Optimal Finance Daily - Financial Independence and Money Advice 3550: [Part 2] How I Measure Progress Toward Financial Independence by Craig Stephens of Retire Before Dad
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May 6, 2026 A practical method for measuring financial independence by starting with annual spending and converting it into a target number. The episode focuses on using invested assets instead of net worth and adjusting needs by forecasted passive income. It covers tax adjustments, keeping income-producing assets separate, and visual charts to track progress and forecast an FI date.
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Begin FI Planning With Annual Spending
- Start with annual spending to compute your FI target using the 4% rule.
- Craig Stephens uses $65,000 spending → $1,625,000 FI number as a concrete example to anchor planning.
Use Invested Assets Not Net Worth
- Invested assets are a better progress metric than net worth because net worth includes home equity you typically won't liquidate.
- Craig Stephens argues excluding primary residence gives a clearer picture of retirement funding needs.
Adjust FI Target For Sustainable Investment Income
- Subtract sustainable forward 12‑month investment income (F12MII) from annual expenses before recalculating your FI number.
- Example: $12,000 projected passive income reduced by ~15% taxes → $10,200 cuts $65,000 spending to $54,800.