BiggerPockets Money Podcast Summary

Episode: How Much Do You Need for Early Retirement? (How to Calculate Your FI Number)
Release Date: July 11, 2025
Hosts: Mindy Jensen and Scott Trench
Description: In this episode, Mindy Jensen and Scott Trench delve deep into the concept of calculating your Financial Independence (FI) number. They explore the nuances of determining how much money one needs to retire early, considering various factors such as expenses, investment portfolios, and life changes.

1. Understanding the FI Number

The episode kicks off with Mindy Jensen introducing the fundamental concept of the FI number, which is traditionally calculated as 25 times your annual expenses. She poses critical questions about whether this number changes over time and what factors should be considered when determining it.

Mindy Jensen [00:00]:
"Your FI number, at its very base, is 25 times your annual expenses. But does your FI number change over time? What considerations should you put into your FI number and how frequently should you revisit it?"

Scott Trench concurs, adding that while the 25x rule is a standard benchmark, there are nuances based on individual circumstances.

Scott Trench [00:28]:
"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."

2. Personal Journeys to Financial Independence

Both hosts share their personal experiences in determining and achieving their FI numbers.

Mindy Jensen [01:35]:
Mindy recounts discovering the FI concept around 2012-2013 with her husband, Carl. They calculated their FI number using the 4% rule, arriving at approximately $1,120,000 to account for their investment accounts while deciding not to pay off their mortgage.

Scott Trench [03:43]:
Scott shares a similar journey, initially setting a $1 million goal around 2013-2014. He highlights the impact of his role as CEO at BiggerPockets and significant real estate appreciation on his financial trajectory.

3. The Role of Real Estate in Calculating FI Number

A significant portion of the discussion revolves around incorporating real estate investments into one's FI calculations. Scott emphasizes the complexity of using real estate cash flow versus traditional investment portfolios.

Scott Trench [07:45]:
"If you're spending... your expenses are coming from the cash flow. How are they to think about this when they're determining their FI number?"

The hosts debate whether to include rental properties' cash flow directly in the FI number or treat them as separate income streams supporting their expenses.

Mindy Jensen [12:52]:
"If you're spending, if your desired spending target is $80,000 a year and $40,000 is a conservative approximation of the cash flow... then the rest of your fire portfolio would need to be about $1 million to generate the remaining $40,000 you could spend."

4. Differentiating FI Number from Net Worth

A critical distinction is made between one's FI number and net worth. While net worth encompasses all assets, the FI number focuses solely on liquid and income-generating assets necessary for early retirement.

Mindy Jensen [13:56]:
"Net worth includes all of your assets, including your home's equity, your car values... In your FI number,... money tied up in your net worth is not to be included."

Scott agrees, emphasizing the exclusion of non-liquid assets like primary residences unless they contribute directly to income.

Scott Trench [15:28]:
"Don't include your home equity in your FI number unless you intend to use your home as part of that FI number."

5. Budgeting Strategies and Spending Controls

The conversation shifts to the importance of budgeting and maintaining spending controls to ensure financial independence is sustainable. Both hosts highlight different approaches to managing expenses.

Scott Trench [26:18]:
"I think there's a concept of budgeting and spending controls that is absolutely essential at every part in that journey."

Mindy shares her approach to budgeting, especially in light of upcoming life changes like her daughter attending college.

Mindy Jensen [28:40]:
"When you' 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."

6. Adjusting FI Number for Life Changes

Life events such as having children, paying for education, or carrying a mortgage can significantly impact one's FI number. The hosts discuss strategies to adapt the FI number to accommodate these changes.

Scott Trench [34:20]:
"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."

Mindy provides a real-world example of setting a spending limit for her daughter's education to prevent financial strain.

Mindy Jensen [32:42]:
"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."

7. Practical Examples and Case Studies

The hosts delve into hypothetical scenarios to illustrate how various obligations like mortgages or gifts to adult children should be factored into the FI number.

Scott Trench [35:08]:
"So how do I think about some of those odd situations to feel comfortable spending at the 4% rule and pay my mortgage, which is a fixed unrelenting obligation for 25 years?"

Mindy Jensen [35:35]:
"At the time that we were calculating our fire number at 1 million, we bumped it back to 1,120,000, which was what we had left on our mortgage at the time."

8. Tools and Resources for Calculating FI Number

Towards the end of the episode, Mindy and Scott promote resources available for listeners to calculate their FI numbers accurately.

Mindy Jensen [40:53]:
"We have a document that we send to anybody who was thinking about being on our Finance Friday episode that gives you... a free Excel spreadsheet that'll allow you to do this."

Scott adds that having a personal financial statement is crucial for an accurate FI calculation.

Scott Trench [40:53]:
"All this is just a DIY. Insert the numbers, and we've made a free Excel spreadsheet that'll allow you to do this."

9. Conclusion and Final Thoughts

The episode wraps up with both hosts reflecting on the importance of understanding and regularly revisiting one's FI number. They emphasize that while the journey to financial independence is personal and unique, maintaining awareness and control over spending is universally essential.

Mindy Jensen [41:30]:
"I'm ready to go recalculate my FI number. How about you?"

Scott Trench [41:38]:
"Me too. Let's do it."

Notable Quotes

• Mindy Jensen [00:00]:
  "Your FI number, at its very base, is 25 times your annual expenses."

• Scott Trench [00:28]:
  "There are a lot of nuances to that number."

• Mindy Jensen [13:56]:
  "Net worth includes all of your assets... In your FI number, money tied up in your net worth is not to be included."

• Scott Trench [15:28]:
  "Don't include your home equity in your FI number unless you intend to use your home as part of that FI number."

• Mindy Jensen [28:40]:
  "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."

• Scott Trench [34:20]:
  "It's the maximum that you would be willing to go to."

Key Takeaways

1. FI Number Fundamentals: The FI number is a crucial metric for determining financial independence, typically calculated as 25 times your annual expenses.

2. Personalization is Key: Your FI number should reflect your unique financial situation, considering factors like investments, real estate, and life changes.

3. Real Estate Considerations: Incorporating real estate into your FI calculations requires careful consideration of cash flow versus principal investment.

4. Distinguishing Net Worth and FI Number: While net worth includes all assets, the FI number focuses solely on liquid and income-generating assets necessary for sustaining your desired lifestyle.

5. Budgeting Essential: Maintaining strict budgeting and spending controls ensures that financial independence remains attainable and sustainable.

6. Adaptability to Life Changes: Life events such as having children, paying for education, or holding a mortgage necessitate adjustments to your FI number.

7. Utilizing Tools: Leveraging resources like personal financial statements and Excel spreadsheets can aid in accurately calculating and tracking your FI number.

For listeners eager to take control of their financial future, this episode offers a comprehensive guide to understanding and calculating the FI number, ensuring a well-planned journey towards early retirement.