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What is financial freedom? How high should your passive incomen order to reach them and, above all, when will you finally reach them? Our Financial freedom calculator Switzerland gives you answers to your questions.
Financial independence is becoming an important concern for more and more people. This can be achieved with a clear investment strategy and discipline.
In this article you can compare your personal key figures with the FIRE calculator and then learn how to proceed in order to achieve your goal.
Let's start directly with the calculator!
If you have any more questions on the topic, we look forward to an exchange in the comments!
There are various descriptions, but our financial freedom definition is as follows: If your passive income streams cover your living expenses, you are financially free.
It depends very much on how high your personal expenses and income are. Passive income is income for which you no longer have to actively spend your time. Dividends, rental income, or a fully automated online business would be examples of sources of your passive income. Passive income.
You live as a digital nomad in Asia or South America and benefit from low living costs? (This is also called geo-arbitrage). Then CHF 1,000 per month in passive income may be enough for you to be financially free. Even a medium stock portfolio can generate this amount of dividends and make you financially free.
But if you live in Zurich in a 5 room apartment with a lake view and are financially responsible for your family, you will have to do "a little" more groundwork for your financial freedom.
In the introduction we had used the term FIRE mentioned. FIRE comes from the English and is the abbreviation for Financial Independence, Retire Early. In other words: Financial independence and early retirement. The FIRE movement has some followers who approach their goal in various ways. Many followers of the FIRE movement save extremely and sometimes only treat themselves to the bare necessities in order to achieve their goal of financial freedom.
You can achieve financial freedom in many different ways. Don't worry, you don't have to live ascetically and indulge in every luxury. Let's now take a look at how this works.
In the above financial freedom calculator you have already encountered the return on investments. Those who want to achieve financial freedom should take investments to help them.
In a savings account, your money loses purchasing power every day. Inflation causes savings to shrink on a daily basis. If you invest your savings, on the other hand, you can increase your money in the long term and achieve the goal of financial freedom more quickly in this way.
At some point you will have reached such a portfolio size that you can live from your investments. This will be the deadline for your financial freedom or your early retirement (as a FIRE follower).
From that day on, you can live off the dividends from your portfolio, for example. Or from the rental income, if you have built up a real estate portfolio. If you manage to live only from the income, without tackling the substance of your investments (e.g. selling shares), you can live from your preliminary work forever.
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A rule for a "healthy" extraction is 4%. For example, if you have saved and invested CHF 1,000,000, you can withdraw 4% or CHF 40,000 from the portfolio each year without reducing it in the long term.
This withdrawal rule applies mainly to stock portfolios. The background for the 4% is an assumed annual growth for the shares, which is 4% and greater. A withdrawal of 4% does not let your portfolio shrink with this approach and thus represents a quasi permanent income stream.
If you choose the financial freedom stock strategy, you must not necessarily on Dividend shares set. Strictly speaking, the opposite makes sense for wealth accumulation, as in this post is looked at more closely.
Dividends are taxed when they are distributed, which slows you down in the "build-up phase" of your portfolio. Therefore, you will reach your goal faster if you, for example, rely on ETFs that do not pay out dividends until you have reached the necessary portfolio size. Only when you need the money and want to live from your investments, you should think about distributions.
Such a strategy you can also use a Roboadvisor implement. Pay in monthly and, from day X of your early retirement, withdraw the amount you need each month. So you don't necessarily need a portfolio of dividend stocks. Rather, with a Roboadvisor without any effort, as he will rebalance the account for you.
If you want to calculate and implement your financial independence, the above calculator is suitable in combination with a Investment Strategy. Only with an investment strategy will you effectively achieve your financial goals in the long term can.
Revenue is only one side of the coin. We are not starting now to talk about Frugalism but let's look at the expense side for a moment. If you can cut unnecessary expenses in the build-up phase of your portfolio, you will accelerate your financial independence immensely. Because you can invest the newly available funds and make them work diligently for you thanks to compound interest.
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Whether you want to achieve financial freedom at 50, sooner or later, one key question will come up: Financial freedom how much money is necessary?
The FIRE calculator above will show you exactly how much money is needed for your project. Without being able to read your mind, I'm sure it's probably a lot of money for you.
Let's say you need CHF 4'000 per month for a financially independent life. This corresponds to CHF 48'000 per year. If we want to follow the withdrawal rule from above, this CHF 48'000 is exactly 4% of your portfolio. Accordingly, your portfolio must total CHF 1.2 million. While this sum looks incredibly large at first, it is doable thanks to stock returns and patience.
Our ETF Savings Plan Calculator shows this again separately, so don't be put off.
Through the FIRE Movement the term financial freedom repeatedly comes into a false light. If you want to be financially independent, you don't have to live on rice and beans until you reach your goal.
Financial freedom can be a liberating goal in life, giving you an unfamiliar Mental freedom and security lends. Why? When you no longer want a job or any other financial uncertainties you can always pursue your true interests and make freer decisions.
If you save, you can shorten your path to financial freedom. However, the income side is also crucial. You can increase your Investing money profitably and, thanks to a long investment horizon, use stock markets or real estate for your benefit. Also tax Tools like the Pillar 3a are interesting due to high equity ratios.
Thanks to our Financial Freedom Calculator Switzerland you now know how much money is necessary for your personal financial freedom.
In our Area for investments you can find out how to invest money in Switzerland and embark on your personal journey of financial independence.
What is still unclear to you at the end of this post in relation to the topic? Is it a worthwhile goal for you and if so, by when would you like to achieve it?
We look forward to your response in the comments!
3 Responses
Good day
Played with the computer a bit.
But did I notice correctly that the calculator no longer takes into account the invested capital during the entire withdrawal period? That's not really the case.
Unless you sell all your securities and put all your assets in a bank account, which doesn't make sense either.
Greetings Philipp
Hello Philipp,
Correct, no further growth was deliberately built in. Particularly in the short term (e.g. 0-5 years), the required funds should no longer be exposed to anal risk.
For money that is not needed in the longer term and could therefore still be invested, this calculator offers a kind of "reserve", as it calculates rather conservatively.
Cool FIRE calculator. The video is displayed as private and cannot be played back.
In principle, it is correct that Thesauerierende Anlagen automate reinvestment and compound interest. This would be a classic buy and hold strategy. The automatic reinvestment eliminates the reinvestment costs, trading fees and brokerage fees, etc.. Also correct!
The disadvantage is that you do not necessarily notice if an investment underperforms during the year or over several years, because the market value does not necessarily reflect the return or the value and operating performance of the company. With distributing shares (ETFs/funds) you have corresponding annual to monthly feedback. In addition, you can compare the performance of the companies more easily.
You can use the dividend income for reinvestment, investment reserves and rebalancing. You have to check and reinvest regularly anyway. If a stock goes down, you don't lose everything and have realised at least part of the ROI over the years. Ok, until reinvestment you have only a measly savings interest rate for a short period of time, but high availability. With reinvestment you do not have the above and in the Woerst case you have to realise a high book loss (or Happy a high profit of more than 5% per year on average)!
Those who, like me, bought UBS shares at 34 as a corpse in the cellar are glad that dividends and capital repayments will reduce the accumulated book loss and perhaps the share will rise again to over 34 at some point.
According to my logic, accumulating shares (ETFs/funds) that yield 5% net return (compound interest) per year (IK*(1+interest)^years) should be worth at least 265% after 20 years and 703% after 40 years. Is that the case in each case?
I have accumulation funds, also in pillar 3a, as corpses in the custody account that do not and will never achieve this.
The reason here is primarily the burden of commission, redemption, management and custody fees, as well as entry timing and setbacks.
What is annoying here is that many Swiss banks at best allow the transfer of their own funds into private assets and foreign funds have to be sold. The time of sale (realisation) can then fall in an unfavourable price phase with price losses. But another construction site!
It is not very intelligent to invest only in different share categories, but depending on your age, investment strategy and need for security, you can also invest in interest-bearing securities / daily allowances, pension funds or real estate, etc., which (can) generate regular income for you and cover the budget. It is therefore necessary to consider the overall context and the income from shares / securities investments, whether dividends or dynamic withdrawals, is a component of this!
When you are young, you can invest in high-risk growth stocks with high fluctuations. Investors from the age of 45 / 50 should rather think about realising profits and shifting to value and dividend stocks, pension annuities, interest-bearing securities that provide a regular secure basic income.
Of course, if you have managed to accumulate your 3 million in shares by the time you are 40, you can easily absorb the risk that a market correction of 50% will occur in your pension fund and still withdraw dynamically and remain risky.
However, it must be taken into account that, depending on the bank/securities, redemption commissions and fees may be incurred, which again reduce the return.
The average investor over 50 who has perhaps 500,000 free assets, 100,000 securities investments and a condominium is probably better off with a high dividend strategy, interest-bearing securities and rental income instead of a dynamic withdrawal. Moreover, and most importantly, with a custodian bank that charges no (or very low) custody fees and where investments generate few fees / brokerage / trading commissions and no issue and redemption fees as well as low administration costs! Several online solutions and a look abroad are very worthwhile, because every cent that is deducted reduces the result.