BiggerPockets Money Podcast - How Much Do You Need for Early Retirement? (How to Calculate Your FI Number)

Episode Date: July 11, 2025

What’s your financial independence number (FI/FIRE number)? Are you being too conservative, or are you cutting things close? Do you even have one? Today, we’re taking a deep dive into this hotly debated topic to help you build a nest egg that will support your early retirement! Welcome back to the BiggerPockets Money podcast! How much money do you actually need to retire? For years, the four-percent rule has been the “official” stance of the FI community. But why is it, then, that so many people continue saving and investing when they can comfortably retire? In this episode, Scott and Mindy talk about their own FI numbers, how they calculated them, and how their financial positions have evolved over time. You’ll learn whether the four-percent rule still works today or if you need a larger buffer! If you’re worried about inflation, one of the best things you can do is keep your living expenses in check. This might seem out of your control, but there are several ways to either lock in certain costs or eliminate them entirely. We’ll discuss the many advantages of a paid-off house, self-managing your rental properties in retirement, and a one-time investment that could help you save thousands of dollars over your lifetime! In This Episode We Cover How to calculate your financial independence number (and when to adjust it!) The four-percent rule explained (and whether it still works in 2024) Why most people chasing FIRE don’t retire on the four-percent rule How to control your expenses and protect against inflation in retirement The “home run” investment that could save you thousands of dollars And So Much More! Learn more about your ad choices. Visit megaphone.fm/adchoices

Your fine number at its very base is 25 times your annual expenses. But does your fine number change over time? What considerations should you put into your fine number and how frequently should you revisit it? That's what we're going to talk about today. Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen and with me as always is my calculating co-host, Scott Trench. Thanks, Mindy. Great to be here with someone who excels at personal finance the way you do.

Today, Mindy and I are going to be talking about calculating your FI number. Yes, it's 25 times your annual expenses, or if you're Frank Vasquez, you might argue it's 20 times your annual expenses. But there are a lot of nuances to that number. And what compiles your FIRE number? What are the expenses you need to plan for? There's a lot of depth to this discussion, and I'm excited to get into it with you today, Mindy. We have all heard of the shockingly simple math to early retirement, which is a blog post written by

Mr. Money Mustache some 10, 12 years ago now. Go check it out if you haven't read it yet. We've discussed it multiple times here on the show. But the savings rate that you have and the amount you're going to spend after retirement may be different numbers. There may be different ways to massage or tweak that number. And we're going to get into all of that nuance here today on Bigger Pockets Money. I think one of the best places to start on this is to talk from personal experience. Mindy, when did you decide on your fire number and what were your life circumstances like at that point in time? Scott, this was back in 2012 or 2013 when we first discovered the concept of financial independence and that you could retire early. We did the math per the

4% rule and our spend rate at the time. And we came up with $1 million or $1,120,000 because we wanted to have enough money to pay off our mortgage, but we didn't want to pay off our mortgage. My life Circumstances at the time, I was a stay-at-home mom with two young kids. In 2012, I had a four-year-old and a seven-year-old. Awesome. And you said $1.12 million, and you talked about paying off the home mortgage. Did you include your home equity in that calculation, or were you excluding it with that statement? The $1 million was our investment accounts, our 401k, Roth IRA, and after-tax brokerage accounts. And at the time that we discovered, it, we were, I think this is on Carl's blog, at 586,000. So we had been saving. We were very good savers

and investors already. And we just discovered what we were saving towards, which was financial independence. And then how long did it take you to achieve that number once you set out with that as the goal? It was supposed to be done in 1,500 days, hence the name of the blog. But we actually achieved it. Who, I, you know, it's been so long. I can't even remember when we got to our original number, but I'm going over to the blog. Three years later, 2013, 2014, 2015, and January 1, 2016, we hit $1,57,000. If you look back at the stock market, then, it was just like hockey stick growth. That's true.

Yeah, both of us enjoyed really good runs in the stock market and in real estate during our journeys to financial independence, which hopefully continue for lots of other folks. Mindy, did that number, that million dollar target, your much, your net worth is much greater now, did that target change, or did you just continue to want to live at that same level, that same level of expectations, even as your wealth far surpassed that number? We continued working, Carl continued working through 2016 and then one more year, so through 2017, and he finally retired. Our number stayed the same. We were, we were, we were, aiming for a million and we didn't change that number. I don't think we've ever actually changed that number, although our spending is not in alignment with a $1 million portfolio,

which would be approximately $40,000 a year. We've moved up in our spending to about $60,000 or $80,000 a year, depending on the year. We don't really have a budget. We're still really conscious of where our money's going, but we're not as tight as we used to be. I think that if we were honest with ourselves, our new FI number would be 2.5, 2 to 2.5 million. How about you, Scott? When did you calculate your FI number for the first time? And what was it? My FI number, I think, like a lot of other people at that time, around this 2013, 2014, started out as a goal of $1 million. And that net worth threshold was likely, I say likely, because it's a little hard to peg the current value of real estate holdings. and or the holdings in bigger pockets, which were my biggest investments, if you will,

at that point in time. Those were likely crossed around the 2016-2017 mark, generally speaking, because of the massive appreciation in real estate and my becoming the CEO and president here at bigger pockets. And it's kind of interesting in thinking about what, you know, my circumstance at that point in time is I was a single guy, just meeting my wife right around that same point where I achieved financial independence or that initial goal. And my needs were very low at, you know, $30,000, $40,000 a year. It felt like a huge abundance, especially with no real, yeah, massive outlay

on housing. And that definitely would not be the target with a family and two little girls. I would definitely want to spend much more, potentially much more, somewhere in that $8,000 to $10,000 a month range, would likely be the goal. My financial portfolio allows me to spend even more than that, including full-time daycare, for example, for two little girls. So that's been a, the goalposts have absolutely shifted for me personally over the years. Let's see. How do I want to say this? Did your goalpost change as you spent more or did you consciously think about, oh, you know what,

$1 million isn't enough. Now I'm going to aim for $2 million. Or did your goals, like I didn't aim for $2 million. Our investments just kept growing. So we started spending a little bit more. But I don't think we ever actually changed our number. Did you ever actually consciously change your number? Did I change my number?

No. But a couple of things happened in my situation. First, same as you. The portfolio growth allowed for much more spending. So it was kind of like, why would I artificially can keep my spending very low when I can easily spend much more. And there is benefit to spending much more money. Of course, bring better quality of life in many areas.

So that was one component of it. And the other was the nature of the C.E. job at Bigger Pockets, which was so consuming, offered high compensation. And it was like, well, if I'm, if I'm doing this thing, then I'm either not spending time with my family or not doing the right thing for a company that employs 80 people and has shareholders and many, many listeners and followers and viewers. And so things like mowing the lawn or cleaning the house, those were things I outsourced at that point in time. I'm now insourcing those because there's not, you know, now that I'm not doing the big job at bigger pockets, it doesn't make sense to hire those things

out the same way. But that was kind of an interesting mindset shift in terms of how to think about my spending and my fire number in the context of these changes with expenses that were clearly there because they were the right thing for that point in my life. But we're not for a more frugal fire portfolio. I have another question about your FI number. Because you have a significant real estate portfolio, how did your fine number change once you started getting all of this real estate cash flow? Did you think about I still need $1 million for the $40,000 a year? Or did you think my real estate is kicking off X dollars? So now I don't need, I need less in my stock market investments. The latter. And this is something I've been struggling with all year, right? I love the research we

talk about with the 4% rule. We've talked to Bill Bangin. We've talked to Frank Vasquez. We've talked to Michael Kitsis, many of the people who pioneer research in the withdrawal stage of a portfolio. And I just know that personally, I'm not the kind of guy who at 34, 35, I'll be 35 soon, can actually spend, sell off my, like sell off my stocks and live off of that to fund consumption. And so, and, you know, as a real estate investor with significant experience, I felt that I can, I can better achieve my goals by thinking about my spending in terms of the income that my assets generate and staying within those limits. And that's the goal is I will always stay within those limits. I may earn more money like doing bigger pockets money, a job that I

absolutely love and other things in the future, but I will spend as if my portfolio is the only component of that. And that may cost me some opportunity cost, but as a portfolio grows, maybe I will reintroduce cleaning services and those types of things. It's just hard when I want to do work like this. My wife wants to write and the child care at this season in our life is very expensive. So we can't have the child care and have the house cleaned and and and and and and and and there has to be some cutoffs and limits in place. And so we prioritize what's the most important to us in that spending. And doing the lawn once a week is a small price to pay. Scott, you're turning into a true dad. Do you have new balance sneakers too? Oh my gosh. I got seven

copies of this Costco shirt. I got the mustache, the wood-fired pellet girl, and then I don't have new balance sneakers. I have running shoes. Not quite full-on dad then, Scott. You need a pair of white new-balanced tennis shoes if you want to be a true dad. But you're getting there. You're getting real close. Fanny pack? No, I don't have a fanny pack, and I'm not a mammal yet. What's a mammal? Oh, Google it. It's safe for work, but barely. Okay. How should you calculate your fine number if real estate is in your portfolio. We'll find out after the break. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if

you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going and more importantly where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focused on

achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code pockets at monarch.com for half off your first year. That's 50% off at monarch.com code pockets. I love that, said no one ever. Nobody starts a business thinking, you know what would make this more fun? Calculating quarterly estimated taxes. But somehow every small business owner ends up doing it. Your dreams of creating, selling, and growing get replaced by late nights chasing receipts, juggling invoices, and wondering if that bad sushi lunch with Scott counts as a write-off.

Change all that with Found. Found is a business banking platform built to take the pain out of managing money. It automatically tracks expenses, organizes invoices, and even preps you for tax season without you doing the heavy lifting. You can set aside money for business goals, control spending with virtual cards, and find tax write-offs you didn't even know existed. It saves time, money, and probably a few years of life expectancy. Found has over 30,000 five-star reviews from owners who say, Found makes everything easier, expenses, income, profits, taxes, invoices even. So reclaim your time and your sanity. Open a found account for free at found.com. That's F-O-U-N-D-com.

Found is a financial technology company, not a bank. Banking services are provided by lead bank, member FDIC. Don't put this one off. Join thousands of small business owners who have streamlined their finances with Found. Audible has been a core part of my routine for more than a decade. I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audiobook completions on Audible alone, and I still regularly re-listen to the highest impact titles.

Lately, I've been listening to Bigger Liener Stronger for Fitness, the Anxious Generation for parenting perspective and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful as its breadth. Beyond audiobooks, you also get Audible Originals, podcasts, and a massive back catalog across business, health, parenting, and more, all accessible in one app. If you're looking to turn everyday moments into real progress, Audible has been indispensable for me over over 10 years.

Kickstart your well-being journey with your first audiobook free when you sign up for a free 30 day trial at audible.com slash BP money. All right, we're ready to cash flow back into the discussion. Okay, so Scott, somebody listening to this episode, wanting to get a more accurate fine number for themselves with real estate as part of their portfolio, how are they treating the real estate? Because we're talking cash flow. I think real estate investors who want to be real estate investors are.

are there for the long-term cash flow more than the appreciation. I'm not really talking about flippers because that's kind of short-term gains, that's income, which should be invested in a different way or could be invested in a different way that would provide long-term cash flow. But for the rental real estate investors who have, let's say, 50% of their expenses, their current expenses are coming from the cash flow. How are they to think about this when they're determining their fine number? I think you just think about it exactly like that, right?

If your desired spending target is $80,000 a year and $40,000 is a conservative approximation of the cash flow net of vacancy cap X, those types of things, from, for example, a paid off rental or two, then the rest of your fire portfolio would need to be about a million dollars to generate the remaining $40,000 you could spend. So I think it's as simple as that in the context of a real estate investment. A business might be thought of differently, right? Because the business income could be much less predictable, for example, than real estate income over a long period of time. Businesses can grow dramatically and shrink dramatically. So I think I would be reluctant to count business asset in my net worth statement unless it was very conservatively stated or about to be sold in the imminent future.

Mindy, I think the first thing that we should talk about, if we're talking about this concept of your calculating your fire number is what is a fire number and how does it differ from a net worth statement? Ah, Scott, I think this is a really great question and something that the Phi community hasn't really done a great job of separating out. I think for a lot of people, net worth and phi number are the same thing for a long time. If you're just starting out on your financial independence journey and your net worth is $20,000, it's easy for you to think of, you know, oh, I've got a long way to go to get to my fine number.

But your net worth includes all of your assets, including your homes, equity, your car values, your collectibles, all of the everything that isn't really going to generate cash flow and liquid investments that you can sell to fund your lifestyle in your fine number. Some people will say, well, I have a million dollars in net worth, but it's all tied up in my home equity and my 401k, and I can't access it. And money tied up in your net worth is not to be included in your fine numbers. I think I made a miss speaking a couple of minutes ago and said net worth and fine number as I intertwined them.

I think it gets confused a lot in this community. But we definitely need to be talking about financial independence number. The amount of money that you are saving so that you can then start withdrawing from it at 5% per Fink Vasquez or 4% per Bill Bengin or 3.25% per big earn. Yeah, absolutely. And I think for most people, it boils down to the very simple concept. Don't include your home equity in your fired number unless you intend to use your home. as part of that fire number. So if you are living in a home that you expect to live in for the next 20 years like me, you should exclude your home from your fire number. It's part of my net worth

statement. I know that my home's value and I track that. If you said, what's my net worth? I would say it's my financial portfolio plus my home equity. I also include my cars, for example, my net worth statement. But I would not include my home or cars or personal property of any kind that was not intended to be sold anytime in near future as part of my fire number. The fire number is the investment portfolio that is intended to distribute wealth that I can actually retire on. And that would include all of my investable assets. And I would include things that are illiquid in there too. A business that is conservatively valued or likely to be sold, even if it's an illiquid, can count in that fire portfolio number, just as a rental property can, even though

they're less liquid. You may want to think about them differently and how they're going to impact your ability to spend in early retirement a little differently than you would a traditional 60-40 stock bond portfolio, but they're there. They're a part of the fire portfolio. They're intended to be used to generate liquidity or cash flow that you'll spend. Scott, I would push back on that just a little bit and say that if your rental portfolio, the cash flow from your rental portfolio, you're planning on that funding part of your lifestyle in retirement, then I would almost count that as your net worth, but like the portfolio is your net worth, but not your fire number. The cash flow affects your fire number. Does that make sense? Absolutely. So my rental portfolio, right,

I'm only spending the cash flow that's generated by the rental portfolio. I'm not spending the principal in those properties. And I don't know any real estate investors or hardly any real estate investors who use that as a primary mechanism. Maybe you refinance one when your kid goes to college, and that's how you pay for college tuition. But it's a rare person who's selling off rental properties, I believe, to fund consumption on a regular basis. But I think you got to include the rental equity in the fire number and the fire portfolio number when you're thinking about what is my fire portfolio, right? If you've got a million dollars in rental real estate that is part of that $2.5 million fire tariff. The rest is this is that 60-40 stock bond portfolio.

I think that's a $2.5 million fire portfolio. I would argue it is, even though we're going to think about the distributions from the $1.5 million stock bond piece using the $4,000. percent rule, and we're going to have to think about the income that the million dollar rental portion generates. What do you think? I think we're saying the same thing, but in slightly different ways. I would say that if you have a $1 million rental portfolio that kicks off $10,000 a month, then you can count that $1 million rental portfolio as $120,000 a year. I would also like that rental portfolio very much. I would say if that's your conservative approximation of spending, you're going to be just fine. Obviously, the big gotcha for a lot of real estate investors is those

projections don't always map out. So it's a conservative interpretation of that cash flow. But my spending is governed by the cash flow generated by my portfolio, rental and stock bonds. And that's how I govern my spending personally today. That may change in the future if I begin to decumulate in some way. But that's how I govern it today. So, Scott, you mentioned that your fine number has changed because your life circumstances have changed. And my phi number changed because my portfolio far exceeded my expectations. What are some of the things that changed in your life that caused your phi number to change? And did your fine number change based on those or based on future projections? Like when are you looking to define your fine number? Right now you've got child care,

but you're not going to have child care in 10 years. So, Are you looking at your number now? Or are you looking at your number in 10 years? That's the fun of this game. As everyone says, nail down your spending. This is a much easier game, I believe, for someone who is approaching traditional retirement and has their spending for them and their spouse locked down.

And the kids are out of the house. And the question is how much to give or not at that component of time. I think it's much more challenging for someone with young children to project these because absolutely there's child care expenses, which right now are very high. When my children are a school age, my expenses will still be high. I have no illusions that children are going, that can be very expensive, and that the most expensive years could be college, for example.

I have assets set aside for college expenses that will be ready to go at that point in time. I think that my expenses will go down over the next several years, or at least I'll be able to shift, or alternative, I'll be able to shift spending away from child care towards other items, like maybe more travel. Travel is a much lower bucket of spending because we don't have the desire to travel quite as much with two young children that we might if we did not have those two young children. I heard somebody say, and I thought this was so brilliant, they're like traveling with two young children isn't vacation. It's just parenting in a different place.

That is 100% correct. And by two-year-old, I'm sure she would love the beaches of Maui. She also loves the fountains at the local park. And one does not involve a long plane. ride, no matter how luxury you can spend on the plane ride, it's still a long plane ride to get out there. With a two-year-old. When they're five, seven, ten, I think that will be different. And then I think travel expenses will be much greater. But I also won't have daycare for two kiddos to pay for. So I think

those things just change as life evolves. And I think that more important than what that spending, trying to project that in great minute detail, it's what's a reasonably high ceiling for the spending. As long as I have the controls in place to stay inside that ceiling of spending, I maintain my position of financial independence. If I go beyond those, then I have that problem. So today, I might mow my grass and hire out the cleaning of the house less frequently. And in three years, those may change dramatically. Are you setting the right spending ceiling for your financial independence goals? When we return, we'll break down exactly how your fine number should guide your annual expenses.

Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch.

Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch's subscription with the code Pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle.

Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code Pock at Monarch.com for half off your first year. That's 50% off at Monarch. code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed.

When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites. Indeed's sponsored jobs helps you stand out and hire the right people quickly. Your job post jumps straight to the top of the page where your ideal candidates are looking. And it works. Sponsored jobs on Indeed get 45% more applications than non-sponsored posts. The best part? No monthly subscriptions or long-term contracts.

You only pay for results. And speaking of results, in the minute I've been talking to you, 23 people just got hired through Indeed worldwide. There's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash bigger pockets. Just go to Indeed.com slash bigger pockets right now

and support our show by saying you heard about Indeed on this podcast. Indeed.com slash Bigger Pockets. Terms and conditions apply. Hiring, indeed, is all you need. When you want more, start your business with Northwest Registered Agent and get access to thousands of free guides, tools, and legal forms to help you launch and protect your business all in one place. Build your complete business identity with Northwest today. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They're the largest registered agent and LLC service in the U.S. with over

1,500 corporate guides, who are real people who know your local laws and can help you and your business step of the way. Northwest makes life easy for business owners. They don't just help you form your business. They give you the free tools you need after you form it, like operating agreements, meeting minutes, and thousands of how-to guides that explain the complicated ins and outs of running a business. And with Northwest, privacy is automatic. They never sell your data and all services are handled in-house because privacy by default is their pledge to all customers. Visit Northwest Registeredagent.com slash money-free and start building something amazing. Get more with Northwest Registered Agent at Northwest Registeredagent.com

slash money-free. The game begins in three, two, one. Ready or not, too, here I come. Only in theaters March 20th. After surviving one deadly game, Grace and her sister Faith must now face off against four rival families in a fresh round of blood and games

filled with more action, scares, laughs, and combustions. Starring Samara Weaving, Catherine Newton, Sarah Michelle Geller, and Elijah Wood. Ready or not to, here I come. Only in theaters March 20th. Get tickets now. Thanks for sticking with us. What is a reasonable ceiling of spending?

I don't think people are thinking about that. I think people are trying to keep themselves locked down into the smallest amount that they could possibly spend. I think the sealing concept comes down to having the controls in place to spend appropriately in a budget. I think there's a lot of people out there that will benefit from the exercise. is saying, the amount I can safely spend is this, and I must stay within it. And everybody needs to do this from people who are broke and just starting to build that first hundred or thousand dollars in savings to multimillionaires, or even billionaires. They just call it cash flow management when you get into that super rich category, I believe, or so I'm told. But I think this concept of budgeting and

spending controls is absolutely essential at every part in that journey, even if it's just, like, what I'm doing, saying, here's the ceiling. We're very happy with it and it provides a really good lifestyle, but we must stay within those boundaries. And that's the act of budgeting, accounting, if you're in business. Nobody likes to do this. It's not fun to set limits and controls and project these expenses and track them. You must do them, I believe, if you want to confidently fire and confidently calculate your fire number. Do you check in on your spending monthly or weekly or just annually? I check into my spending monthly at the very least,

and I'll kind of re-approach it in the middle of it. But I've found that act of checking my spending on a monthly basis has been hopeful, but not actually putting the pin in. I'm actually staying within the bounds I want to set for myself. So I'm actually exploring a different tool, which I think we'll talk about in a few weeks, that will actually physically force me to stay within those limits. Like, you said, you were going to stay within those limits.

you're going to spend two grand on groceries or groceries and food and restaurants. And you are now over that limit. Well, better wait till next month on this, start eating out of the pantry. We won't go that far with it. But that's the concept that I want to play with and actually putting those limits in that forced me to stay within the boundaries that I want to set. Okay. So we're in different parts of our life. I am in the embracing more spending because my FI number has been met and we're good financially. We have more than we thought we were going to spend and we will be good. So I'm not super conscious of how much we're spending, but we do keep a loose track of it. In the past, I have been much more conscious about how much I'm spending, in which bucket I'm spending. But now I've got

a girl going off to college. We are taking her to college in the middle of August, and she's going to be living on her own. She's going to need to learn how to navigate spending money. And I am using that same tool to help her learn how to spend, learn how to budget, learn how to keep track of her expenses so that she's not going over her budget because it's much easier for me to be like, well, I budgeted $6,000 for this month, but something fun came up and I'm now going to spend $8,000. That's okay because I'm well within my means to do so. But when you're first starting out, I think it's so important to be able to see in real time where your money is supposed to be going and where it's actually going. I think that there's a fundamental problem that a lot of people face in this community of I'm tracking my spending, but am I controlling it to your point?

And I think that that's going to be the big challenge. You don't want a college student, for example, as responsible as I know your girls are, to have unlimited access to something. There should be, hey, we're going to provide for this, but you blow it this month. Go figure it out. You're an adult now until next months. I think that comes back to calculating your fire number, right? Is there a limit? I think a lot of people are scared or fearful or not pulling the trigger as soon as they could because they don't have these basic controls in place. I'm in that category as well, because I didn't do this for the last year or so while I was CEO of Bigger Pockets. I'm doing it now because my circumstances. have changed. I've got a great situation. It's just I need to make sure I have those controls in place. Yeah. And I think that's really important. Make sure you have those controls in place. Just because Carl and I are not tracking every single penny to the penny doesn't mean we're not keeping an eye on it. We're still conscious of loosely how much of our money we can be spending. And when we feel like we are spending too much, we pull back. This year, we started off going on

vacation like every weekend, the first quarter of this year. And not only is that really exhausting when you're trying to keep up with school for your kids, but it's also just exhausting to be going someplace every single week. And, you know, my bank account was like, hey, give us a little bit of a break too. Now, Scott, do you give yourself any buffer? Yeah, absolutely. The buffer is actually for us, like $2,000 and a half thousand dollars in that for what's going to come up. Is there something going to break around the house? Is the car going to need new tires? Is there going to be, Who knows what exactly that's going to be. But on top of the things that we can't project, we put in place a pretty hefty buffer

for life's requirements that come up in any given month. Okay, good. I'm glad to hear that. So do you? We don't have a buffer, but we have a general idea of how much we want to spend. Over the course of the year, we're going to spend, let's say it's $100,000 this year. So that's what, $8,000 a month? Oh, okay.

In January, we went over. In February, we went over. In March, we went over. But in April, we were way under. It's just kind of a keeping track loosely where we're at. How would you think about, I talk about the ceiling concept, but let's say that we're in a different situation. Let's say that we know that there's one expense left. Let's say it's college, as an easy example, right?

There's just college, and that's going to cost X amount over the next couple of years. We're not quite sure because our kiddo hasn't determined whether they want to go to the expensive private school or the, much cheaper state school and we haven't figured out if we're going to get any scholarship or other items that can come in to change that. How do we think about our fire number in that context? Wow. Okay. So this is kind of the exact situation that we found ourselves in last year. Our daughter wasn't sure which school she wanted to go to the state school or the more expensive out of state school. She actually ended up going to the less expensive out of state school. So it's cheaper for her to go out of state than it is to go in state Colorado. We did not qualify for any loans or any

grants or anything like that. Well, loans, but they were unsubsidized. We are ending up just footing the bill for it. We have the means to do so. I think that if you are not financially independent and your child comes to you and says, hey, I want to go to this school, you should have a dollar amount that you are willing to pay. If you're willing to pay, I mean, zero is a dollar amount that you're willing to pay. We told our daughter, we will pay up to $30,000 a year for your school. If you go to a school that costs $80,000 a year, you are on the hook for $50,000 a year. That's $200,000 for a four-year degree, which in the field that she's choosing is not going to get her anything. She will have to go to additional school. So she will already come out of school with $200,000

in debt. That was really eye-opening to her to say, okay, well, then I'm not going to go to that school. terms of your fine number, I don't think it should count towards your fine number either way. It's, it's an expense and it's a fairly short-term expense in the whole grand scheme of things. Just like child care, you can determine that this is going to be something that I will plan for and save for for this X expense rather than thinking about it as I have to have this as part of my retirement accounts. I think that's a great answer, right? It's what's the number, the maximum that you would be willing to go to. And that is the answer that you put that in and that you subtract that from your portfolio, basically, or the amount you're going to need to accumulate for the next

couple of years and add that in. I think it's a very simple and powerful answer for how to fund college. And if that's 80 grand a year, two kids, well, then you're going to put in, what is that? $640,000. And you're going to offset your fire number because you can't plan otherwise. You have to assume that that could happen. I love that setting of the limit tool that you used there. I think that's a very powerful approach. Let's do another one here. Let's do a mortgage on the home. So I've got a $300,000 mortgage payment on a home that has $300,000 left at like three and a half percent. One of those old mortgages from five years ago. Thirteen or $1,500. That's what mine is. Perfect. Okay. So we have $1,500. That's $18,000 per year, right? 15,000, 500 times 12. And the

fire number that that would need to back into would be 15 times 25, 375. thousand dollars. So how do I think about some of those odd situations to feel comfortable spending at the 4% world and pay my mortgage, which is a fixed unrelenting obligation for 25 years? How do you think about that in calculating a fire number? You know, I did not calculate my next fire number with this, the current mortgage that I have. At the time that we were calculating our fire number at one million, we bumped it back to 1,120,000, which was what we had left on our mortgage at the time. So by that mentality, I would have my current fire number be 2,300,000. Then I've got the $2 million that I can live off of, and I've got the $300,000 that I can choose to pay off my mortgage.

I can make payments because it's such a low interest rate and it had been the last time too. I don't think about that as I need $350,000 because at any time I could just pay off my mortgage. This is weird mortgage math. I don't think it's necessarily the right move. or not, pay off a mortgage or not in one of these old situations, it's a personal choice item for folks that are at this point in their wealth journey and on the verge of fire. But yeah, I think that that's a very reasonable way to think about it. If it's in your fire portfolio and you have a truly diversified, not just 100% stock portfolio, but something that does include bonds or alternatives or those types of things, then yeah, you could just assume that that's all part

of your fire portfolio and you're going to be able to cover the expenses that you need to pay for, which include your home mortgage payment, your $1,500 there. So as long as the cash flow from the distributions from your portfolio at 4% or after cash flow covers that mortgage payment, you're still fire. But it can be easier in a lot of cases because of the weird math of fire to just pay off that mortgage, even if it is lower interest. Yep. That's a conscious decision that Carl and I decided not to pay off the mortgage. Awesome. Let me ask you one more kind of tricky one here in the fire number calculation.

I talked to somebody recently who was giving a significant amount of money every month to adult children, which is not uncommon. By the way, it's not talked about a lot, but it's not uncommon, especially for folks who have adult children and are tuning in to shows like Bigger Pockets money with a net worth into the millions. How do we think about those types of gifts in the context of a fire number expense? Are they just taken out every month, or are they more flexible, do you think? When you say gift, do you mean that I am gifting some money to my adult children because I have more than I need, or am I giving them money to help them live? Both.

If I was gifting, if I happen to have some extra money, I'm going to give it to my kid. That is just a random expense that I don't think needs to be calculated into your fine number because it's a whenever I feel like it, money exchange. If I was actually supporting my adult children for whatever reason, I would want to add that into my fine number because if I'm supporting them now, chances are really good. I will be supporting them long term. If I'm just supporting them through college, like I've got a kid that's going to be in college. That is just going to be an expense over the next four years. The problem with the fire

calculation is, again, the lower your fixed expenses, the lower the overall expenses, the ceiling that you can put in your spending and feel comfortable about spending, the easier it is to solve the fire equation. And so a fixed unrelenting obligation is our enemy in the world of fire, right? Like that mortgage payment results in that funky math, right? Because to be sure that your fire portfolio is going to cover your mortgage payment, you need a lot more than what the mortgage balance is, even with those lower interest rate payments. That's our challenge here. And so when I talked over this issue with this individual, I suggested,

hey, there needs to be a way to reframe this gift as an expectation that is relentless and ongoing in the perpetual future. Is there a way to think about buying out that gift? I give you more upfront now. Then I will give as I choose at more infrequent intervals when the market performs well, for example, over time, for example. Those are real risks to a portfolio with those fixed obligations. So I would just encourage folks that have something like that, a discretionary but not really expense that's coming out, is there a way to buy out the fixed obligation component of it in a way that is amicable to other parties?

Because that will give you a lot more flexibility in the rest of your portfolio. Those are three edge cases that I think are pretty interesting. The home mortgage payment. I sort of have to do it, but don't really ongoing gifts, whether that's to a family member, which I think is very challenging conversation or charitable giving. Yeah. And charitable giving is, I think, a different animal. That is something that you are choosing to do of your own volition and you are doing this as something that you want to do. So therefore, I am going to make room in my budget to do this. And to make room in your budget after retirement is to have a larger fine number. Okay, Scott, we've been talking about calculating your fine number. We've been talking about all the different things that go into your fine number. I'm not sure if you remember, it's been a hundred years since we've done a finance Friday episode. But we have a document. that we send to anybody who is thinking about being on our Finance Friday episode that gives you, it's like a financial overview, it asks you questions, you know, fill in the blank here, here, here, for different places where you might not be thinking, oh, this is actually part of my

fine number. This is part of my net worth. This is how I should figure this out. So I would love to invite anybody who is thinking, I really want to figure out what is my net worth, what is my fine number, here's my expenses, et cetera, et cetera, to go to our web. and download this document. Our website is biggerpocketsmoney.com, and this is the financial overview document. Yeah, absolutely. All this is is a personal financial statement. So if you have a personal financial statement, you don't need to do this exercise. This is just a DIY, insert the numbers,

and we've made a free Excel spreadsheet that I'll allow you to do this. The outputs will only be as good as the inputs that you put in. So you've got to know your numbers and actually put them together. And we see the whole gamut here. We see folks that have, everything nailed down to the T with decimal points for their spending. We have see folks who round kind of crazily way under, very rarely over on their expense categories. But the better you do at this exercise, the more confident you'll be in what you need, your fire number. Awesome. Okay, Scott, I think this was a super fun conversation, but I am ready to go recalculate my fine number.

How about you? Me too. Let's do it. All right. That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench. I am Mindy Jensen saying, see ya, Zebra.