With the help of this formula, we can determine how long it will take the user to become financially independent based on their annual spending, predicted annual return, savings rate, and present savings.
The Formula for Financial Freedom
Years_to_Financial_Freedom = log((Annual_Expenses x (Savings_Rate + 1) – Annual_Expenses) / Current_Savings) / log(Expected_Annual_Return + 1)
- Years_to_Financial_Freedom: The amount of time needed to become financially independent.
- Annual_Expenses: The entire amount of money the user spends a year on essentials such as living expenditures.
- Savings_Rate: A decimal representation of the user’s intended annual savings and investment percentage (e.g., 0.3 for 30%).
- Current_Savings: The total amount of money the user currently has in savings or investments.
- Expected_Annual_Return: A decimal representation of the estimated average yearly return rate on the user’s investments (e.g., 0.08 for 8%).