Why I’m Going for FIO – Financial Independence with Options

A method to help you estimate how much money you need to retire early and be financially independence while achieving everything on your bucket list.

Written by Adam on 2017-12-05. Blog, Financial Independence, personal, Calculators, Canonical. 40 comments. Find out how I make money.

The math behind financial independence isn’t rocket surgery. In my interactive guide, you can calculate the amount you’ll need to be FI – which will generally be around 25x to 33x your current yearly spending if you invest your savings. This number has always seemed incomplete to me. It’s a snapshot of what life would be like if you spent a known amount.

What about for those of us who aren’t sure what they want their future to be? For that, you need to add in a measure of uncertainty in your estimates. I’m calling that my FIO number – Financial Independence with options. This post is why I think this is a more accurate measure of my ongoing spending.

map with computer

Making Estimates About The Future

If you head to Google and type “estimates are…”, one of the autocomplete responses is “estimates are evil”. As a software developer, making estimates can strike fear into hearts. If you make an estimate too high, there is concern people could think you unqualified, untrustworthy or stupid. If you make an estimate too low you risk not delivering and taking a hit to your credibility. I’ve worked with people who will do everything they can not to give an estimate because with the wrong people it can be a lose-lose situation.

As a software developer at a handful of companies – I’ve made many estimates over the years. Some of these were ones I executed on, while some were co-created with teams where we were all accountable. I’ve made more bad estimates than I care to admit. Even still, I’m a huge proponent of learning how to make great estimates. I’m here to tell you there’s a trick to making better estimates.

How to Make Better Estimates

The secret to good estimates is to switch from thinking about estimates as having a single point and thinking about estimates as ranges. There’s a low point and a high point in any given range – and you could include a “best guess” point that’s somewhere within that range for clarity. The beauty of ranges is that you don’t need to be precisely right.

Imagine you’re were playing The Price is Right and were given the option to guess the price of a car. For this game, the estimate is a single point estimate – the most brittle kind. What if you were allowed to give a range for your estimate instead? This would be a superpower! Think about how wide you could make your range:

Somewhere between $5,000 and $1,000,000!

Even without knowing what kind of car you were bidding on, you can be pretty sure it’s going to be in that range. You might be thinking that’s quite a huge range. The important part is winning the car, not to give the smallest range possible.

An Estimate Exercise

Let’s try an experiment. Try to make an estimate in your head that solves the following question:

How many gallons of water are in Lake Superior?

Make sure your estimate for this is a range rather than a specific number.

  • Did you feel the need to make the range small?
  • Do you feel stupid making a gigantic range?
  • Do you feel confident that your range is large enough that you’re correct?
  • Does it feel constricting to make your estimate too small and be wrong?

All of these are limiting beliefs about estimates. With estimates, it’s better to be accurate than to boost your own ego by being precise. This is something that I’ve struggled with. Giving small estimates implies that you are very sure that the answer is in that range. If you’re giving an estimate and you have no confidence that the answer is in that range, you’re making a guess rather than giving an estimate.

Hover below to see the answer

Lake Superior has 3,170 million million gallons, or if you’re thinking area, it’s 12,000 km3.

Back to Financial Independence

When it comes to Financial Independence spending, giving a single number implies you are sure you’ll spend that amount going forward. What if you instead used a range? How could that impact your estimates?

Don’t Artificially Reduce Your Range

If Drew Carey (the host of The Price is Right – in case you’re wondering) requested you to focus your estimate and make it smaller, what would you do? I’d hope you’d do absolutely nothing. There is no reason for you to reduce your estimate unless you have new knowledge. If you’re going to focus the estimate, then you’re going to need more data — maybe the make and model of the car, and the year. The more information you have, the better an estimate you can provide.

The term for this is the cone of uncertainty. You’ve probably seen this before in the 3-day and 5-day paths of a hurricane. It’s normal for there to be built in uncertainty.

The idea is that the more knowledge you have, the more you can reduce the range of your estimate. At the beginning, it’s not uncommon for estimates to be off by a factor of 4 — either 1/4 of the actual number or 4x the actual number. This is a huge range! The more knowledge you know the more you can refine your estimate and move it closer to the actual number.

Spending Estimates For Financial Independence

Let’s try this out with a FI spending estimate. I’m going to use my own numbers for this exercise, but the idea should work for yours too. Our yearly household spending is right around $60,000/yr now. The potential cone of uncertainty could be from $15,000/yr to $240,000/yr. The trick is to use this range as a starting point, then refine it with more data.

I’m assuming you have some data to help refine this estimate. You probably know how much you’ve made in the past and how much you’re making now. You may also know how much you’re spending now (if you don’t I’d recommend you start tracking that). With that data, you could know the lower bound of the estimate – the minimum amount you could possibly FI with. That might give you a baseline that you know the lower bound that you’d possibly spend.

I know that if we went super-lean we could cut out $60,000 spending down to $40,000 and still be very happy. This lower boundary isn’t a “I could survive on this”, but more of a realistic number that you could happily live on. I’ll choose $40,000 for my lower end of my estimate.

But what about the high end of this estimate? How do you calculate the maximum amount you want to spend in any given year going forward? I do this by calculating out some “what-ifs” and adding them together. The idea of having options and planning around them has had some great posts elsewhere recently.  Here are some of my “what-ifs” that would be nice to try someday in the future, even if they aren’t a core part of our lifestyle.

What if: I move to a super-expensive city? +15k

If I were to move to a much more expensive city than I’m in now, then my rent might be another $15k on top of what I’m currently paying. I’d also rope in the option that we buy a more expensive house in this number.

What if: I have to pay the maximum out of pocket on health insurance? +15k

Health care is in a very difficult spot to predict right now. There is one thing we can predict currently though — the ACA yearly out of pocket maximum. That number is around $15,000 right now for a family plan. This is the amount I’d pay if things went seriously wrong.

What if: We travel in style? +25k

Traveling cheap doesn’t mean skimping on luxury. You can do a lot with travel hacking, credit card points, and good planning and even hit some expensive places. With our current travel budget around $6k/yr, the idea of drastically increasing this sounds like a lot of fun. I’d love to just pick up and go when friends invite us on a trip or leave on a whim without months of points planning. Building this option into my FI number seems helpful.

What if: We donate more to worthy causes? +25k

Hearing Physician on FIRE and Our Next Life mention donor-advised funds it started to click with me how the charity side would work on a technical level. Having the ability to do this would be an amazing way to stay close to our communities.

What if: We support family? +10k

We’re lucky enough to have family that is also fortunate. But what if that’s not always the case?

What if: We eat out more (in the US)? +15k

Our spending for restaurants and groceries is about $600/mo so far in 2017. I’ll admit now that we spent that much on a single meal in November. I won’t lie – I’d love to do that much more often. Despite it being unhealthy, unsustainable and outright decadent, doing this every once in a while is memorable. I love the idea that we could live outside the US and eat out more only to see our spending go down.

What if: We decide to have kids? +0k

We’ve decided not to have kids, and are sure enough to put the estimate of this one at $0. If you’re following along and are considering this, it might be a good one to include on your what-if list with a number that makes sense for you.

What if: I go back to school? +0k

I don’t see this in the cards. I’d rather learn on my own. My mom went back to school for a law degree when she was 40, just a few years older than I am. Thinking about that now puts that achievement into perspective and makes me respect her that much more.

What if: We decide to upgrade our cars? +10k

We drive cheap cars. I’ve never been one to fawn over the latest and greatest, but the idea of an energy-efficient self-driving car is fascinating. I’ve been invested in Tesla for years and may consider changing to one someday down the line. There is a chance this could even lower the amount rather than raise it, but I’ll be safe and include it.

What if: I decided to start skiing in Utah and really love it? +10k

With our recent move to Utah, one of the things I’m looking forward to the most is skiing. I haven’t been skiing too many times in my life, but I’ve always loved it. It’s a 38-minute drive from our apartment Park City (I might’ve mapped it once or twice).

FI With Options

If you add all of these”what-ifs” up, it totals $125,000. Add to that the original $60,000 spending, and we have a high estimate of $185,000. The idea of spending $185k/yr is absolutely insane to me, but there it is in black in white how I could do it. Even looking at that list, it’s not a list of things I want to do every year. It’s a wishlist of things to have the option to do on years when they make sense.

Based on that, my FI number would be somewhere between $40,000 and $185,000, with $60,000 being my best guess based on current spending. In the estimation world there’s a handy formula for creating estimates that factor in uncertainty:


The beauty of this formula is that it shifts the result based on the uncertainty. I can plug in my numbers now and come up with a clearer estimate:

formula with my values

And here it is, my FI with options number! $77,500 is over $100,000 less than my maximum estimate, but since my “best guess” number is $60k it’s the one that makes the most difference. When I ran this formula 10 years ago, the “maximum” estimate would have been even higher since it incorporated additional “what ifs” for having kids, going back to school, buying a house, marrying someone who wasn’t frugal and more.

What is Your FIO Number?

Try making a list of all of your “what-ifs” and coming up with a maximum size of the estimate. When you have one in mind, plug it in and find out your FIO number!

Why is this Number Useful?

The minimum estimate for FI is helpful for understanding the earliest possible moment when you could be FI. The maximum estimate can help understand what FI would look like if you added an outrageous amount of lifestyle inflation to your life. I think the common ground, and the number that I’d happily want to plan for is somewhere in the middle of the FIO number.

What are your thoughts on a FIO number? How do you include flexibility in your future estimates? Do you budget for “what-ifs”?


Hi, I'm Adam! I help millennials invest to reach financial independence sooner than they ever thought possible. Want to see what you could do to reach FI sooner? You're in the right place!


Why not add to the conversation below? Your voice is welcome!


December 5, 2017

Interesting. I think a lot of people full of FIRE fervor ought to do this exercise. Locking themselves into a $40k or less budget when they are in their 30’s or 40’s and they have no idea who will be looking back at them from the mirror in thirty years is pretty arrogant. My FIRE target was $100k and since I retired barely early I know the lifestyle I like and it is larger and more expensive than the one I had at thirty. I could go back and live that way but I don’t want to and because I have the money I don’t intend to. I also made sure I had a big margin above what it took to support my expenses because I might not see eye on values with myself in the future. Thanks for a thought provoking, excellent post!

Thanks! I agree on the concern over setting that number too early (as you can see from this post). It’s interesting to think that it could result in people feeling like they’re missing out by not saving enough, but also it could result in people feeling they’re living life more fully by retiring far earlier.

This a great little formula, I never thought of it this way. Thanks for building the interactive calculator too, pretty cool.

Thanks! I use this formula all the time at my job when working with others to create estimates. Glad it’s helpful. 🙂

Definitely interesting! Where does the 4 come from?

It’s more about weighting. You’re effectively averaging 3 numbers (the low, high and best guess), but you want to weight the “best guess” more than the other numbers. As for why it’s weight that way as opposed to 3 numbers or 8 numbers I’m not too sure.

The technique is called a PERT (Program Evaluation and Review Technique) model if you’re curious though: https://www.techrepublic.com/blog/it-consultant/use-pert-technique-for-more-accurate-estimates/

I hadn’t actually heard of PERT before — definitely useful!

Yeah, I was wondering more about the somewhat arbitrary weighting. I’d personally think it might make sense to weigh the best guess heavier in this case. Reason being, we generally have a lot of historic, actual yearly spending to look at. For software development, hoo boy do I know you should think about the worst case. There are a lot more unknowns with a software project vs. yearly spending variations. Plus, a lot of new early retirees seem to spend less.

Oh! There should be a pseudo-study with this!! Call for people who’ve retired early to share spending pre/post, compared to estimates? Can’t really do it too scientifically of course, but it would make for a fun post. 🙂

This is such a neat way of thinking about this. Great post, Adam! – Mrs. FH

Thanks! I hope it helps, as opposed to deterring people, since it does potentially raise peoples FI number rather than lowering it.

Woot woot net worth goals! FI options is a lot more creative than mine. $175k to blow in a year tho…I mean you can but when are you going to find time to sleep with all that necessary spending? Sleep is free!

Too true! I honestly wonder if I could spend that much in a year if I tried.

We are so hesitant to set any type of date (or savings number) for FI since there are so many different options! We are 30ish, don’t know what the future will bring, and we both plan on taking a break or two from working pre-FI. Love the calculator and concept!

Makes sense, especially with the beaks. Calculating a number should be more consistent than calculating a date given your scenario it sounds like.

I agree with your point Adam. I’ve always been amazed to read about how people are committing to live on $40K for the rest of their lives. Personally, I’m focused on FI not FIRE. My FI number is based on current spending in an expensive area. I can cut it if I need to. Once FI, I’m going to make choices that maximize my happiness. I still expect to make money for years after FI. My goal is to find that “job” that I enjoy so much I’d do it for free. Fingers crossed.

That’s a good option – having a line of income after FI. That’s what I’m hoping to go for it!

This is great Adam! The more tools and calculators we have available, the more folks can plot out their strategy with good data.


Thanks! It was a fun one to put together.

This is very cool. I will have to play with the numbers some.
The thing I notice is I experience “lifestyle inflation” by slowly spending more over time. I suck at predicting the future for sure. The amount I thought would be more than enough 20 years ago would be less than my minimum now. Partly from inflation, partly from my increased spending.
I love the FIO concept though. I’m FI. I have options. I’m continuing part-time work. That may not be a good choice for everyone but I like the work, and the income, and benefits. My spending and future predictions don’t need to be accurate and I will still be okay.

Avoiding lifestyle inflation is definitely hard. A certain level of lifestyle inflation can greatly improve the quality of your life too, which makes it hard to say it’s good or bad. Based on the FI data of the interactive guide, I was able to see spending goes up until about age 50, then it goes down — but so does income. It’s tough not to use money if you think there’s a way you think it could improve your life.

Great post. Interesting way to think about it and nice analysis.

This is a great exercise. We are planning on budgeting $5k per month for basic living expenses in retirement. That is about $2k more per month than we spend now. Our goal is to retire in 11 years. We are also planning on budgeting $4k per month for travel and other fun hobbies. Our plan includes many options.

Good way to estimate costs. One recommendation. Is there a way to worksheet assumptions. They drive the results the most obviously. I read through you looking at assumptions and then was expecting something similar in the calculator. Maybe a follow up post?

That would be neat! Are you thinking about something where I seed thing with some questions or that people can add in their own assumptions?

I really enjoyed the article. Adding the cone of uncertainty to the formula is a great idea.
Our annual expense is about $55,000 now, but it will increase as we get older. It’s really difficult to keep cost of living the same every year.

Thanks Joe! Agreed on the difficulty. Even tracking things monthly, it’s easy for me to think “oh that month was an anomaly”, but when you look at the trend line it doesn’t lie.

This calculator is really cool. How did you create it on a blog post page?

I like the idea of trying to minFIRE and then doing things part time until you get to maxFIRE. Some hobbies are for sure costly!

The minFire + job is a good idea too. I think by reducing all numbers by your part-time job, this formula could still work for it – but that’d assume that job forever. Hmm, be interesting one to model!

The calculator is a regular webpage hosted on GitHub that’s included via an iframe. It’s possible to visit the page directly too. The version on the interactive guide is embedded, but for these one-off calculators iframes make it a lot easier.


I understood only part of that haha. For the not-so-knowledgable about building a tool like this, how would I go about learning? I was going to just try and get my excel sheet on the actual blog post but this type of thing looks much cooler (and takes up much less space).

I’d like to build minFIRE + job to see how much I could reduce my FI number by — I wonder if most people accidentally (or on purpose) make income when they’re are FI.

Mrs. Farmhouse Finance

Mrs. Farmhouse Finance

December 9, 2017

Great post! I definitely want to travel more in retirement, so that could add a lot to our monthly spending. Thanks for sharing this formula!

I really enjoyed reading this post!

Hi Adam

The way you are explaining the maximum, minimum can be reduced the same way in future

1. What if I move to a village
2. What if I sell my car and do not need one
3. My children education expenses would not be there
4. what if kids support me

why take into consideration only the maximum way.

though the article is brilliant, is not it taking one side i.e. increment in expenses

Good point! I went into a big exploration of the “maximum” amount, but the same could be done for the minimum if there’s a bunch of scenarios that could lower that. I could see that number even going down to $0 if you want to plan for these cases. If you think they’re more likely to occur, you could adjust your “expected amount” for it too.

For those, I could see the amount you need going down, but then being provided for partially by others rather than from your savings. For instance, if your kids supported you, you’d still need some amount of money from them. Getting that number down would be worthwhile if that’s a potential goal or path in life.

I may be overlooking the obvious, but why do you divide by 6 in the FIO equation? I do like the idea of giving yourself some wiggle room for life changes. I have fiftyleven sink funds for different bills and I always deposit a little (lotta) bit more into them than what’s usually needed, just in case something out of the ordinary happens. I had a $600 heating bill one winter and it made me paranoid so now I’d rather overestimate than under. I would probably still add a bit of cushion to my FIO because old habits are hard to break.

It’s because we’re using 6 estimates – 4 with our best guess, 1 with our low estimate, 1 with our high estimate. You could think of it as a weighted average of these 6. You could just as well do 5 best guess, 1 low, 1 high and divide by 7. This weighting (4/1/1) is a good one that i’ve seen mentioned in estimation articles.

I like the way you think, Adam. I used a much simpler formula to come up with a potential increased budget in the future by doubling “discretionary” expenses and using the new number as the basis for “financial freedom,” a number a peg above your standards 25x FI number.

Enjoy Utah and all the powder! I was out there twice this year to visit the White Coat Investor, and I’ll be speaking at his first annual Financial Literacy conference in Park City in March of 2018.


Hmm that’s a neat way of looking at it (doubling discretionary). I think in my case if I were to do that It’d be really close to this number actually (like within 10% of it). The Financial Literacy conference in Park City looks pretty cool too! I hadn’t heard of that one.

If you’d like to share, how did you know/decide that you weren’t going to have kids? My wife and I feel no “natural” desire to have them, and there’s no sign that this will change, but we’re leaving the door open for now.

Hey Jonathan! Our choice to go the child-free route was organic for the most part. When we started dating we didn’t know what we wanted. We kept talking and figuring that out together – and eventually, we realized what we both wanted was a life without kids. We thought about what our lives would be like 5, 10, 15, 25, 50 years, and in each scenario, we were happier without kids.

Cool, thanks for the reply. I’m 33 and my wife is 31. I think we need to decide within the next few years, or nature will start deciding for us. 🙂

Just found this post. Good for me to think about. According to some sort of baristaFIRE calculator I could be over 70% to baristaFIRE, which seems crazy though since it’s been only 2 years of saving.

I’m pretty sure I’d be in the camp of spending less once I FIRE. I backpacked around the world for a year on $9k in 2015 and that was before I did any churning. I’ve done a couple thru hikes since then on $500/mo and one where I was no-holds-barred spending, and that was $1k a month. I definitely catch myself eating takeout more now when I’m in the hustle; and I certainly won’t miss the daily $5 toll (maybe could even get rid of my car; I hate having it but where I live now- moved here during the pandemic/got work that required it- it’s a necessity unfortunately for now)

All of the “options” are still hard for me to come up with, and probably less critical as I always plan to work a little (I like what I do; just don’t like the stricter schedule I have now). I don’t feel the dread my husband does about having to go back to work once “FIREd”

Definitely glad you mentioned keeping licenses active; something I didn’t think about and will need to budget for. 🙁

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