How much freedom do you buy each year?

[MMMdude]

Just wondering what others 'freedom ratio' is as I like to call it.   Simply put, how much do you save each year as a ratio to your annual expenses.   So for example if you socked away 50K per year and spend 25K, you bought 2 years of freedom.  Presumably once you get to 25 or 30 such freedom years you should be able to walk away.  In my case, I'm up to 3.5 as my ratio and it has increased considerably the last few years due to both increase in salary and keeping expenses about the same level the last five years (which is an accomplishment given inflation)

[arebelspy]

I'll reserve my comment until I see how this thread plays out.

[JamesAt15]

Isn't this basically a flipped version of a "what is your savings rate?" thread? And I think we have several of those already. Or is there something more to this question that I am missing?

[Hotstreak]

Isn't this basically a flipped version of a "what is your savings rate?" thread? And I think we have several of those already. Or is there something more to this question that I am missing?

Yeah, about 100% that.  It also didn't take in to consideration the interest earned on the savings .. 50k saved with 25k expenses is not 2 years worth of funds if you are not drawing those until 10 years from now .. it should hopefully buy you considerably more than 2 years worth of living expenses.

However I do see MMMdude's point, and I don't mean to rag on the idea.  I can see how it would be motivating to see that every year of work is worth X years of not working, or every week you go in to the office is paying for "the rest of the month" worth of retirement.  Once you build up enough freedom years, those years are like little workers making more and more days off, to the point that you will never run out.

[gooki]

My freedom ratio is 1:1.25

If we add in a family multipler (one income supporting four family members) it's an awesome ratio of 1:5

[matchewed]

Just wondering what others 'freedom ratio' is as I like to call it.   Simply put, how much do you save each year as a ratio to your annual expenses.   So for example if you socked away 50K per year and spend 25K, you bought 2 years of freedom.  Presumably once you get to 25 or 30 such freedom years you should be able to walk away.  In my case, I'm up to 3.5 as my ratio and it has increased considerably the last few years due to both increase in salary and keeping expenses about the same level the last five years (which is an accomplishment given inflation)

Yeah it is your savings rate if you look at it per year. I think it'd be a bit more interesting to view it as how many years of expenses do you have saved total, as that would give a rough idea of progress for those going the route of pure savings and not income generators.

[nktokyo]

I think of my income in the exact same way. It's a great motivator to not buy the small things you don't really need and an even better motivator to create passive income streams that fund extra "years" for you.

When I was working I made about 120K with a 35K spend in Tokyo, so 2.5:1 approx. Now I have a business off the ground it's pushing 8:1 or even 10:1 and that's with me only doing the odd bit of freelancing to cover my expenses (I decided a while ago to reinvest all business income since it's half-passive and I'm not so lazy to stop working just yet).

[Rural]

This is an interesting way to look at it. For the last three years, we've put most of our savings into building a house which we will own free and clear whenever I get around to writing that last check. How many years' savings did we put aside for each of those years? It's hard to calculate since we don't know how long we'll live, but in three years we've completely cut the major retirement expense of rent or mortgage, dropping the "housing" category of our retirement needs by probably 90% in this low-tax area.

For that matter, that same money also bought us enough land that we could sustainably grow our own food and harvest enough timber to run our wood stove. I don't know that we'll choose to do that, but I guess at this point we're working to save enough to pay taxes and health insurance in retirement. Once we have just that, or a side stream of income that produces that, we have permanent FU money even if we choose to keep working.

Dang. Put it that way, and I think it's time for a couple of rental houses!

[mpbaker22]

Each month worked nets me the costs of that month plus 1.3 months.
So, for every year I work, I could take off about 15 months
or for every decade I work, I can take off between 13 and 17 years.

This is also a rough estimation as I never have a 'normal' month.  I pay rent for myself and my roommate about 8 months a year (he pays utilities).  Non-standard expenses are always hard to track.  I don't plan on always having a non-spouse/children roommate.  Due to various extra cash in-flows, I had near 80% savings rates Jan-Mar that I don't expect to continue until next Jan-Mar.

[Jamesqf]

This is also a rough estimation as I never have a 'normal' month. 

Yeah, same here.  Last month's income, zero.  This month, probably about $10K.  Last month's outgo, about $5K (thank you, IRS :-)), this month less than $200 so far.  Must be boring, having such a predictable life that you always know what your income & outgo will be.  Maybe that's why they think of not working as freedom?

But I do sometimes figure the accumulated stash in years of survival.  That is, I know about what my average spending for a year is, so how many years can I live off it with no other income?

[Alberto]

The question makes sense if your retirement expenses will be different from your current living expenses. I do sometimes use this measure instead of savings rate because it gives me a better perception about how long to FI.

In my case, my household savings rate last year was close to 50%, so I would have a 1:1 freedom ratio. But the catch is that I live in one of the most expensive cities on the planet, and after retirement I will move somewhere where the cost of life might be a 25% of my current one or less. Taking all of this into account, I had just a 50% savings ratio, but I bought 4 years of freedom with that instead of just one.

I'm hoping that this year I'll get to 5:1, and next one to 6:1. I have now 10 years in the bank, so that's 2 or 3 years to FI.

[Joet]

I'm not really sure the calculations here with respect to "freedom" are particularly amenable to being broken down this way.

Assuming expenses dont change... OR.... assuming expenses do change.... OR.... expenses somewhat change.... leads to completely different results.

One thing I do know for certain: I am one day older than I was yesterday.

[secondcor521]

I am like Alberto.  Nominally I am at about a 50% savings rate, but I only plan to spend about half of my current expense level when I stop working, so I am right about a 3:1 ratio.