How to Calculate the Money Needed for Basic Financial Freedom

There’s actually a fairly straightforward way to calculate this.

The base annual interest rate offered by most banks hovers around 4%, which you can use as the benchmark for your interest-rate calculations. (Generally, if you put your money in a bank, it’ll offer you a fixed 4% return, though you usually need to negotiate that yourself; otherwise, you might only get around 2%. Alternatively, you could buy bank stocks through a brokerage account, since their annual dividends tend to hold steady at about 4%.)

Next, simply tally up how much you spend in a year. For example, if your family’s average monthly fixed expenses are $10,000, your annual spending comes to $120,000.

Basic financial freedom means your interest income can cover your everyday expenses.

120,000 / 4% = 3,000,000

Following this logic, you’d need to build up a mandatory savings base of 3 million.