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Glossary

Net worth

Financial independence

Also known as: FIRE.

Financial independence is the point at which income from your invested net worth covers your expenses, so working stops being mandatory.

Formula: Target capital = annual spending / withdrawal rate

The common target is roughly 25 times annual spending, which corresponds to a 4% withdrawal rate.

Only net worth able to fund spending counts toward the goal: your primary home and emergency fund are usually excluded from the calculation.

Put it into practice

Related terms

  • Savings rate — Savings rate is the percentage of your take-home income that you don't spend and instead put toward saving, investing or paying down debt.
  • Net worth — Net worth is the difference between everything you own (assets) and everything you owe (liabilities), valued at the same point in time.
  • Withdrawal rate — Withdrawal rate is the percentage of net worth withdrawn in the first year of retirement, later adjusted for inflation; the classic reference is 4%.

Bring it to your own numbers

netclariq applies these concepts to your real accounts, debts and investments, with simplified double-entry bookkeeping and without asking for your bank credentials.

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Educational content. netclariq does not provide financial, investment, tax or legal advice.