![]() ![]() Instead of spending all your time thinking about things you can’t influence, learn new skills that allow you to change the local or global environment. MMM teaches his readers to focus on increasing their circle of control instead. This wastes a lot of energy and doesn’t accomplish anything. Most people worry about a lot of things that are within their control and even more things that aren’t.įor example, they closely follow politics and complain about celebrities whom they have no influence over. ![]() Money Mustache for inspiring me to write this post.“ How big is your circle of control?” was another excellent article that changed the way I viewed the world. Never works the other way around!įinally, Thanks to Mr. It could be a part-time job, digital marketing, Youtube channel, etc.įocus on learning, and earning follows. It is a journey that matters, not only the destination.Ĭ) Having a second source of income puts you on the fast lane to achieving early retirement. Make the process of financial independence enjoyable. When you get that kind of return, the number of years to work would decrease highly.ī) The sole purpose of financial independence is to live the life to fullest. On average S&P 500 churns out an 8 percent rate of return (adjusted for inflation). Final ThoughtsĪ) 5 percent Rate of return is pretty conservative. It would take just 3 years to achieve financial independence when you save 90 percent of your take home.īut living on $5000 an entire year is highly impossible!ĩ0 percent savings rate is just to illustrate how shockingly simple math works. The core principle of shockingly simple math hold.Ī household with an income of $ 50,000 and annual spending of $5,000 needs to target a portfolio value of $ 1,25,000 for early retirement. Does the Shockingly simple math principle hold: Put in the work and follow the process, money won’t be a constraint. You can start freelancing, start a youtube channel to monetize If you are into writing start to write on medium, and turn your hobbies into a profitable ones. Your income is determined by how valuable your skills are. unlike cutting the spending, there is no ceiling or upper limit to increase the income. The alternative way to increase your savings rate is increasing your income. No matter how frugal we are, you can’t live on $2000 in a year. You can’t keep chopping off your spending & live miserably for the sake of financial independence. Reducing your spending on bills has a “ ceiling”. Guy B spends $ 40,000 per year, his portfolio value should be (25 * $40K) $ 1 million in value. Guy A spends $ 50,000 per year, his portfolio should be (25 * $50k) $ 1.25 million in value. This will equip you with a new skill “reducing your spending”, it will also decrease the size of your overall portfolio to achieve 25X. You can reduce the years to retire by decreasing your spending. Two ways to increase savings Reduce your spending Your take-home pay is divided into 2 categories: Also, your savings should be invested in instruments where it works towards your financial independence. How many years does it take you to achieve 25X of your annual spending? It entirely depends on the savings rate (i.e Investing) from your take-home pay. If your networth is below zero (Debt trap), get your finances straight and come out of the debt pit. If you started investing a few years back regularly, then you are closer to your financial independence compared to the years you are about to see. ![]() Your networth is zeroĪll the calculations are made on the assumption of “Zero Networth”. (Annual spending * 25)= Retirement portfolioĪlso if you are withdrawing 4 % from $1.25 million ( $1.25 * 0.04= $50K), you can take out your annual spending amount of $50K without depleting your portfolio during your retirement years. (Make sure you are covered by health insurance, I am sure you don’t want to be generous in paying hospitals bills by staking your health:)įor example, If your annual spending is $ 50,000 per year, by saving 25X of annual spending you can achieve early retirement. As you get old, you spend less compared to your young self. Your annual spending and the size of your portfolio go hand in hand.Īssuming you have no source of other income and solely relied on your retirement portfolio.īut your spending has to remain constant in your retirement years. So automatically the years to retire correlated with the savings rate you see in this post also remain pretty conservative.īut, it gives you an insight into where you are standing on the journey of your early retirement, and also it shows you whether you need to amp up your savings rate or stay at the same pace. Even if you are going to invest in a low-cost index fund the average rate of return is 8 percent or a bit more ( adjusted for inflation) on the S&P 500 since 1900. The 5% return assumption made by MMM (Mr. 5 percent return adjusted for inflation. ![]()
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