The #1 metric that matters when pursuing financial independence

It's not income

You've probably read about Johnny Depp's financial challenges. The guy allegedly has made 650 million dollars over the course of his career and it's all almost gone. Today he is forced to make more movies, work, which he receives an approximate 20 million dollars per movie. Imagine the agony.

There are countless of examples like that. Clearly even the highest of incomes isn't enough to guarantee financial independence. It's a component of that, but not the essence.

Return rate? Nope.

No, you can't have a 20% return in the long term. It's very unlikely you will even get 10%. You can try, but the harder you go for extraordinary returns, the more likely it is you will start again at the bottom.

A simple formula I've heard used is: "if you save half of your income for ten years and get a 10% interest for it, you can sustain your current lifestyle indefinitely." The culprit? You cannot rely on a 10% return over the long run. There are very few people in the world who can do that. Why would you?

If you're good with money, you'll get the average stock returns, minus taxes and inflation. That might leave you for example with 5% real returns. Even less.

It's not going to dictate how long it will take for you, unless you screw things up.

Savings rate? Yes!

Above anything else, your savings rate is the most influential number to the time it takes for you to reach financial independence. Yes, you can improve your income, and you should. And yes, you can have bad returns and if you're lucky, good. But what actually makes the most difference is how much you save.

Conveniently, your savings rate is also a testament to your spending habits, which you can easily change. With a decent income, you can truly save a significant portion of your income. If your income increases, but your savings rate does not, you're actually not getting any closer to your financial independence. The opposite, actually.

If you have saved for financial independence for 5 years, saving 50% of your 3000€/month income, and suddenly you double your income to 6000€, but your savings rate doesn't change, that means you've doubled your spending from 1500€ to 3000€. With an approximate 5% real returns, you might have been 9 years from FI, but since your spending doubled mid-way, it moved your goal a few years forward.

So, while everything else matters too and you can definitely hasten your journey to FI by doubling your income, the metric that matters the most is your savings rate. Start tracking it asap!

What savings rate do you need?

The savings rate you need depends on a few factors, but mainly how much you have saved already and what is the real return on those investments. Rather than calculating a multitude of scenarios open for you, why don't you try the interactive FIRE calculator.