Habits, mindset and planning · Explainer

Six numbers that
explain most of personal finance.

READ5 min·UPDATED·APPLIES TOUnited States·LEVELBeginner
For anyone learning the core math of personal finance. Sources are listed at the bottom of the page; check their dates before acting.

Use these numbers to understand compound interestcompound interestEarning interest on your interest. Your returns reinvested to earn even more returns over time.Full definition, why starting early wins, the savings-rate tradeoff, and what a million dollars means. The math is not complicated. It has to be understood deeply.

This page covers US-specific accounts and tax law. Outside the US? The priority order is the same, the account names differ (ISAIndividual Savings Account (ISA)A UK tax-advantaged account where contributions are post-tax but all growth and withdrawals are tax-free.Full definition in the UK, TFSATax-Free Savings Account (TFSA)A Canadian tax-advantaged account where contributions are post-tax but all growth and withdrawals are tax-free.Full definition/RRSPRegistered Retirement Savings Plan (RRSP)A Canadian tax-deferred retirement account; contributions reduce taxable income and growth is tax-deferred until withdrawal.Full definition in Canada, Super in Australia, etc.).

This page explains the compounding math behind six benchmark numbers. To turn them into a monthly/quarterly/annual tracking routine, see Nine Financial Metrics to Track.

// 2026 LIMITS Numbers current for the 2026 tax year. Last updated April 2026. Contribution limits are announced each November by the IRS for the following year. Verify the current figure at irs.gov before relying on a specific dollar amount.
2026 KEY LIMITS (IRS CONFIRMED)
401(k) employee: $24,500 (catch-up 50+: $8,000)
IRAIndividual Retirement Account (IRA)A retirement account with tax advantages and eligibility rules. Traditional IRA contributions may be deductible; taxable withdrawals generally enter income. Roth contributions use after-tax money, and qualified Roth withdrawals are tax-free.Full definition contribution: $7,500 (catch-up 50+: $1,100)
Roth IRA phase-out (single): $153,000-$168,000
Roth IRA phase-out (MFJMarried Filing Jointly (MFJ)A tax filing status where a married couple combines their income and deductions on one tax return.): $242,000-$252,000
HSAHealth Savings Account (HSA)A health savings account available only when eligibility requirements are met. Federal tax benefits depend on contribution limits and qualified medical expenses. Health coverage, other coverage and Medicare enrollment can affect eligibility; state tax treatment can differ.Full definition self-only: $4,400
HSA family: $8,750
SS wage base: $184,500
Solo 401(k) total: $72,000
Standard deductionstandard deductionA fixed dollar amount that reduces your taxable income without itemizing. Most people claim this instead of listing individual deductions.Full definition (single): $16,100
Standard deduction (MFJ): $32,200
Short answer

$1 at 7% real for 40 years becomes $15. $500/month at 7% for 40 years becomes $1.3M. Starting at 22 vs 32 with the same contributions produces roughly double the outcome at 62. A $1M portfolio at 4% withdrawal generates $40K/year for 30+ years. The savings rateSavings rateThe share of income you save or invest, usually (income minus spending) divided by income. Saving $1,000 of $5,000 take-home pay is a 20% rate. Whether you use gross or take-home pay, and whether 401(k) contributions and an employer match count, changes the number, so compare rates only on the same definition.Full definition determines years to financial independence more than the investment return does.

On this page
  1. Number 1: The Rule of 72
  2. Number 2: The 40-year dollar
  3. Number 3: The $500/month number
  4. Number 4: The 10-year penalty
  5. Number 5: The 4% rule
  6. Number 6: The savings-rate table
  7. What to do with these numbers

Personal finance is not complicated. Most of it reduces to six numbers. Understand these and the strategy follows.

Number 1: The Rule of 72

Divide 72 by your expected annual return. The result is how many years it takes to double your money.

  • At 7% real return: 72 ÷ 7 = 10.3 years to double
  • At 10% nominal: 72 ÷ 10 = 7.2 years
  • At 1% savings account: 72 ÷ 1 = 72 years
  • At 22% credit card APRAnnual Percentage Rate (APR)The yearly cost of borrowing money, shown as a percentage.Full definition: your debt doubles every 3.3 years ×DON'T TRUST, VERIFYClaim: Average credit card interest rate in the US is approximately 22% APR on accounts assessed interest (Federal Reserve G.19, May 2026).Verify at: Federal Reserve G.19 Consumer Credit ↗ Source 1 in the list belowMonthly release tracks average commercial bank rates on credit card accounts.

This is the number that makes the credit card balance graphic. It is also the number that makes "start early" obvious.

Number 2: The 40-year dollar

$1 invested at 7% real return for 40 years = approximately $15 (1.07^40 = 14.97). $1 invested at 10% nominal for 40 years = approximately $45 (1.10^40 = 45.26).

APPLIED
  • $10,000 invested at 22 at 7% real = $149,745 at 62
  • Same $10,000 invested at 32 at 7% real = $76,123 at 62
  • Ten years costs $73,622 on a single $10,000 investment. Not because you invested more, but because you started earlier.

Number 3: The $500/month number

$500/month invested at 7% real:

YEARS BALANCE
10 years$86,500
20 years$260,000
30 years$610,000
40 years$1,312,000

$1,000/month at 7% real for 30 years: $1,220,000. The number most people remember: $500/month for 40 years at 7% real = over a million dollars.

Number 4: The 10-year penalty

Starting at 22 versus 32 with identical contributions. Same $500/month. Same 7% return. Stop contributing at 62 in both cases.

AGE 22 START
$1,312,000
AGE 32 START
$610,000

Difference: $702,000. The cost of the first 10 years of contributions: $60,000 (120 months × $500). The compounding lost on those 10 years over the remaining decades: $642,000. The first decade of investing is the most valuable decade. This is why someone who starts at 22 and stops at 32 often ends up with more than someone who starts at 32 and never stops.

What the first 10 years of $500/mo become
Start at 22$1,312,000 at 62
$642,000$610,000$702,000 from the first 10 years
Start at 32$610,000 at 62
$610,000
$0$1,312,000
$60,000 paid in, ages 22 to 32$642,000 of compounding on that $60,000$610,000 from $500/mo, ages 32 to 62
Same $500/mo at 7% real, stopping at 62. The age-22 saver's first 10 years put in $60,000 and grow to $702,000, more than the age-32 saver's entire $610,000. That is why the first decade is the most valuable decade.

Number 5: The 4% rule

$1,000,000 portfolio. 4% annual withdrawal. $40,000/year, inflation-adjustedInflation-adjustedAdjusted for rising prices. Some amounts move with inflation, like IRS tax brackets, TIPS principal, or I-bond rates. Others are restated in today's dollars so different years can be compared: by the BLS consumer price index, $30,000 in 1985 bought about what $93,000 buys in 2026.. Historically, the money lasts 30+ years ×DON'T TRUST, VERIFYClaim: The 4% safe withdrawal rate originates in Bengen (1994) backtesting US stock/bond portfolios over rolling 30-year windows.Verify at: Bengen in Journal of Financial Planning ↗ Source 2 in the list belowAlso replicated and updated by the Trinity Study and Bill Bengen's subsequent work. See ERN SWR series ↗ for longer horizons and failure cases..

REVERSED: YOUR FIREFinancial Independence, Retire Early (FIRE)A strategy of aggressively saving and investing to reach financial independence decades before traditional retirement age.Full definition NUMBER
  • $40,000 annual expenses = $1,000,000 target (25x)
  • $80,000 annual expenses = $2,000,000 target
  • $120,000 annual expenses = $3,000,000 target

Adjust for longer horizons: 30-year retirement, 4% is fine. 50-year early retirement, 3 to 3.5% is safer (28x to 33x expenses). Adjust for reliable income sources: Social Security, pensions, and part-time income reduce the portfolio target.

Number 6: The savings-rate table

This is the most powerful single table in personal finance. Assumes 5% real return and a 4% safe withdrawal rateSafe withdrawal rateThe share of a portfolio you can withdraw in the first year of retirement, then raise with inflation each year, without running out of money over a set horizon in historical tests. William Bengen's 1994 study of a 50/50 US stock and bond portfolio found 4% lasted at least 30 years and 3-3.5% lasted 50 years or more. ×DON'T TRUST, VERIFYClaim: Years-to-FI derived from savings rate, assuming constant real return and constant savings rate, starting from zero.Verify at: Mr. Money Mustache, "Shockingly Simple Math of Early Retirement" ↗ Source 3 in the list belowThe original published-form of this table. Assumptions: spend all of non-saved income, invest all of saved income, 5% real return, 4% SWR. Actual numbers depend on starting balance..

10%
51 yrs
20%
37 yrs
30%
28 yrs
40%
22 yrs
50%
Life starts to change
17 yrs
60%
12.5 yrs
70%
8.5 yrs

Going from 10% to 20% savings rate cuts 14 years off your working life. Going from 20% to 30% cuts 9 more. The leverage is highest at lower rates. Your savings rate matters more than your investment return in the first two decades.

These numbers assume consistent investment at the stated return. They do not guarantee a specific outcome. They show the relationship between savings rate and time, which is the most important relationship in personal finance. Run your specific numbers in the Savings Rate to FI Calculator.

What to do with these numbers

  1. Memorize the 4% rule first.
  2. Calculate your FIRE number (annual expenses × 25).
  3. Calculate your savings rate.
  4. Find your row in the table.
  5. Work backward to what you need to change.

The math does not require a financial advisor. It requires consistency.

Where to go from here

Do next

Savings Rate to FI

Find your own years-to-financial-independence from your actual savings rate.

Read next

Nine Financial Metrics

Turn these six numbers into an ongoing tracking routine.

Explore further
  • FIREThe full financial-independence framework these numbers build toward.
  • Personal FinanceThe order-of-operations hub these numbers support.
  • 2026 Contribution LimitsThe account limits that cap how fast you can apply these numbers.

Sources

Verify badges in the text link to these sources. Figures, rates and rules change: check each source’s date before acting on it.

  1. Federal Reserve G.19 Consumer Credit · federalreserve.gov ↩
  2. Bengen in Journal of Financial Planning · financialplanningassociation.org ↩
  3. Mr. Money Mustache, "Shockingly Simple Math of Early Retirement" · mrmoneymustache.com ↩
  4. Internal Revenue Service, Internal Revenue Service | An official website of the United States government
  5. ERN SWR series · earlyretirementnow.com

Last updated . Not financial advice. Real-return and SWRSafe Withdrawal Rate (SWR)The share of a retirement portfolio you can spend each year, raising the dollar amount each year to keep up with rising prices, without running out of money over a 30-year retirement.Full definition assumptions are historical; past returns do not guarantee future returns. Disclosures · How pages are reviewed

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