Every $5,000 = 1% FI

[AJDZee]

For every $5,000 I save and invest it brings me 1% closer to financial independence.

Not sure if anyone else thinks this way, but using similar assumptions MMM uses in many calculations, I figure from today I need to save roughly $500,000 more of my own money until I'm there. (the rest is compounded over time obviously)

For some reason, psychologically this seems less daunting to me... sure $5,000 is a lot of money, but it's not THAT much.

Every 2 months or so $5,000 automatically pops into my investment account... but there's also annual bonus, cut some expenses**, tax return, sell some crap around the house, pick up a couple extra shifts, get an income generating hobby, second place in a beauty pageant... boom, many ways to come into some extra money.

And now I can tell myself I'm 1% closer to financial independence with each $5,000 I put away. Oddly enough, that motivates me to put in just a little more each month.

There has probably been other similar threads on this forum...just my $0.02.
Does thinking about it this way make the journey seem longer or shorter?

** As we all know, cutting expenses gets you there even faster - cutting my expenses by $5,000/year get me FI 2 years earlier and saves me from investing $70k.

[Milizard]

I like the angle of breaking it down to % closer to FI.  But really thinking about it in $5000 increments makes me feel like it would take 100 years (or more, since I'm currently unemployed), even though I'm halfway there.  Maybe an off the cuff estimate would be every $1000 for me.

[Zamboni]

This is an interesting way to frame it mentally.  $5K is a good amt for me to count as 1% closer, too.  Thanks!

(Heading off to calc what percent of FI I am already . . . )

[AJDZee]

That's a good point... I didn't calc what % I'm already there, just starting today being at 0%.
Given I just discovered MMM a year ago, I still have most of my heaving savings years ahead of me, I'm not far away from 0%.

[Bob W]

Like it. 

[jexy103]

My FI spreadsheets show me what percentage of the way I am to the amount I expect to need. It's a little discouraging to be at just under 10%, but then I remind myself that I've only been seriously saving for about 1.5 years (before that, my net worth was only around $10-15,000). So it's heartening to think that I can get 10% of the way there every 1.5 years- and that's in a high COL area and I expect my salary to increase from here. So yeah, I like looking at the percentages; in some ways, it's more accurate than the dollar numbers!

[taekvideo]

Don't forget that as your portfolio grows, its own gains will start contributing massively towards your FI number.

[NeuroPlastic]

An important point, taekvideo.  About a year ago, I realized that my returns were greater than my contributions.  I had understood for decades that this would happen, but when it actually did happen it totally blew my mind.  And it provided some serious motivation.  Our savings rate a year ago was an insipid 11%; we are now at 48% and climbing.

[eyePod]

This is a great way to re-frame some of the same information. Sometimes, that's all it takes for it to click!

[gobius]

I've thought about it that way as well.  I also think of it as $5,000 invested equals $16/mo (4% SWR) or $12/mo (3% SWR). I'm sure a lot of others have done something similar. 

[blue mutant]

One way I like to think about it is that, because you need 25x your yearly expenses and there are (about) 50 weeks in a year, for every year of expenses saved, you can take 2 weeks off without backsliding. Ie. your passive income should cover it. Similarly, if you had already saved 10x yearly expenses, you could take 20 weeks off. All in all, just a fancy shorthand way of saying that you'd be at 40%. Getting to 10x might allow a 5 month homeschooling slow travel experience without really impacting a stache.

[Guesl982374]

Don't forget that as your portfolio grows, its own gains will start contributing massively towards your FI number.

+1

This will lead you to believe FI is farther off than it actually is because you are ignoring any kind of future growth which is the beauty of exponential compounding interest.

[odput]

For every $5,000 I save and invest it brings me 1% closer to financial independence.

Not sure if anyone else thinks this way, but using similar assumptions MMM uses in many calculations, I figure from today I need to save roughly $500,000 more of my own money until I'm there. (the rest is compounded over time obviously)

Interesting perspective, and certainly a good way to focus on your circle of control.  If it works for you, great!  But there are a few psychological/mathematical tricks with using percentages that would make this approach not for me:

1) I don't know what your time-frame is, or what % return you are using, but the CAGR of your investment period will greatly determine how much money is in the "compounded portion" of your stache.

2) For the "compounded portion", exponential growth has this really shitty way of making it look like you're not doing all that well until you are most of the way there i.e. if you are 50% of the way on your timeline, you will likely only have 30%ish of your total $ amount (I didn't calculate out the numbers, but the concept is there)

3) You will likely find as your expenses decline and your income rises, that you will start getting those 1% increments faster, the timeline won't be linear.  This again is the same principle as #2...lets say you have a 15 year timeline to save your "own money portion" of $500k...if you are at $250k of your own money saved, it has probably been ~10 years, so it will look like you are "behind schedule"

Not trying to poo-poo your idea, if it works for you, then that's great!  But just a couple of quirks to consider when thinking in percentages, mostly so you don't get down on yourself if you are "falling behind" your projections.

[OutBy40]

I like it, and the numbers seem to be pretty reasonable.  Whatever keeps you mentally on track towards FI, keep doing it. 

[Bob W]

Haven't done the math --- but could a converse corollary also work?

Something like for every 1% you reduce your ongoing expenses and spending that you would need to save $5,000 less.   

That might help in working both sides of the equation.   So a 50% reduction in expenses and spending might mean that you would need 250K less. 

[arebelspy]

I like it.

There are so many fun ways of looking at and breaking down the stache.

As far as the people mentioning compounding, OP took that into account:

I figure from today I need to save roughly $500,000 more of my own money until I'm there. (the rest is compounded over time obviously)

I'm assuming their final stache amount is at least 50-100% higher than that amount, but that's their contributions to it, the rest is the compounding.

[AJDZee]

I like it.

There are so many fun ways of looking at and breaking down the stache.

As far as the people mentioning compounding, OP took that into account:

I figure from today I need to save roughly $500,000 more of my own money until I'm there. (the rest is compounded over time obviously)

I'm assuming their final stache amount is at least 50-100% higher than that amount, but that's their contributions to it, the rest is the compounding.

That's correct. The FI target is 25x annual spending today, but adding 2 - 3% for every year moving forward. So today living off $40,000 would take $1M, but 20 years from now the portfolio needs to be around $1.4M in 2034's dollars, as an example.

[pzxc]

I like to think of it as every $300 saved = $1/mo, forever

[londonbanker]

I love it!
Looking at it that way, I am saving 4% of my fire goal every year... Coumpounding will hopefully get me there within 10yrs (and i am not starting from 0)