![]() ![]() If you make $100,000 per year and you are spending $90,000 per year you are still on a 51-year track for retirement. We all can control how much of our money we spend. Money Mustache’s shockingly simple math focus completely on saving not income. While it is true, the more money you make the easier you will be able to reach FI, but Mr. The thing I hear most from people when I talk about FI is “that’s nice for you, but I don’t make enough money to ever do that”. To better understand how inflation impacts savers, read this post.Īssumption 2: You can live off the 4% safe withdrawal rate during retirement.įor more information on the “4% safe withdrawal rate”, read this post.Īssumption 3: Since you want this money to sustain yourself forever, you will only be withdrawing the “gains” not the “principle”. Money Mustache makes in his math.Īssumption 1: Your investments earn 5% above inflation. Let’s quickly review a few of the assumptions that Mr. Money Mustache’s math tells us we can retire in 17 years. The savings rate that many in the “FIRE community” strive for is 50%. Therefore, it should not be surprising to learn that more and more Americans are working into their 70’s. As a personal finance nerd, the one that jumped out to me was the fact that at a savings rate of 10% (which is the recommended amount by many financial gurus) you would need to work for 51 years before reaching FI. The following table reinforces the fact that our savings rate is the most critical factor in reaching financial independence.Įach of us will look at the above chart and find a different number that makes our jaw drop to the ground. Money Mustache has simplified things even more for all of us by doing the math to show us when we will reach FIRE given different savings rates. Sometimes in life, the simplest things are incredibly difficult. I never promised an easy solution, but it is simple. ![]() ![]() You simply need to save around 65% of your take-home pay over the next 10 years. How much you can live on: How much money would you need (not want) to cover all your living expenses at your desired lifestyle. Savings rate: What percentage of your take-home pay are you saving/investing? ![]() Think of this as the actual money that gets deposited into your bank account on payday. Take home pay: How much of your income you keep after all taxes and deductions. For many, this is the point where they decide to retire (if they don’t have to work, they won’t) hence the term Financial Independence & Retire Early (FIRE). Put simply, reaching FI means you don’t need to rely on your job to cover your living expenses. You have reached Financial Independence and have the ability, if you choose, to Retire Early once you have reached a point where your savings and investments can cover your living expenses for the rest of your life. Both Financial Independence (FI) and Retire Early (RE) amount to the same thing as it relates to your savings and investments. Let’s quickly define a few terms here so we are all on the same page.įinancial Independence/Early Retirement (FIRE): In the personal finance community these terms are often used interchangeably. Money Mustache knows that the math behind early retirement is shockingly simple The more of your take-home pay that you save, the earlier you will reach financial independence and be able to retire. ![]()
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