How we calculate our savings rate & FI number

Let's have a look at the math behind the two most important numbers on our journey to FI; our savings rate and our FI number.

What's in?
Your savings rate is simply what you have left at the end of the month divided by what came in at the beginning of the month. Our net income consists of 2 (after-tax) salaries and child support (in Dutch: “kinderbijslag”). 

We do not consider the subsidy for the daycare bill (in Dutch: “kinderopvangtoeslag”) income, as this amount is directly coupled to a specific expense. We have an annuity mortgage which will make sure we have paid of our house in 30 years. Hence, we pay the bank interest and a down payment that lowers the remaining mortgage debt every month. The down payment combined with the portion of our income we don’t spend, is our monthly savings rate. 

We also keep track of a yearly savings rate that includes the non-monthly extras  (annual tax return, extra salary payments). However, we like the simplicity of the monthly number as there is no reason why that would vary. We use part of the extras for larger non-monthly expenses (typically maintenance of the house & holidays) and save at least the monthly savings rate on it to keep that number afloat.

Are we there yet? Are we there yet? 
Not surprisingly, we calculated our FI number based on our anticipated spending after retirement using the 4% rule of thumb. We plan to retire at the same age, not the same point in time. This means the first 7 years of my retirement the lady of the house still brings home a salary. In fact we are half FI for that time period. 

By the time we are both FI there is around 15 years left to bridge to my pension payments starting to kick in. We might like our jobs longer than the numbers require or start a side hustle that brings in cash we don’t need. Taken together, the 4% rule feels very safe to us especially considering that the time span we both fully depend on this passive income source is relatively short (the original Trinity study looks at 30 year retirement periods, the update even longer periods). 

Anyway, all the 4% rule does is provide us with a number to work our way up to, we’ll sort out the details when we get closer to FI.