Financial Freedom: How much is enough?

Continuing the discussion from Why should we INVEST? Are there RISK-FREE ways of growing my Money?:



You haven’t visited some recent topics opened by me :slight_smile: …else you would have known !

Re: Financial Freedom; How much is enough?

Coming to think of it, ithat is an interesting poser!
I never started off with any aspiration on the end-goal. Because I was late to the party (miracle of compounding), I set myself smarter and smarter compounding goals. If I could do 20-25% compounding over 2-3 years, I wanted to learn how to do 30-35% compounding over next 2-3 years and equip myself for the same, and then something happened to Mr Market since Jan 2014, and 5 year compounding touched levels - I didn’t aspire for, or even dreamt of.

In my book, setting lofty goals for the process is more important than the end-goals. If I get the process right and have the discipline to keep away from FEAR & GREED, all (rational) end-goals that I set will get surpassed over a 10-20 year investment horizon - all evidence points to that.

Having said that, I don’t want to pre-empt your question. I am sure Personal Finance Planners will have good pointers on that front - your query must be part of any standard Retirement Planning guide?


Recommend a read on this exact topic by @jk321

I have posted the main essence, but it is recommended to view the complete blog post.

So, the magical number for a 30 year old with annual expense of 6 lakh is 2.22 cr (assuming he continues to cover medical, leisure expense etc in this annual expense only).
For a remaining life of 70 years, we need 40 times expense & for 80 years remaining, we need around 43 times.

So, 37-40 times annual expense is enough!

However, since equity returns will be lumpy, a negative return in early years will hurt. Hence, we need to build some Margin of safety into the formula.
Hence, 50 times annual expense should be enough! (except in extreme situations)
And that’s not impossible provided we take care of P, r and n of the Compounding equation.

PS: Maybe Jatin could clarify in case of any clarifications.


Thanks donald. talking about markets, i am not comfortable with the returns since jan 2014. the valuation is ridiculously high for all the high quality companies… thats why i always assume that my actual net worth is 30 to to 40% less than the real value. ( i mean i should be ready for a correction of 40% in my portfolio). i think if one can live off debt portfolio and has a solid equity portfolio, then it should be fine. but again its a pain to see the portfolio value if there is a major crash like 2008.
personal planners give the usual text bookish response like 50 times annual expense etc. :smile:

The famous trinity study says that when your portfolio is more than 25x your annual expenditure (to be precise, the withdrawal rate is 4% - so in bear markets you withdraw less), you can call it a (long) day. For India, with higher inflation, growth and returns, I would say 20x may be more like it (but this is not based on any studies or simulations). If your investment is more like top valuepickrs and markets are at sane levels (below 20 PE for Nifty, 18 is median), I would assume less should be enough. The most comforting idea to the mind would be to leave off dividends like this guy.

The experts on this subject are the community at Early Retirement Extreme. I think they’ve nailed it. Be warned, they take the extreme stance; for single persons it makes a lot of sense, and I can say from personal experience that with family, especially kids, it is difficult to use a smaller percentage of income. However, even a couple of years of good savings early on mean lopsided returns later.


I’d say I do not nearly have as much greed as the fear.

Fear is not of market crash, but of broker running away with my money, laptop/email getting hacked etc. :smile:

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According to Dnyanesh my Investment Guru, You shouldn’t be in Equity markets if you cannot stomach a 30% temporary (paper) loss at any time.

If you take that statement to heart - it will also force you to choose your businesses wisely and always with a solid margin of safety. You will be happy to pass up opportunities that don’t match up. You will be happy to stay invested if your business keeps growing and getting better - even if Mr Market were to take a different view. Therefore, the process part becomes very very important.

Another Guru Peter Lynch says very succinctly something like this - It is useful to remember that the current price of your stock has no bearing on the future prospects of the business. Many times they go in different directions :smile:

A few simple basic principles that we have taken to heart - allow us to breathe easily at all times …


Yes, imho, equities can crash 30-50% anytime.
And that can really hurt your plans, especially if you have no other source of income.

Hence, need to build some margin of safety for that, & I feel 40-50 times annual expense is required.

Our friend @dkirand, a top contributor here, has put that number to $1 mn.

Would recommend to read his excellent post-


Actually one can reduce the multiple required by mix of debt and equity. One can have 20x annual expense in equity and 5x in debt products.
In times of bad years, you can survive for 6 years using your fixed income savings and dividend yield, without selling a single share.
In normal times, if your equity gives average real return of 5% (yes only 5%), you can sell this 5% gains every year and pay for your annual expense.
Any real return more than 5% is a bonus and adds to your portfolio.

On an average, your equity returns should be 5% annual real return and fixed income should match with inflation (nil real return)

25x is thus more than enough!

Also, 1mn USD may be a wrong generalization bcz annual expenses may differ a lot by city and individual style of living.
At the most, one can have 2x annual expense on top for medical etc making it 27x for conservative people

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Bare minimum to say one is financially free ? Well zero debt,fully paid primary house,investment corpus whose dividend = your annual expenses - Assume my annual expenses is 2 lacs with a fully paid house then assuming i get 1% dividend yield then a corpus of 2 crore would mean I get 2 lacs as dividends so I do not touch the capital allowing it to grow.The key is not to touch the corpus so that it grows unfettered over a long time frame and this can be achieved only by way of control on annual expenses in the initial years till such time one touches the 5 crs mark

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Is there any formula which will give the networth required for individual based on his yearly expense to get financial freedom.

Considering inflation of about 6-8% and the corpus invested in FD or Bonds.

Approx 30 times of your annual expenses. Just google subramoney. there are some google articles in the website about Financial freedom.

50 times your annual expenses to start with.

rising cost of education and medical will be the biggest reason for having higher higher corpus. Additionally, property taxes will rise exponentially going forward to fund smart cities. One can’t go back to work so need to have additional factor of safety.

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There are primarily few variables. a) How long do you want to live as FI b) what is your expense c) What inflation do you expect for your expense d) what is the safe return from the corpus. Typically 4% drawdown basis estimate looks reasonable. But you can use this guesstimator to calculate and retirement planner as well.

Hi Sunil,

I have prepared a very simple excel that calculates the corpus required to achieve financial freedom (interest income = expenses). Important things to note:

  1. This excel only takes into account the interest income from FD/Bonds (which is considered stable and predictable). This doesn’t include equity market corpus. Most people/pundits calculate the corpus based on assumption that entire corpus is invested in equities. This is an attempt to calculate the corpus if entire amount is invested in safe & predictable FDs. Ideally it would be a mix of both i.e. FDs + equity portfolio.

  2. You just need to put three assumptions above i.e. inflation, interest rates and annual expense and it will calculate the corpus required.

  3. It doesn’t explicitly take into consideration medical expenses, child education/ marriage etc. But you can build them into the model. But then you may also want to build the other sources of income like rent/job/business etc.

Hope this helps. Please let me know if you find any issues Financial Freedom Calculation.xlsx (10.7 KB).



Bumping this old thread. I know that the market is at a very high valuation.
I have been researching this topic for quite some time now. The most common answer I see is 50 times annual expense, 30 times annual expense etc. Somehow I am not convinced with this logic. I was thinking on these lines. Lets say you dont to take any equity risk and move everything to debt. Assume an after tax rate of 7%. ( Assuming that one holds for > 3 year, the tax will be 0) . These days the average annual income of a couple is about 50 lacs. (post tax) . To generate 50 lacs, you need 7.15 cr with the above assumption. Of course with 50 lacs ( in the first year), the retained earning can be large and that can be added to original equity to take care of inflation (and any fall in interest rate) . 7.15 is not a big number. Then i wonder why people (especially in corporate world) slog forever. ( I came across this yet another great blog by morgan housel


Dear Gautham I have something interesting for you. I think mentioned it else where in this forum to some extent. I am a full time guy who holidays six months in a year. Not because I am rich but I do what I like to do. And this took me few years, one wish looks still difficult is I could have scaled more. And single most reason for that failure is starting late.

Start small but start early, fortunes are build with quadrant not transferred from outside quadrant. When I took decision due to ifs, buts, calculations, excel, etc my financial freedom number kept increasing along with net worth.

You can piggy back from a small roll amount. This year I deployed a small some amount to achieve my yearly expenses for 2017-18 (till March 18). I am 86% done till today, 14% more to go in next six months. This result to 68% absolute return in less than six months. Not trying to flaunt percentage here, but you can achieve anything if you want.

This comes at a time I am sitting on 89% cash (liquid funds) plus two stocks which are 22 years old in portfolio. Let market be high or low, if you are serious about investing as a business then start at earliest. My submission to all those who are looking for a financial number.

The subject itself is never ending, it delayed me from my love (investing) for 7 years (2009-16). I would say to all those who are keen jump in low water and start swimming. Even if you join after 10 years you can’t escape tuition fees. Now it would be small then it can be damaging.

Of course my customisation may not work for you. Caution!


Not sure what you imply by this post. Are you trying to analyze the behaviour of people (especially in corporate world) who slog forever. Well who cares about them and how is my life going to change by it anyway.

Regarding your original topic of a number to be financially free yes I think 7cr is a good enough amount to be free. But there are many caveats primary being the nature of the 7cr. Most people have it as real estate which means they don’t have running income and access to cash. So the money is stuck. They can’t part withdraw it either. So they continue to work just to generate liquid cash. The same applies to people who’ve hoarded gold and are somehow completely averse to selling it. I know both these kind of people first hand.

Then there’s a third kind who’ve managed their money well, have enough liquid cash and do what they like to do with their life. My uncle does this and I have learnt from him and I do the same now (quit my corporate job and I’m my own boss now). So don’t paint everyone in the same brush, there are all kinds of folks out there. :slight_smile:


thanks @theashworld . You are right. A lot of people’s net worth is high because real estate is also included. When I said 7.15c, I meant investable net worth only. excluding real estate, gold, jewelry.