Other than being a very catchy title, what does it mean, and what is a Fuck-You Day ?
This saying comes straight out of the US and it’s basically the day that you hand your resignation letter to your boss with a massive smile, as you have (finally) reached financial freedom.
Financial freedom is not the main theme of this article, but you should know that it is some people’s life objective, that is, to not be dependent on one entity to finance a good life. We are not talking about living luxuriously, but simply to a life that is satisfying to oneself.
Having asked multiple people around me, nobody told me that they would ideally retire at the official retiring age! Nobody! However, not many of them had really given a thought about the possibilities and consequences of retiring early. Multiple questions often stay, answerless :
- Will I have enough money to retire early ?
- How can I stop working earlier ?
- What are the consequences on my pension (2nd pillar) ?
- Is it really possible to stop working at 55, 50, 45 years old in Switzerland ?
- How much money would I need to stop working now ?
All of these are legitimate questions, it is not really easy to find answers and stop working at 50, without a strategy in place. It can also become very risky.
Fuck-You Day VS Fuck-You Number
Now that you know what a Fuck-you day is, you may understand that the Fuck-You Number corresponds to the amount required for you to stop working when you want to (Fuck-You-Day). Basically, it’s going to be the amount of money you need to achieve financial freedom. At this stage of the article, you are probably telling yourself :
- “Mr. GP, that’s very cool, but how do I find out how much I need to have financial freedom at a certain date?“
And that is indeed, a very good question. While I was learning about everything related to financial freedom like you may be, I thought that the calculation would be very complex and unapproachable because of all of the different financial costs implied (current wealth, tax, salary increase, inflation, kids, etc.).
Thanks to “Marc pittet”’s amazing book, Libre à 40 ans en Suisse, I have discovered that it is possible to calculate all of that in less than an hour ! How is this possible? It is all thanks to a study1 that was led at Toront’s Trinity University in Texas, by economics & Finance professors.
This study proves and explains a very famous theory ; the 4% rule. A post specifically about that will be available, but basically, this rule shows statistically that your wealth will stay stable (unchanged) if you spend less than 4 % of it to cover your needs. To calculate that amount, you therefore need :
- Understand and know the value of your current spendings
- Multiply that amount by 25
|Average annual spendings||Ideal Fuck-You-Number|
|40’000.- CHF||1’000’000.- CHF|
|60’000.- CHF||1’500’000.- CHF|
|80’000.- CHF||2’000’000.- CHF|
|100’000.- CHF||2’500’000.- CHF|
|120’000.- CHF||3’000’000.- CHF|
If we use the definition of the 4 % rule, and use the inverse calculation, we should then 4% of our fuck-you-number and that should be equal to our annual spending.
- 4 % of 2’000’000.- CHF = 80’000.- CHF
- 4 % of 2’500’000.- CHF = 100’000.- CHF
By now, I think you have understood the calculation. Basically, if you estimate that you, or your family, will spend 100’000.- CHF annually on average and you want to retire today, you should have at least 2’500’000.- CHF in your savings to live off the return on investments generated.
[Etape 1] – First estimate of your Fuck-You number !
Let’s get down to business. The objective of this article will be to figure out how much wealth you (or your family) should attempt to collect before being financially independent and retiring early. For this exercise, you will have to equip yourself with some serious writing weaponry, like a pen and paper or perhaps an excel sheet. You will have to mark down the following:
- Total income [R]: it is important to take the net amount ! This should be available on your payslip.
- Saving [E] : this includes classic savings account with their ridiculous interest rates, 3a and 3b savings account for the Swiss readers, and perhaps stocks returns and dividends, if any. If you do not use a budget, a quick was to figure out an approximation of it is to take the end of year (EOY) result of two different years and look at the difference between them :
- Account A, amount at 31.12.20 : 34’823.- CHF
- Account A, amount at 31.12.21 : 39’672.- CHF
- 39’972 – 34’823 = 4’849.- CHF (saving for account A)
- Do this for every account and add all of it up. You will get your yearly saving.
- Total annual spending [D] : D = R – E . Facile…
- Fuck-You Number [F] : Now we apply the 4% rule to this.
- F = D x 25
- F is the magic number to achieve before retiring early.
Here is how it went in the GP family when they did it for the first time.
- D = 120’0000 CHF
- F = 120’0000 CHF x 25 = 3’000’000.- CHF
Pfiou that was quite a shocker…How can I imagine achieving a fortune of 3’000’000.- CHF whilst being 24 and 30 years old, a kid, a full-time job, Miss GP’s at 60 % and attempting to end all that by 50? How about you? What was your first Fuck-You number ?
[Etape 2] Reduce the Fuck-You number
Shock slightly out of the way, let’s get back to our pen and paper and try to find a solution to that problem. First question : why is the obtained result so high, and how to make it lower ? It is actually quite easily possible as mainly two factors actually impact it:
- Your saving : this is what needs to be increased
- Your spending : this is what needs to be decreased
Starting with this simple fact, we can try to focus a little on our lifestyles and attempt to diminish the impact of the spending and hopefully increase the savings.. Ces deux sujets seront traités dans des articles dédiés. Imaginons cependant que nos efforts et les différents changements que nous avons apportés à notre vie nous ont permis de passer de 120’000.- CHF à 97’000.- CHF de dépenses annuelles pour notre famille. We have therefore increased our savings rate and at the same time, our Fuck-You number has gone from 3’000’000.- CHF to 2’425’000.- CHF, i.e. a decrease of 575’000.- CHF !
Even though this is a simplified example, one thing is certain ; if you want to stop working quickly, you must save money and spend the least possible.
This first attempt has probably discouraged you a little and that’s normal. However, we will try to approach the situation from another angle. To do so, let’s answer the following question :
- How old do you want to be when you stop working ?
This approach is probably more accessible to anyone reading this. The objective is to have a realistic and precise goal. We will avoid answers including words like « pretty much », « in the whereabouts of », « close to ». It can (and should be) very ambitious. The objective must be SMART (S=Specific, M=Mesurable, A=Ambitious, R=Realistic, T=Time sensitive). Let’s take Tom’s case:
- Tom wants to be work free by 50.
- Tom is 30.
- He has twenty years to achieve his Fuck-You number.
- Tom earns 100’000.- CHF / year (net)
- Tom spends 80’000.- CHF / year -> Fuck-You number = 2’000’000.- CHF
- His saving’s rate is therefore 20 %.
- Tom has a capital of 50’000.- CHF
Taking all of this data into account, and considering an average of 5% on his futur placements, he will need 34.3 years to achieve his Fuck-You number. Conclusion => Tom does not earn enough, or his 20 % return rate is too weak (those are linked). Tom would have to increase his savings’s return rate to 41% to achieve his “retired by 50” objective.
Details of the calculations : Not much credit to me here, most of the calculation was done by Networthify.com. To achieve his goal, Tom must :
- Save 42’000.- CHF/year (3’500.- CHF/month)
- Spend a maximum of 58’0000.- CHF/year (4’833.- CHF/month) -> New Fuck-You number = 1’556’153.- CHF
- Have a Return On Investment (ROI) of 5 %
You have understood it, the savings rate is the key to your future success ! It takes into consideration your revenues and expenses. Increase your savings rate by optimizing your expenses and/or by increasing your revenues.
I would like to place an emphasis on the fact that this article is in no way financial advice. The information provided in this article is theoretical and must be adapted to your personal situation. It is possible and recommended to get those numbers checked by your financial advisor for your specific situation. If this really interests you, I recommend going towards an independent entity
Important info: This article contains the word « fuck« over twenty times. Sorry.
1 – Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable ,[pdf], par Philip L. Coosley, Carl M. Hubbard et Daniel T. Walz en 1988.