:
http://www.gocurrycracker.com/never-pay-taxes-again/
http://www.gocurrycracker.com/the-go-curry-cracker-2013-taxes/

The 1.5x then is very unnecessary.

I'd edit the article to cut that multiplier and just tweak it to say "expenses x 25".

Other than those two issues (calling it FU instead of FI, and 1.5x fuzy multiplier for no reason), it's a good article that summarizes Financial Independence fairly well.  :)

[TomTX]

Hm, wasn't familiar with that definition of FU money. I guess the heirarchy is:

3-6 months "Emergency Fund"
6-24 months "FU Money"
25x expenses "FI Money"

Hm. When my bonus comes in on the first of the month, it should nudge my post-tax accumulation into "FU Money" territory. Barely.

I'm not counting retirement accounts for "FU Money" - because it would be more like "F ME with penalties and taxes" Hm. Guess I could count ROTH contributions. and be well into FU Money territory.

[lifeafterliquidity]

FU money is generally referred to in the ER community as enough to quit your job if you want to pursue something else (maybe 6 months - two years expenses, typically).  FI money is what you have defined.

Also I don't like the 1.5 multiplier.  It's cleaner, IMO, to determine how much you need including taxes and multiply that by 25, rather than say "figure out how much you need without taxes, then multiply 1.5 then 25" - 1.5 is so wildly ballpark it's unnecessary.  One ought to figure out their taxes as well, and calculate that into the spending.

Many ER people will have nowhere CLOSE to a 50% tax rate.. a lot may have none in taxes.

Heck, you might be spending 90k and pay $0 in taxes:
http://www.gocurrycracker.com/never-pay-taxes-again/
http://www.gocurrycracker.com/the-go-curry-cracker-2013-taxes/

The 1.5x then is very unnecessary.

I'd edit the article to cut that multiplier and just tweak it to say "expenses x 25".

Other than those two issues (calling it FU instead of FI, and 1.5x fuzy multiplier for no reason), it's a good article that summarizes Financial Independence fairly well.  :)

Appreciate that direct feedback! May need to write a part 2 based on this discussion thread. Thanks all!

[SDREMNGR]

It seems to me that FU money should have less to do with financial security than with your risk aversion.  I started my company with very little money and perhaps 1 year of living costs saved.  Things turned out fine in hindsight, but I wouldn't have called the money I had as FU money.

It seems to me that people are overly concerned with the 25x and 4% rules instead of focusing on what it is that they'd want to do when they "retire" and then just doing it earlier.

I'm not advocating being fiscally imprudent, but maybe a bit more adventurous?

[bikebum]

My understanding is that Fuck You money is the amount where I can comfortably quit my job, and start doing something I'm passionate about, without being concerned over what the wage is.

To me, that amount is when I have no debt (for sure no student loans...ideally mortgage) plus enough in investments (roth, 401k, etc) such that I don't have to contribute anything more...it will grow on its own and will be enough for when I'm ready to retire.  The idea here will be that I'm mentally retiring, but still have a job that pays the monthly budget that gives me enough free time to do what I want.

Who knows, I may just stay where I am and go to part time.

That sounds like my plan. I wrote about it here: https://forum.mrmoneymustache.com/ask-a-mustachian/alternate-path-to-retirement/

[happy]

FU money I think is highly individualised and depends on your situations per all the previous threads about this. Some people equate it to FI,  others think its less.

I can see it spanning a few possibilities:
Recently I  was in a situation where I thought paid leave was approved but after it commenced was told its either leave without pay or come back to work. I'd organised very adequate cover for my job,  so I hesitated only a moment because I easily had a few weeks FU money.  But I see that as quite different to invoking FU money for 1-2years. I could do that, but  I am already old and just scraping FI, so for me there's not much point. But if you are younger you may see it differently.

Another conversation recently with a co-worker,  where I basically said "if they muck me around too much (code for doing something ridiculous/unbearable), I'll just resign and retire.  So there I invoked FU = FI.

So I think FU money is self defined and may vary according to the situation as well.

[arebelspy]

Another conversation recently with a co-worker,  where I basically said "if they muck me around too much (code for doing something ridiculous/unbearable), I'll just resign and retire.  So there I invoked FU = FI.

Sure, once your stache is big enough they're equal.

FI money necessarily encompasses FU money, since if you're FI you have enough to say FU.

But hat same conversation could have occurred before FI, it just would have been "if they muck me around too much (code for doing something ridiculous/unbearable), I'll just resign and get another job" - and that conversation would stay the same for years, once you had built up FU money, until you finally hit FI, and then you change it to say what you said ("I'll just retire"), but that's still having FU money, you just have so much you're also FI.  They don't equal each other, it' shuts that FU money is a subset within FI money.

Though your overall point is valid, FU money depends on the person, cause for some people no amount is enough until they're FI (and for some people, no amount of money is enough to be FI).

[happy]

My main point was that its hard to define FU money in terms of a formula since it will mean different things to different people in different situations. I would say FU money </= FI money.   My examples were to point out that the amount of FU money  required might vary with the situation…in the first I only needed to have a few weeks worth I was willing to expend,  and in the second in order to leave and retire FU money = FI money. Your example is equally valid i.e. if I resigned and intended to get another job months/years later, then FU money would be somewhere in between.

[arebelspy]

Agreed.

[clarkfan1979]

FU money to me is being able to tell "f-u" to your boss and know that you have enough money to carry you comfortably into another job. This is more of a mindset than a number. If you have a lot of money in the bank, but still don't have the balls to say "f-u" to your boss because you are scared, it doesn't count. This amount is going to be very different for different people.