Once you have your true hourly rate, you can use it to measure purchases in relation to time. And adding all the ancillary work expenses: commute, attire, food, events etc. You find it by adding all the time associated with getting to and unwinding from your job. To make quick judgements, I use my true hourly income rate. Advertising has trained us to spend quick. Compounding is on your side.Īnother way I focus on saving is analyzing in-the-moment spending. And will at some point reach the level of your annual income. Portfolio gains will exceed your annual contributions. By the time you’re deep into your 40s you’ll have built your Money Machine to work harder than you. Especially if you build this savings habit in your 20s. Popularized by The Money Guy, if you reach and maintain a 20-25% savings rate you’ll be in great shape in a couple decades. Goal – reach a 25% savings rate of gross household income. I’ve used a couple techniques for motivation. With a target, increasing retirement contributions is more exciting. To get your target, multiply your annual expenses by 25 and you have your portfolio goal. Realizing once we get closer to FI, we can adjust and adapt the plan. It may not be perfect, but for motivation and planning purposes I’m comfortable with it. I’ve taken the approach to use it as a rule of thumb, providing an approximate portfolio target. Many have strong convictions about the 4% withdrawal rule in favor and criticism. Withdrawing 4% of the initial portfolio and increasing by inflation each year. They found a 75% or greater stock allocation sustained the 4% withdrawal rate more than 90% of the time for the rolling 30-year periods. They used historical market returns from 1926-1995 to test the following:Ĭomputing success rate for retirees in each of the 70 years for 4 different rolling periods: Published in 1998 by a trio of professors from Trinity University in San Antonio, Texas. I have visualized the relationship between Savings Rate and Years to Financial Independence below: link to calculator which produced the data: Early Retirement Calculator ()Īs you dig into the assumptions in Pete’s article, you discover it is based on a 4% rate of withdrawal in retirement. It shows the most important factor in your FI path is the gap between your income and expenses – your savings rate. ![]() Pete created a two-column table showing savings rate % and corresponding years to retirement. It’s the one that convinced me FIRE was achievable. Money Mustache: The Shockingly Simple Math of Early Retirement. Many in the FIRE community point to the 2012 post by FI blogger Mr. Here I’ve gathered the topics that have helped me the most. And you will find the strategies that work best for you and those you can adjust or drop. ![]() In my experience the more you learn, your motivation will increase. It is my hope that you use this as a launching point to dig deeper into the study of financial independence. ![]() The goal of this post is to provide an introduction to the keys of FI.
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