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financial independence / early retirement – reddit

New here! Want to see what you guys think will help me best and I have a specific question on passive income vs net worth growth.

little background for you first:

Male, 25 years old, 130k NW. A lot of my net worth is in my house and owned outright vehicles so not sure if I should be counting that or not?

Married with a kid on the way so expenses are going to climb soon. We both plan on continuing to work. Combined we have a gross income of 150k in a LCOL area.

We have our monthly budget set up to live mainly off the wives income and save my income. Without getting into details, here’s high level what that looks like:

?

My income: $5,000/mo takehome, $1624/mo to company 401k,

Wife income: $3,000/mo takehome

Combine tithing/donations: $1,264/mo

This brings total income to: $8,368/mo

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financial independence / early retirement – reddit

Financial independence – Wikipedia

Financially independent people have assets that generate income that is at least equal to their expenses. Financial independence means you have enough wealth to live on, without working. [dead link] Income you earn without having to work a job is commonly referred to as passive income.[citation needed]There are many strategies to achieve financial independence, each with their own benefits and …

See original here:

Financial independence – Wikipedia

How to Become Financially Independent

Hero Image/ Getty Images

Most people believe the key to wealth is a high-paying job. Yes, it’s easier to amass assets if you have more money coming in each month, but one key to increasing your net worth is to spend less than you make. Ultimately, spending habits are the reason a professional athlete making $20 million a year can quickly go bankrupt while a bus driver can retire a multi-millionaire. It can be a cliche but it is a fundamental reality of money.

To escape the spending trap, you need to understand that income is not long-term wealth. What is wealth? Income is obviously a component of wealth, but wealth can have varying definitions. Many people see wealth as their total net worth at any given time. This can be paralleled to the assessment of an individuals balance sheet. Wealth can be referred to as the part of your balance sheet that is considered equity. Your assets minusliabilities. The wealth you have after liquidating.

Thinking Long-Term

Thinking long-term is an important characteristic of accumulating wealth and achieving financial independence. There can be several considerations for long-term wealth, and they will differ for everyone.

If you are a doctor or lawyer, you need to put in long hours after years of specialty training and higher education to get a paycheck. However, in any occupation, as discussed, your annual salary does not necessarily translate to wealth. With long-term thinking, helping to ensure your jobs security, taking initiative to achieve a promotion, or taking steps that will result in higher sales commissions can all be factors for wealth and ways to help ease your anxieties over financial independence.

Side gigs, private investments and a host of other variables can also be utilized for long-term thinking, wealth accumulation, and achieving financial independence. A few considerations here may include a portfolio of private businesses, car washes, parking garages, stocks, bonds, mutual funds, real estate, patents, trademarks. Some of these cash generators can be relied on for long-term income in addition to your job or just as cash generators that can pull in money while you take long vacations or sit by the pool.

Assessing Your Balance Sheet

When you take a look at your personal balance sheet, you may already have organic investments you can rely on in your quest for financial independence. Oftentimes, this is wealth that generatescapital gains, income, and dividends without labor. The more of these investments you can afford, the sooner you can fully achieve financial independence.

Reaching a Goal

Overall, the real value of your income is partially determined by the amount you can invest to achieve a financial independence goal. Setting this goal can be important for keeping your perspective on income in check. At your goal, you can successfully maintain the lifestyle you want without working.

Thus, your level of wealth can also be measured by your long-term thinking and potential sustainability. Working with a financial adviser can help you to set a goal for wealth accumulation that allows you to maintain your standard of living without an additional paycheck and achieve the financial independence of your dreams. This goal can be lofty,however, as most peoples annual spending includes a long list of budget items, such as mortgage payments, car payments, clothing, college tuitions, music lessons, entertainment expenses, and more.

Follow this link:

How to Become Financially Independent

financial independence / early retirement – reddit

Need help applying broader FIRE principles to your own situation? Were here for you!

Post your detailed personal case study and ask as many questions as you like, or help others whove done the same. Not sure if your questions pertain? Post them anywayyou might be surprised.

Itll be helpful to use our suggested format. Simply copy/paste/fill in/etc. But since everybodys situation is different, feel free to tailor your layout to your needs.

-Introduce yourself

-Age / Industry / Location

-General goals

-Target FIRE Age / Amount / Withdrawal Rate / Location

-Educational background and plans

-Career situation and plans

-Current and future income breakdown, including one-time events

Continued here:

financial independence / early retirement – reddit

Financial independence – Wikipedia

For the concept of independence from another person for support, see Dependant.

Financially independent people have assets that generate income (cash flow) that is at least equal to their expenses. Financial independence means you have enough wealth to live on, without working.[1][dead link] Income you earn without having to work a job is commonly referred to as “passive income”.[2]

There are many strategies to achieve financial independence, each with their own benefits and drawbacks. To achieve financial independence, it will be helpful if you have a financial plan and budget, so you know what money is coming in and going out, have a clear view of your current incomes and expenses, and can identify and choose appropriate strategies to move towards your financial goals. A financial plan addresses every aspect of your finances.[3]

The following is a non-exhaustive list of sources of passive income that potentially yield financial independence.

Age and existing wealth or current salary don’t matter – if someone can generate enough income to meet their needs from sources other than their primary occupation, they have achieved financial independence. If a 25-year-old has $100 in expenses per month, and assets that generate $101 or more per month, they have achieved financial independence, and they are now free to spend their time doing the thing they enjoy without needing to work a regular job to pay their bills. If, on the other hand, a 50-year-old earns $1,000,000 a month but has expenses that equal more than that per month, they are not financially independent because they still have to earn the difference each month just to make all their payments. However, the effects of inflation must be considered. If a person needs $100/month for living expenses today, they will need $105/month next year and $110.25/month the following year to support the same lifestyle, assuming a 5% annual inflation rate. Therefore, if the person in the above example obtains their passive income from a perpetuity, there will be a time when they lose their financial independence because of inflation.

If someone receives $5000 in dividends from stocks they own, but their expenses total $4000, they can live on their dividend income because it pays for all their expenses to live (with some left over). Under these circumstances, a person is financially independent. A person’s assets and liabilities are an important factor in determining if they have achieved financial independence. An asset is anything of value that can be readily turned into cash (liquidated) if a person has to pay debt, whereas a liability is a responsibility to provide compensation. (Homes and automobiles with no liens or mortgages are common assets.)

Since there are two sides to the assets and expenses equation, there are two main directions one can focus their energy: accumulating assets or reducing their expenses.

Accumulating assets can focus one or both of these approaches:

Another approach to financial independence is to reduce regular expenses while accumulating assets, to reduce the amount of assets required for financial independence. This can be done by focusing on simple living, or other strategies to reduce expenses.[4][5]

Continue reading here:

Financial independence – Wikipedia

How to Become Financially Independent

Hero Image/ Getty Images

Most people believe the key to wealth is a high-paying job. Yes, it’s easier to amass assets if you have more money coming in each month, but one key to increasing your net worth is to spend less than you make. Ultimately, spending habits are the reason a professional athlete making $20 million a year can quickly go bankrupt while a bus driver can retire a multi-millionaire. It can be a cliche but it is a fundamental reality of money.

To escape the spending trap, you need to understand that income is not long-term wealth. What is wealth? Income is obviously a component of wealth, but wealth can have varying definitions. Many people see wealth as their total net worth at any given time. This can be paralleled to the assessment of an individuals balance sheet. Wealth can be referred to as the part of your balance sheet that is considered equity. Your assets minusliabilities. The wealth you have after liquidating.

Thinking Long-Term

Thinking long-term is an important characteristic of accumulating wealth and achieving financial independence. There can be several considerations for long-term wealth, and they will differ for everyone.

If you are a doctor or lawyer, you need to put in long hours after years of specialty training and higher education to get a paycheck. However, in any occupation, as discussed, your annual salary does not necessarily translate to wealth. With long-term thinking, helping to ensure your jobs security, taking initiative to achieve a promotion, or taking steps that will result in higher sales commissions can all be factors for wealth and ways to help ease your anxieties over financial independence.

Side gigs, private investments and a host of other variables can also be utilized for long-term thinking, wealth accumulation, and achieving financial independence. A few considerations here may include a portfolio of private businesses, car washes, parking garages, stocks, bonds, mutual funds, real estate, patents, trademarks. Some of these cash generators can be relied on for long-term income in addition to your job or just as cash generators that can pull in money while you take long vacations or sit by the pool.

Assessing Your Balance Sheet

When you take a look at your personal balance sheet, you may already have organic investments you can rely on in your quest for financial independence. Oftentimes, this is wealth that generatescapital gains, income, and dividends without labor. The more of these investments you can afford, the sooner you can fully achieve financial independence.

Reaching a Goal

Overall, the real value of your income is partially determined by the amount you can invest to achieve a financial independence goal. Setting this goal can be important for keeping your perspective on income in check. At your goal, you can successfully maintain the lifestyle you want without working.

Thus, your level of wealth can also be measured by your long-term thinking and potential sustainability. Working with a financial adviser can help you to set a goal for wealth accumulation that allows you to maintain your standard of living without an additional paycheck and achieve the financial independence of your dreams. This goal can be lofty,however, as most peoples annual spending includes a long list of budget items, such as mortgage payments, car payments, clothing, college tuitions, music lessons, entertainment expenses, and more.

Read more from the original source:

How to Become Financially Independent

Fast Track Financial Independence (5 steps) | Millennial Money

05 Jul Fast Track Financial Independence (5 steps)Grant SabatierFounder of Millennial Money and Author of Financial Freedom. Dubbed “The Millennial Millionaire” by CNBC, Grant went from $2.26 to over $1 million in 5 years, reaching financial independence at age 30. He’s passionate about helping others build wealth and is addicted to Personal Capital.Latest posts by Grant Sabatier (see all)

One of the most common questions I get is How can I reach financial independence or retire early? While its never been easier to get rich slowly (save 10-20% and invest in index funds), its actually a lot harder to fast track your financial independence (when work is optional).

And when I say fast track financial independence, I am talking about retiring in 10 years or less from today, even if you are starting with very little. You need to make a lot of money, cut back on your three biggest expenses, invest as much as you can, and keep track of your net-worth using a free tracker like Personal Capital.

Honestly, trying to make as much money as you can and reach early retirement can be pretty stressful. There were weeks where I hardly slept and I definitely wasnt chilling as hard as I hustled. Im not going to sugar coat it for youit was the hardest and most intense thing Ive ever done in my life. While I always say that saving is an opportunity, not a sacrifice, trying to essentially go from broke to financial independence in 6 years requires a pretty big sacrifice.

But would I do it again? Absolutely. While tired, I was pretty happy most of the time. I enjoyed the challenge, the discipline, the mistakes, and simply doing something different than 99% of people out there. I like being different and a little weird; its just more fun. Chasing early retirement is definitely not the status quo.

Most people just didnt get it. They thought I was crazy. You save 80% of your income? You have a six figure income so shouldnt you have a nice car? Im sorry, Grant, but why do you live in such a crappy apartment when you make so much money? None of it phased me. I had a goal. Its what I thought about when I woke up and what I thought about when I went to sleep. How was I going to escape the rat race? How was I going to make more money?

Whether you are just starting your financial independence journey or you are deep in it,heres how I was able to fast track and go from broke to financial independence in 6 years. This is what I did and what I wished I did (like sleeping more and learning when to treat myself sometimes).

In 2010 when I started my financial independence journey, I didnt set a goal for how long it would take. All I knew was that when I did the math I was never going to be able to retire if I was only able to save 5-10% of a $40,000 $50,000 income.

The math I did was pretty simple. If I was able to save $5,000 per year maximum, even with an expected compounding rate of 6%, I would have about $433,000 in 30 years. While that might seem like a lot of money today,its not going to be that much in 30 years, because of two expected variablestaxes and inflation. You will need to pay tax on that money when you take it out, assuming a 30% tax rate that cuts the after-tax value to $308,000, which when adjusted for 2% annual conservative inflation amount (it could be higher than this even!), then the future value of that money after taxes and inflation is approximately $170,000.

While $170,000 is still a lot of money, its not going to be in 30 years. It definitely wont be enough to live on for 20+ years.

Typical wisdom is that you need 25x your annual expenses to retire early. When I did this calculation, I anticipated my annual expenses would be at least $50,000 in the future (who knows if I will actually be able to live off $50,000 in the futureI sure hope so!). But it was the best starting point I had, so by simply multiplying 25x by $50,000, I determined that I would need to save $1,250,000. Thats a big number, but it was my target.

You can sit down with a piece of paper and see how much money you need to retire early by checking this calculator I built.

Keeping a budget is really hard and its what stops most people from really fast tracking their financial independence. Of course, its important to keep track of your money, but if you really want to save, then you need to look first optimize your three biggest expenseshousing, transportation, and food.

The average American spends 70% of their money on housing, transportation, and food, so if you can spend less on them (say 25% or so, then you can bank the difference). If you move to a smaller apartment, walk to work, and cook at home, you could realistically increase your savings rate to 25%+ or even higher.

By reducing what I spent on my housing, transportation, and food costs, I increased my savings rate to 40% and sometimes as high as 80% while I was fast tracking my financial independence. The only way I was able to fast track was by cutting way back on my living expenses and investing the difference. If you want to save money on housing (typically your biggest expense), check out how to live rent free and the fundamentals of house hacking.

At the end of the day it comes down to a personal choice, but I was happy moving to a smaller apartment, moving closer to my office, and eating out less, to bank the difference. And I definitely was able to bank the differencesaving at least an additional $13,000 per year by cutting back. While I dont have the exact figures, I estimate that cutting back for 2 years, before buying my first home, I was able to save about $25,000 that I invested in 2011 and 2012, and that cutting back is now worth more than $100,000 in my investment accounts. Im going to continue to let it grow and hopefully making that decision 2 years ago will compound in 20 years into a lot more money. It was totally worth cutting back on my three biggest expenses. Try it out.

After doing the simple math that making $50,000 was definitely not going to be enough to fast track my financial independence, I knew I had to make a lot more money to invest. I startedside hustlingintensely in 2010, back when it was just called freelancing or gigging. Ive probably had over 25 different side hustles over the past 7 years, but the smartest thing I did was invest as much money of my side hustle money as possible.

One day in 2011, I sold a $50,000 website project, then that same day, someone who lives in my building posted on the community message board looking for someone to watch his cat for the next few days for $60. I was around for the weekend, so I jumped on it. Two days later, I sold one of my mopeds for a $300 profit. The next week, I resold 4 tickets to a Kanye West show for $550 profit.

A few weeks later, I took the $60 + $300 + $550 = $910 and the $50,000 x .70 = $35,000 after estimated taxes, and put the $35,910 directly into my Vanguard Total Stock Market Index fund from my phone. This was all side income, which I was investing 100% of at the time to fast track my financial independence.

Today, as Im writing this in 2017 that $35,910 is now worth about $108,000. The $910 alone that I made on the side increased in value to over $2,700. Not bad for building a website, watching a cat, selling a few tickets, and flipping a model.

At the height of my side hustling, I had seven pretty consistent income streams and was only living off one of them. The rest went right into investments. Every day I look for money making opportunities like this and then I do the most important step of allinvest it, so it can grow.

First, its essential to switch from a saving to an investing mindset. Its not possible to fast track financial independence by keeping your money in a savings accountinvesting is an essential ingredient. I have made more money through investing than anything else and most of it in my sleep! Just recently, I was looking at my investing returns over a 90 day period and realized that I had made over $15,000 in gains from one of my investments, which is more money than I made in 6 months working at my first job after college. If you really want to make money, then you need to be investing as much money as you can.

As Ive written about before, if you increase your savings/investing rate 1% every year, you can retire up to 2 years earlier, or if you save just 5% more then you could retire 10-15 years earlier. The math is pretty simple and the higher your % saving/investing rate, the faster you will able to reach financial independence. During my most intense months, I was saving 60%+ of my income and 100% of my side hustle income. Earlier this year, I tested myself and was able tosave 82% of my total income. While that might be a little extreme, it makes a massive difference for your future net-worth.

Remember what I said about living differently? A 50% saving/investing rate is more common than you would think amongst the FIRE (financial independence early retirement) crowd. I know a lot of people that save this much each month because they get it. Saving 50%+ of your income is definitely going against the status quo, but thats how you fast track wealth. If you want to go deeper, here are two posts onhow much money you should be savingandmy investing strategy.

At 24 years old, with no money, I had no idea how I was going to save my target $1,250,000.Its been shown in a bunch of research studies that our brains cant actually comprehendthat much moneythe numbers are too large and abstract to most people. It was daunting, to say the least.How was I going to make all that money?

This is why a lot of retirement calculators just arent that effective. They tell you that youll need $2,000,000 saved in 30 years, but dont break down the steps to get you there.

Recent psychology research also highlights that our brains work best when we break down large goals into daily goals. I figured out that to reach $1,250,000 in 30 years (expecting a return of 6-7% per year) using my investing strategy, I would need to save $50 per day to retire in 30 years. Every dollar I could save after $50, I would be fast-tracking my financial independence. Its also worth noting that I didnt start at $50 per day, I scaled up to it starting at $5 per day and then pushing it a few dollars more when I could.

Research also highlights that we should accomplish these daily goals through better habits. The key to building wealth is really in our daily habits. The better our money habits, the more money we will make, save invest, and grow. To go deeper, here are mybest money habits.

The five steps I used to fast track financial independence are simple in theory but can be difficult in practice. Like many things in life, its all about the effort and execution. You need to be consistent. Consistency is more important than anything elseyou cant just follow these steps for a few months. If you want it, youll prioritize it. You can also start as slowly or quickly as you want.

In 2010 when I made the decision to chase financial independence, I jumped in 100%, but thats just what I needed to do to get going.The key to building any sustainable results is to start at your own pace, start making more money where you can, and really push your investing percentage higher 1% at a time. It really adds up and every $1 you are investing today will compound as long as you keep it invested. As Ive mentioned before every $1 I invested in 2010 is worth almost $4 today.

It took almost all of my energy for six straight years to go from broke to financially independent. I also got lucky the stock market has grown so much over the past 7 years, but I was ready. Building wealth is about controlling as many of the variables as you can and then letting it grow.

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Fast Track Financial Independence (5 steps) | Millennial Money

6 Steps To Get You On Track Towards Financial Independence

Financial independence is achievable, but you have to follow the steps to get there. These are the 6 steps to get you on track towards financial independence.Financial independence isnt the same thing as retirement.

Retirement means the end of your working life (although as people retire younger and live longer, the definition is changing). Financial independence means merely the end of mandatory work, semi-early retirement. Like Mr Money Mustache!

Financial independence means being able to do whatever you want in life without having to worry about money.

You get a new boss who is impossible to work with? Just quit.

Do you want to go back to school to become a teacher? Enroll!

Do you want to spend a year traveling the world? Pack your bags!

Do you want to start your own business? Start writing up a business plan!

You cant get there overnight. Achieving financial freedom takes the right planning and the discipline to stick to the plan even if things are sometimes harsh. It also means a lot of sacrifices. Your friends are taking exotic vacations, buying brand new cars, buying big houses with swimming pools and outdoor kitchens.

Youre staycationing. You drive a ten-year-old Toyota. Youre still living in the same apartment youve been living in since you moved out of your college apartment. You keep your annual spending low. You have a savings goal.

But all of the sacrificing is front loaded. When you get to the sixth and final step on this list, you will be free while all of those people youve spent years envying are chained in place by credit card debt, car loans, and a huge mortgage.

You in? Good, lets start right now. Here are 6 steps towards financial independence that you can follow to reach the freedom youve always wanted.

Getting control of your money is simple; spend less than you earn.

What are your monthly expenses? Some of us bury our head in the sand when it comes to our spending. Facing it can be scary but you must.

Next, you can set up a budget. A good rule of thumb is the 50/30/20 method to allocate your money. This will work well for most people, but remember, were trying to achieve financial independence here!

The more money you can save, the better. This allocation doesnt mean you have to spend the entire 50% on essentials. And if you have debt, swap the 30 and 20. Put 30% towards paying off debt (at least) and 20% for discretionary expenses.

Now set up your budget categories. It might take a few weeks or months of tracking to see your patterns, but it will be worth it.

Lets talk about debt. Every month it costs you money. You cant achieve financial independence if youre being held back by debt. Credit card debt is the most serious since it usually has the highest interest rate. Attack it with the snowball or stacking method.

Student loan debt can be refinanced with Earnest for a better interest rate which will save you thousands of dollars over time. Lending Club can do the same for any personal loan debt you have.

You must rid yourself of this debt as quickly as possible.

Its important to see your whole financial picture and our favorite tool to od this isPersonal Capital. Its free and will help you budget, manage your investments, plan for retirement, and calculate your net worth.

Link your financial accounts, and Personal Capital will pull in all of the information. This not only lets you see how much you make and spend, it shows you on what and gives you a 1,000-foot overview of your finances.

Having completed Step 1, we now understand where our money is going. Knowing is half the battle when youre working towards financial independence. The other half is slicing out the fat. No one becomes wealthy by spending all their money.

Cutting the fat isnt always easy but remember, we told you some sacrifices would be made. Once you trim your budget, youll see your money starting to pile up much faster, and youll see it was worth it.If it seems overwhelming, choose one category a week and focus on pairing that down.

Food is always a good place to start because so many of us overspend on it. Bringing lunch to work is an excellent first step. It doesnt have to be fancy at first, just make a PB & J.

Seeing how much youre saving each week will be an incentive to keep going and get a bit more creative when it comes to cutting expenses. Let Trim and Billshark do some of the heavy lifting.

Trim will cancel recurring expenses for things like subscription boxes, gym memberships, and music services. When youre striving for financial independence, these things are luxuries you can do without. I work out every day, and I dont belong to a gym.

Billshark will negotiate lower prices for things like your cable and internet bills. Although you should really cut the cord, no one watches cable anymore!

At some point, there isnt any more fat to cut so if you want to reach financial independence, youll have to make extra money.

Start where you are, ask for a raise. Go in prepared. Know how much people in similar jobs in areas with a similar cost of living are making on Glassdoor. Know the number you want. Lay out all of the reasons you deserve a raise.

If you dont get a deserved raise, start looking for another job. The average raise is a paltry 3% when you change jobs; the average increase is 15-20%.

Job hopping, long frowned upon is going to be a big part of your path towards financial independence. Those who dont change jobs requently make less money than their less than loyal colleagues. How much less?

The worst kept secret is that employees are making less on average every year. There are millions of reasons for this, but were going to focus on one that we can control. Staying employed at the same company for over two years on average is going to make you earn less over your lifetime by about 50% or more.

Americans watch an average of five hours of television a day, 35 hours a week which is nearly another full-time job! A criminal waste of time. Take some of those hours and use them to do something that will aid in your journey to financial independence.

Drive for Uber, babysit with Sittercity, sell stuff on eBay or Poshmark. Everyone should have more than one income stream, but that is doubly so for those trying to become financially independent.

At some point, you have no more time left that can be used to make more money. Youre working a regular job and have at least one additional income stream. We have to find ways to make money that dont require our time.

Thats called passive income, and one of the best forms of passive income is investing. When you invest your money, it makes money for you. You dont need a lot of money to start investing, but you will never have a lot of money if you fail to invest.

There are many ways to invest and build your nest egg opening retirement accounts like a Roth IRA or 401k, investing in the stock market, mutual funds, index funds, rental properties the list goes on.

Since we already have many great posts on investing were not going to go in depth here. Instead, we will leave you with links to our best beginner investment posts.

Everything in here is low risk and low effort. We want you to have the peace of mind knowing that your money is safe and growing while you focus on other important things like your family, Xbox, etc.

There are plenty of tools that you can utilize to help you smooth your path to financial independence.

The right tool for the right job will make things easier and allow you to monitor your progress.

These tools can budget for you, help regulate your investments automatically, find you savings when you do spend or even challenge you to increase your savings by rewarding you with cash for doing so!

These are our tried and tested personal finance tools.

Betterment is the ideal investing tool for beginners. You dont have to know anything about investing to get started, there is no minimum required to invest, and the fees are low.

Betterment is hands-off, there are no humans making investing decisions which might sound scary but 79% of human money managers dont beat the market.

AS we mentioned above, Personal Capitals software can help develop your long-term financial strategy calculate your net worth, set a budget, manage investment accounts, and plan for retirement.

Be sure to check out Personal Capitals Fee Analyzer. You can use a huge percentage of your retirement money to fees over time. Personal Capital can help you find and eliminate unreasonable investing fees.

Did you know that investors with 20% allocated to real estate outperform those who only invest in stocks and bonds? Youd love to do that, but you dont have hundreds of thousands of dollars to invest in real estate.

You are going to love Fundrise! Fundrise lets the rest of us get in on real estate investing too. You can invest for as little as $500. Fundrise has an impressive track record boasting anannual return of 12-14%.

If youre worried about liquidity, dont. Fundrise allows investors to liquidate any amount of their holdings quarterly.

For the full list of resources weuse to manage ourfinances,click here.

For people that are ready for a more hands-on approach (and a bit more growth potential), this section is for you!

It will take a bit more work than a set it and forget it strategy, but you dont need to be a rocket scientist to make gains here. Just remember, take the risks seriously.

When you are ready to further diversify your investments and take on a little risk, take a look at our list of the best Vanguard funds.

A retirement account is a tax-advantaged account. If you have retirement accounts (you should!), you can further maximize them. Gather up any 401ks from previous jobs and roll them over into an IRA. This allows you to consolidate retirement accounts, gives you more choice, and usually much lower fees.

And check out these super advanced (and super advantaged!) Roth strategies. Part of achieving financial independence will depend on how good you are at (legally) avoiding taxes. These strategies will help you do that.

If you want to live like most people cant, you have to be willing to do what most people wont. There will be times along the way when you want to give up. You want to do all of the things everyone else gets to do.

When you feel that way, just imagine what life will be like once youve become financially independent. You can do what you want to do when you want to do it.

No Monday morning dread, no depressed feeling when you realize your once a year vacation is almost over and you have to go back to real life soon. No going to a job you hate surrounded by people you cant stand. You have no debt keeping you up at night.

If you can stay the course and retire early, Im sure youll agree that once you reach financial freedom, it was all worth it.

If you want to read more, check out fatfire on Reddit and Mr. Money Mustaches blog. Lots of like-minded folks working towards financial independence.

Go here to read the rest:

6 Steps To Get You On Track Towards Financial Independence

Financial independence – Wikipedia

For the concept of independence from another person for support, see Dependant.

Financially independent people have assets that generate income (cash flow) that is at least equal to their expenses. Financial independence means you have enough wealth to live on, without working.[1][dead link] Income you earn without having to work a job is commonly referred to as “passive income”.[2]

There are many strategies to achieve financial independence, each with their own benefits and drawbacks. To achieve financial independence, it will be helpful if you have a financial plan and budget, so you know what money is coming in and going out, have a clear view of your current incomes and expenses, and can identify and choose appropriate strategies to move towards your financial goals. A financial plan addresses every aspect of your finances.[3]

The following is a non-exhaustive list of sources of passive income that potentially yield financial independence.

Age and existing wealth or current salary don’t matter – if someone can generate enough income to meet their needs from sources other than their primary occupation, they have achieved financial independence. If a 25-year-old has $100 in expenses per month, and assets that generate $101 or more per month, they have achieved financial independence, and they are now free to spend their time doing the thing they enjoy without needing to work a regular job to pay their bills. If, on the other hand, a 50-year-old earns $1,000,000 a month but has expenses that equal more than that per month, they are not financially independent because they still have to earn the difference each month just to make all their payments. However, the effects of inflation must be considered. If a person needs $100/month for living expenses today, they will need $105/month next year and $110.25/month the following year to support the same lifestyle, assuming a 5% annual inflation rate. Therefore, if the person in the above example obtains their passive income from a perpetuity, there will be a time when they lose their financial independence because of inflation.

If someone receives $5000 in dividends from stocks they own, but their expenses total $4000, they can live on their dividend income because it pays for all their expenses to live (with some left over). Under these circumstances, a person is financially independent. A person’s assets and liabilities are an important factor in determining if they have achieved financial independence. An asset is anything of value that can be readily turned into cash (liquidated) if a person has to pay debt, whereas a liability is a responsibility to provide compensation. (Homes and automobiles with no liens or mortgages are common assets.)

Since there are two sides to the assets and expenses equation, there are two main directions one can focus their energy: accumulating assets or reducing their expenses.

Accumulating assets can focus one or both of these approaches:

Another approach to financial independence is to reduce regular expenses while accumulating assets, to reduce the amount of assets required for financial independence. This can be done by focusing on simple living, or other strategies to reduce expenses.[4][5]

Read this article:

Financial independence – Wikipedia

How To Calculate Your Financial Independence Number

If you are pursuing financial independence and early retirement, you should have a financial independence number. If you have been on an FI journey for a while, this is nothing new to you.

The financial independence number is the amount of money you need to be able to live off the returns on your net worth without depleting your net worth. Once you have money in the bank equivalent to your financial independence number, you can call yourself financially independent for life because it does not deplete your net worth.

Before we get to how you calculate your financial independence number, we need to understand a few things first.

Before we dive into the calculations, you need to find out how much money you will spend each month once you reach financial independence.

A good starting point is to find out how much money you spend per month at the moment. If you dont have a budget where this is visible, try to give an estimate of how much money you spend every month everything included (e.g. housing, transport, clothes etc.).

Keep in mind that some costs go uponce you achieve financial independence and perhaps retire early.

Multiply your monthly spending by 12 to find out what your required yearly spending is when you become financially independent.

As an example, I spend roughly $2,500 per month, which makes my yearly spending requirement $30,000.

Next up is your safe withdrawal rate. This is used in combination with your yearly spending to calculate your financial independence number.

Much has been written about the safe withdrawal rate. People usually dont disagree with the concept of safe withdrawal rates, but they like to discuss the value that it should have.

The safe withdrawal rate is the percentage of your net worth that you can withdraw each year without running out of money before you die. It originates from a 1998 study called the Trinity study. This is where the 4%-rule comes from if you have ever heard about that.

The Trinity study argued that you should have a safe withdrawal rate of 4% by looking at returns from 1925 to 1995. In that time period, it would have been highly unlikely that you would have depleted your net worth if you had only withdrawn 4% every year. This is assuming that your net worth would still have been invested in a stock-dominated portfolio.

I personally use a 4% safe withdrawal rate, but others argue that you should be even more conservative such as using a 3% safe withdrawal rate.

Why do I use 4% then? Well, if it turns out that 4% withdrawal depletesmy net worth, I will be fine with spending less or earning some more money for a while. Keep in mind that the safe withdrawal rate assumes that you dont make any additional income apart from investment returns.

Which safe withdrawal rate should you use? I would suggest something between 3-4%, and youll be fine.

Now to the grand finale! Using the two financial ingredients from this post, youll be able to calculate your financial independence number.

You can calculate your FI number using this equation:

Financial independence number = Yearly spending / Safe withdrawal rate

As an example, my financial independence number is:

$750,000 = $30,000 / 4%

My financial independence number is $750,000. Once I have a net worth of that, I am financially independent and I can stop working for the rest of my life. Easy as that!

Having a number makes financial independence much more tangible for most people. For me it is a great motivation to have a clear goal, and I religiously track my progress every month.

If you are curious, you can also use your savings rate to calculate time to retirement using my financial independence calculator.

Your turn: What is your financial independence number?

See the article here:

How To Calculate Your Financial Independence Number

How To Calculate Your Financial Independence Number

If you are pursuing financial independence and early retirement, you should have a financial independence number. If you have been on an FI journey for a while, this is nothing new to you.

The financial independence number is the amount of money you need to be able to live off the returns on your net worth without depleting your net worth. Once you have money in the bank equivalent to your financial independence number, you can call yourself financially independent for life because it does not deplete your net worth.

Before we get to how you calculate your financial independence number, we need to understand a few things first.

Before we dive into the calculations, you need to find out how much money you will spend each month once you reach financial independence.

A good starting point is to find out how much money you spend per month at the moment. If you dont have a budget where this is visible, try to give an estimate of how much money you spend every month everything included (e.g. housing, transport, clothes etc.).

Keep in mind that some costs go uponce you achieve financial independence and perhaps retire early.

Multiply your monthly spending by 12 to find out what your required yearly spending is when you become financially independent.

As an example, I spend roughly $2,500 per month, which makes my yearly spending requirement $30,000.

Next up is your safe withdrawal rate. This is used in combination with your yearly spending to calculate your financial independence number.

Much has been written about the safe withdrawal rate. People usually dont disagree with the concept of safe withdrawal rates, but they like to discuss the value that it should have.

The safe withdrawal rate is the percentage of your net worth that you can withdraw each year without running out of money before you die. It originates from a 1998 study called the Trinity study. This is where the 4%-rule comes from if you have ever heard about that.

The Trinity study argued that you should have a safe withdrawal rate of 4% by looking at returns from 1925 to 1995. In that time period, it would have been highly unlikely that you would have depleted your net worth if you had only withdrawn 4% every year. This is assuming that your net worth would still have been invested in a stock-dominated portfolio.

I personally use a 4% safe withdrawal rate, but others argue that you should be even more conservative such as using a 3% safe withdrawal rate.

Why do I use 4% then? Well, if it turns out that 4% withdrawal depletesmy net worth, I will be fine with spending less or earning some more money for a while. Keep in mind that the safe withdrawal rate assumes that you dont make any additional income apart from investment returns.

Which safe withdrawal rate should you use? I would suggest something between 3-4%, and youll be fine.

Now to the grand finale! Using the two financial ingredients from this post, youll be able to calculate your financial independence number.

You can calculate your FI number using this equation:

Financial independence number = Yearly spending / Safe withdrawal rate

As an example, my financial independence number is:

$750,000 = $30,000 / 4%

My financial independence number is $750,000. Once I have a net worth of that, I am financially independent and I can stop working for the rest of my life. Easy as that!

Having a number makes financial independence much more tangible for most people. For me it is a great motivation to have a clear goal, and I religiously track my progress every month.

If you are curious, you can also use your savings rate to calculate time to retirement using my financial independence calculator.

Your turn: What is your financial independence number?

See the rest here:

How To Calculate Your Financial Independence Number

Fast Track Financial Independence (5 steps) | Millennial Money

05 Jul Fast Track Financial Independence (5 steps)Grant SabatierFounder of Millennial Money and Author of Financial Freedom. Dubbed “The Millennial Millionaire” by CNBC, Grant went from $2.26 to over $1 million in 5 years, reaching financial independence at age 30. He’s passionate about helping others build wealth and is addicted to Personal Capital.Latest posts by Grant Sabatier (see all)

One of the most common questions I get is How can I reach financial independence or retire early? While its never been easier to get rich slowly (save 10-20% and invest in index funds), its actually a lot harder to fast track your financial independence (when work is optional).

And when I say fast track financial independence, I am talking about retiring in 10 years or less from today, even if you are starting with very little. You need to make a lot of money, cut back on your three biggest expenses, invest as much as you can, and keep track of your net-worth using a free tracker like Personal Capital.

Honestly, trying to make as much money as you can and reach early retirement can be pretty stressful. There were weeks where I hardly slept and I definitely wasnt chilling as hard as I hustled. Im not going to sugar coat it for youit was the hardest and most intense thing Ive ever done in my life. While I always say that saving is an opportunity, not a sacrifice, trying to essentially go from broke to financial independence in 6 years requires a pretty big sacrifice.

But would I do it again? Absolutely. While tired, I was pretty happy most of the time. I enjoyed the challenge, the discipline, the mistakes, and simply doing something different than 99% of people out there. I like being different and a little weird; its just more fun. Chasing early retirement is definitely not the status quo.

Most people just didnt get it. They thought I was crazy. You save 80% of your income? You have a six figure income so shouldnt you have a nice car? Im sorry, Grant, but why do you live in such a crappy apartment when you make so much money? None of it phased me. I had a goal. Its what I thought about when I woke up and what I thought about when I went to sleep. How was I going to escape the rat race? How was I going to make more money?

Whether you are just starting your financial independence journey or you are deep in it,heres how I was able to fast track and go from broke to financial independence in 6 years. This is what I did and what I wished I did (like sleeping more and learning when to treat myself sometimes).

In 2010 when I started my financial independence journey, I didnt set a goal for how long it would take. All I knew was that when I did the math I was never going to be able to retire if I was only able to save 5-10% of a $40,000 $50,000 income.

The math I did was pretty simple. If I was able to save $5,000 per year maximum, even with an expected compounding rate of 6%, I would have about $433,000 in 30 years. While that might seem like a lot of money today,its not going to be that much in 30 years, because of two expected variablestaxes and inflation. You will need to pay tax on that money when you take it out, assuming a 30% tax rate that cuts the after-tax value to $308,000, which when adjusted for 2% annual conservative inflation amount (it could be higher than this even!), then the future value of that money after taxes and inflation is approximately $170,000.

While $170,000 is still a lot of money, its not going to be in 30 years. It definitely wont be enough to live on for 20+ years.

Typical wisdom is that you need 25x your annual expenses to retire early. When I did this calculation, I anticipated my annual expenses would be at least $50,000 in the future (who knows if I will actually be able to live off $50,000 in the futureI sure hope so!). But it was the best starting point I had, so by simply multiplying 25x by $50,000, I determined that I would need to save $1,250,000. Thats a big number, but it was my target.

You can sit down with a piece of paper and see how much money you need to retire early by checking this calculator I built.

Keeping a budget is really hard and its what stops most people from really fast tracking their financial independence. Of course, its important to keep track of your money, but if you really want to save, then you need to look first optimize your three biggest expenseshousing, transportation, and food.

The average American spends 70% of their money on housing, transportation, and food, so if you can spend less on them (say 25% or so, then you can bank the difference). If you move to a smaller apartment, walk to work, and cook at home, you could realistically increase your savings rate to 25%+ or even higher.

By reducing what I spent on my housing, transportation, and food costs, I increased my savings rate to 40% and sometimes as high as 80% while I was fast tracking my financial independence. The only way I was able to fast track was by cutting way back on my living expenses and investing the difference. If you want to save money on housing (typically your biggest expense), check out how to live rent free and the fundamentals of house hacking.

At the end of the day it comes down to a personal choice, but I was happy moving to a smaller apartment, moving closer to my office, and eating out less, to bank the difference. And I definitely was able to bank the differencesaving at least an additional $13,000 per year by cutting back. While I dont have the exact figures, I estimate that cutting back for 2 years, before buying my first home, I was able to save about $25,000 that I invested in 2011 and 2012, and that cutting back is now worth more than $100,000 in my investment accounts. Im going to continue to let it grow and hopefully making that decision 2 years ago will compound in 20 years into a lot more money. It was totally worth cutting back on my three biggest expenses. Try it out.

After doing the simple math that making $50,000 was definitely not going to be enough to fast track my financial independence, I knew I had to make a lot more money to invest. I startedside hustlingintensely in 2010, back when it was just called freelancing or gigging. Ive probably had over 25 different side hustles over the past 7 years, but the smartest thing I did was invest as much money of my side hustle money as possible.

One day in 2011, I sold a $50,000 website project, then that same day, someone who lives in my building posted on the community message board looking for someone to watch his cat for the next few days for $60. I was around for the weekend, so I jumped on it. Two days later, I sold one of my mopeds for a $300 profit. The next week, I resold 4 tickets to a Kanye West show for $550 profit.

A few weeks later, I took the $60 + $300 + $550 = $910 and the $50,000 x .70 = $35,000 after estimated taxes, and put the $35,910 directly into my Vanguard Total Stock Market Index fund from my phone. This was all side income, which I was investing 100% of at the time to fast track my financial independence.

Today, as Im writing this in 2017 that $35,910 is now worth about $108,000. The $910 alone that I made on the side increased in value to over $2,700. Not bad for building a website, watching a cat, selling a few tickets, and flipping a model.

At the height of my side hustling, I had seven pretty consistent income streams and was only living off one of them. The rest went right into investments. Every day I look for money making opportunities like this and then I do the most important step of allinvest it, so it can grow.

First, its essential to switch from a saving to an investing mindset. Its not possible to fast track financial independence by keeping your money in a savings accountinvesting is an essential ingredient. I have made more money through investing than anything else and most of it in my sleep! Just recently, I was looking at my investing returns over a 90 day period and realized that I had made over $15,000 in gains from one of my investments, which is more money than I made in 6 months working at my first job after college. If you really want to make money, then you need to be investing as much money as you can.

As Ive written about before, if you increase your savings/investing rate 1% every year, you can retire up to 2 years earlier, or if you save just 5% more then you could retire 10-15 years earlier. The math is pretty simple and the higher your % saving/investing rate, the faster you will able to reach financial independence. During my most intense months, I was saving 60%+ of my income and 100% of my side hustle income. Earlier this year, I tested myself and was able tosave 82% of my total income. While that might be a little extreme, it makes a massive difference for your future net-worth.

Remember what I said about living differently? A 50% saving/investing rate is more common than you would think amongst the FIRE (financial independence early retirement) crowd. I know a lot of people that save this much each month because they get it. Saving 50%+ of your income is definitely going against the status quo, but thats how you fast track wealth. If you want to go deeper, here are two posts onhow much money you should be savingandmy investing strategy.

At 24 years old, with no money, I had no idea how I was going to save my target $1,250,000.Its been shown in a bunch of research studies that our brains cant actually comprehendthat much moneythe numbers are too large and abstract to most people. It was daunting, to say the least.How was I going to make all that money?

This is why a lot of retirement calculators just arent that effective. They tell you that youll need $2,000,000 saved in 30 years, but dont break down the steps to get you there.

Recent psychology research also highlights that our brains work best when we break down large goals into daily goals. I figured out that to reach $1,250,000 in 30 years (expecting a return of 6-7% per year) using my investing strategy, I would need to save $50 per day to retire in 30 years. Every dollar I could save after $50, I would be fast-tracking my financial independence. Its also worth noting that I didnt start at $50 per day, I scaled up to it starting at $5 per day and then pushing it a few dollars more when I could.

Research also highlights that we should accomplish these daily goals through better habits. The key to building wealth is really in our daily habits. The better our money habits, the more money we will make, save invest, and grow. To go deeper, here are mybest money habits.

The five steps I used to fast track financial independence are simple in theory but can be difficult in practice. Like many things in life, its all about the effort and execution. You need to be consistent. Consistency is more important than anything elseyou cant just follow these steps for a few months. If you want it, youll prioritize it. You can also start as slowly or quickly as you want.

In 2010 when I made the decision to chase financial independence, I jumped in 100%, but thats just what I needed to do to get going.The key to building any sustainable results is to start at your own pace, start making more money where you can, and really push your investing percentage higher 1% at a time. It really adds up and every $1 you are investing today will compound as long as you keep it invested. As Ive mentioned before every $1 I invested in 2010 is worth almost $4 today.

It took almost all of my energy for six straight years to go from broke to financially independent. I also got lucky the stock market has grown so much over the past 7 years, but I was ready. Building wealth is about controlling as many of the variables as you can and then letting it grow.

+ GET CHAPTER 1 of my Bestselling Book FINANCIAL FREEDOM!

Success! Now check your email to confirm. FIGHTING THE SPAMBOTS!

More here:

Fast Track Financial Independence (5 steps) | Millennial Money

Fast Track Financial Independence (5 steps) | Millennial Money

05 Jul Fast Track Financial Independence (5 steps)Grant SabatierFounder of Millennial Money and Author of Financial Freedom. Dubbed “The Millennial Millionaire” by CNBC, Grant went from $2.26 to over $1 million in 5 years, reaching financial independence at age 30. He’s passionate about helping others build wealth and is addicted to Personal Capital.Latest posts by Grant Sabatier (see all)

One of the most common questions I get is How can I reach financial independence or retire early? While its never been easier to get rich slowly (save 10-20% and invest in index funds), its actually a lot harder to fast track your financial independence (when work is optional).

And when I say fast track financial independence, I am talking about retiring in 10 years or less from today, even if you are starting with very little. You need to make a lot of money, cut back on your three biggest expenses, invest as much as you can, and keep track of your net-worth using a free tracker like Personal Capital.

Honestly, trying to make as much money as you can and reach early retirement can be pretty stressful. There were weeks where I hardly slept and I definitely wasnt chilling as hard as I hustled. Im not going to sugar coat it for youit was the hardest and most intense thing Ive ever done in my life. While I always say that saving is an opportunity, not a sacrifice, trying to essentially go from broke to financial independence in 6 years requires a pretty big sacrifice.

But would I do it again? Absolutely. While tired, I was pretty happy most of the time. I enjoyed the challenge, the discipline, the mistakes, and simply doing something different than 99% of people out there. I like being different and a little weird; its just more fun. Chasing early retirement is definitely not the status quo.

Most people just didnt get it. They thought I was crazy. You save 80% of your income? You have a six figure income so shouldnt you have a nice car? Im sorry, Grant, but why do you live in such a crappy apartment when you make so much money? None of it phased me. I had a goal. Its what I thought about when I woke up and what I thought about when I went to sleep. How was I going to escape the rat race? How was I going to make more money?

Whether you are just starting your financial independence journey or you are deep in it,heres how I was able to fast track and go from broke to financial independence in 6 years. This is what I did and what I wished I did (like sleeping more and learning when to treat myself sometimes).

In 2010 when I started my financial independence journey, I didnt set a goal for how long it would take. All I knew was that when I did the math I was never going to be able to retire if I was only able to save 5-10% of a $40,000 $50,000 income.

The math I did was pretty simple. If I was able to save $5,000 per year maximum, even with an expected compounding rate of 6%, I would have about $433,000 in 30 years. While that might seem like a lot of money today,its not going to be that much in 30 years, because of two expected variablestaxes and inflation. You will need to pay tax on that money when you take it out, assuming a 30% tax rate that cuts the after-tax value to $308,000, which when adjusted for 2% annual conservative inflation amount (it could be higher than this even!), then the future value of that money after taxes and inflation is approximately $170,000.

While $170,000 is still a lot of money, its not going to be in 30 years. It definitely wont be enough to live on for 20+ years.

Typical wisdom is that you need 25x your annual expenses to retire early. When I did this calculation, I anticipated my annual expenses would be at least $50,000 in the future (who knows if I will actually be able to live off $50,000 in the futureI sure hope so!). But it was the best starting point I had, so by simply multiplying 25x by $50,000, I determined that I would need to save $1,250,000. Thats a big number, but it was my target.

You can sit down with a piece of paper and see how much money you need to retire early by checking this calculator I built.

Keeping a budget is really hard and its what stops most people from really fast tracking their financial independence. Of course, its important to keep track of your money, but if you really want to save, then you need to look first optimize your three biggest expenseshousing, transportation, and food.

The average American spends 70% of their money on housing, transportation, and food, so if you can spend less on them (say 25% or so, then you can bank the difference). If you move to a smaller apartment, walk to work, and cook at home, you could realistically increase your savings rate to 25%+ or even higher.

By reducing what I spent on my housing, transportation, and food costs, I increased my savings rate to 40% and sometimes as high as 80% while I was fast tracking my financial independence. The only way I was able to fast track was by cutting way back on my living expenses and investing the difference. If you want to save money on housing (typically your biggest expense), check out how to live rent free and the fundamentals of house hacking.

At the end of the day it comes down to a personal choice, but I was happy moving to a smaller apartment, moving closer to my office, and eating out less, to bank the difference. And I definitely was able to bank the differencesaving at least an additional $13,000 per year by cutting back. While I dont have the exact figures, I estimate that cutting back for 2 years, before buying my first home, I was able to save about $25,000 that I invested in 2011 and 2012, and that cutting back is now worth more than $100,000 in my investment accounts. Im going to continue to let it grow and hopefully making that decision 2 years ago will compound in 20 years into a lot more money. It was totally worth cutting back on my three biggest expenses. Try it out.

After doing the simple math that making $50,000 was definitely not going to be enough to fast track my financial independence, I knew I had to make a lot more money to invest. I startedside hustlingintensely in 2010, back when it was just called freelancing or gigging. Ive probably had over 25 different side hustles over the past 7 years, but the smartest thing I did was invest as much money of my side hustle money as possible.

One day in 2011, I sold a $50,000 website project, then that same day, someone who lives in my building posted on the community message board looking for someone to watch his cat for the next few days for $60. I was around for the weekend, so I jumped on it. Two days later, I sold one of my mopeds for a $300 profit. The next week, I resold 4 tickets to a Kanye West show for $550 profit.

A few weeks later, I took the $60 + $300 + $550 = $910 and the $50,000 x .70 = $35,000 after estimated taxes, and put the $35,910 directly into my Vanguard Total Stock Market Index fund from my phone. This was all side income, which I was investing 100% of at the time to fast track my financial independence.

Today, as Im writing this in 2017 that $35,910 is now worth about $108,000. The $910 alone that I made on the side increased in value to over $2,700. Not bad for building a website, watching a cat, selling a few tickets, and flipping a model.

At the height of my side hustling, I had seven pretty consistent income streams and was only living off one of them. The rest went right into investments. Every day I look for money making opportunities like this and then I do the most important step of allinvest it, so it can grow.

First, its essential to switch from a saving to an investing mindset. Its not possible to fast track financial independence by keeping your money in a savings accountinvesting is an essential ingredient. I have made more money through investing than anything else and most of it in my sleep! Just recently, I was looking at my investing returns over a 90 day period and realized that I had made over $15,000 in gains from one of my investments, which is more money than I made in 6 months working at my first job after college. If you really want to make money, then you need to be investing as much money as you can.

As Ive written about before, if you increase your savings/investing rate 1% every year, you can retire up to 2 years earlier, or if you save just 5% more then you could retire 10-15 years earlier. The math is pretty simple and the higher your % saving/investing rate, the faster you will able to reach financial independence. During my most intense months, I was saving 60%+ of my income and 100% of my side hustle income. Earlier this year, I tested myself and was able tosave 82% of my total income. While that might be a little extreme, it makes a massive difference for your future net-worth.

Remember what I said about living differently? A 50% saving/investing rate is more common than you would think amongst the FIRE (financial independence early retirement) crowd. I know a lot of people that save this much each month because they get it. Saving 50%+ of your income is definitely going against the status quo, but thats how you fast track wealth. If you want to go deeper, here are two posts onhow much money you should be savingandmy investing strategy.

At 24 years old, with no money, I had no idea how I was going to save my target $1,250,000.Its been shown in a bunch of research studies that our brains cant actually comprehendthat much moneythe numbers are too large and abstract to most people. It was daunting, to say the least.How was I going to make all that money?

This is why a lot of retirement calculators just arent that effective. They tell you that youll need $2,000,000 saved in 30 years, but dont break down the steps to get you there.

Recent psychology research also highlights that our brains work best when we break down large goals into daily goals. I figured out that to reach $1,250,000 in 30 years (expecting a return of 6-7% per year) using my investing strategy, I would need to save $50 per day to retire in 30 years. Every dollar I could save after $50, I would be fast-tracking my financial independence. Its also worth noting that I didnt start at $50 per day, I scaled up to it starting at $5 per day and then pushing it a few dollars more when I could.

Research also highlights that we should accomplish these daily goals through better habits. The key to building wealth is really in our daily habits. The better our money habits, the more money we will make, save invest, and grow. To go deeper, here are mybest money habits.

The five steps I used to fast track financial independence are simple in theory but can be difficult in practice. Like many things in life, its all about the effort and execution. You need to be consistent. Consistency is more important than anything elseyou cant just follow these steps for a few months. If you want it, youll prioritize it. You can also start as slowly or quickly as you want.

In 2010 when I made the decision to chase financial independence, I jumped in 100%, but thats just what I needed to do to get going.The key to building any sustainable results is to start at your own pace, start making more money where you can, and really push your investing percentage higher 1% at a time. It really adds up and every $1 you are investing today will compound as long as you keep it invested. As Ive mentioned before every $1 I invested in 2010 is worth almost $4 today.

It took almost all of my energy for six straight years to go from broke to financially independent. I also got lucky the stock market has grown so much over the past 7 years, but I was ready. Building wealth is about controlling as many of the variables as you can and then letting it grow.

+ GET A FREE 5 DAY “MAKE MORE MONEY IN LESS TIME” EMAIL COURSE

Success! Now check your email to confirm. FIGHTING THE SPAMBOTS!

See the article here:

Fast Track Financial Independence (5 steps) | Millennial Money

Fast Track Financial Independence (5 steps) | Millennial Money

05 Jul Fast Track Financial Independence (5 steps)Grant SabatierFounder of Millennial Money and Author of Financial Freedom. Dubbed “The Millennial Millionaire” by CNBC, Grant went from $2.26 to over $1 million in 5 years, reaching financial independence at age 30. He’s passionate about helping others build wealth and is addicted to Personal Capital.Latest posts by Grant Sabatier (see all)

One of the most common questions I get is How can I reach financial independence or retire early? While its never been easier to get rich slowly (save 10-20% and invest in index funds), its actually a lot harder to fast track your financial independence (when work is optional).

And when I say fast track financial independence, I am talking about retiring in 10 years or less from today, even if you are starting with very little. You need to make a lot of money, cut back on your three biggest expenses, invest as much as you can, and keep track of your net-worth using a free tracker like Personal Capital.

Honestly, trying to make as much money as you can and reach early retirement can be pretty stressful. There were weeks where I hardly slept and I definitely wasnt chilling as hard as I hustled. Im not going to sugar coat it for youit was the hardest and most intense thing Ive ever done in my life. While I always say that saving is an opportunity, not a sacrifice, trying to essentially go from broke to financial independence in 6 years requires a pretty big sacrifice.

But would I do it again? Absolutely. While tired, I was pretty happy most of the time. I enjoyed the challenge, the discipline, the mistakes, and simply doing something different than 99% of people out there. I like being different and a little weird; its just more fun. Chasing early retirement is definitely not the status quo.

Most people just didnt get it. They thought I was crazy. You save 80% of your income? You have a six figure income so shouldnt you have a nice car? Im sorry, Grant, but why do you live in such a crappy apartment when you make so much money? None of it phased me. I had a goal. Its what I thought about when I woke up and what I thought about when I went to sleep. How was I going to escape the rat race? How was I going to make more money?

Whether you are just starting your financial independence journey or you are deep in it,heres how I was able to fast track and go from broke to financial independence in 6 years. This is what I did and what I wished I did (like sleeping more and learning when to treat myself sometimes).

In 2010 when I started my financial independence journey, I didnt set a goal for how long it would take. All I knew was that when I did the math I was never going to be able to retire if I was only able to save 5-10% of a $40,000 $50,000 income.

The math I did was pretty simple. If I was able to save $5,000 per year maximum, even with an expected compounding rate of 6%, I would have about $433,000 in 30 years. While that might seem like a lot of money today,its not going to be that much in 30 years, because of two expected variablestaxes and inflation. You will need to pay tax on that money when you take it out, assuming a 30% tax rate that cuts the after-tax value to $308,000, which when adjusted for 2% annual conservative inflation amount (it could be higher than this even!), then the future value of that money after taxes and inflation is approximately $170,000.

While $170,000 is still a lot of money, its not going to be in 30 years. It definitely wont be enough to live on for 20+ years.

Typical wisdom is that you need 25x your annual expenses to retire early. When I did this calculation, I anticipated my annual expenses would be at least $50,000 in the future (who knows if I will actually be able to live off $50,000 in the futureI sure hope so!). But it was the best starting point I had, so by simply multiplying 25x by $50,000, I determined that I would need to save $1,250,000. Thats a big number, but it was my target.

You can sit down with a piece of paper and see how much money you need to retire early by checking this calculator I built.

Keeping a budget is really hard and its what stops most people from really fast tracking their financial independence. Of course, its important to keep track of your money, but if you really want to save, then you need to look first optimize your three biggest expenseshousing, transportation, and food.

The average American spends 70% of their money on housing, transportation, and food, so if you can spend less on them (say 25% or so, then you can bank the difference). If you move to a smaller apartment, walk to work, and cook at home, you could realistically increase your savings rate to 25%+ or even higher.

By reducing what I spent on my housing, transportation, and food costs, I increased my savings rate to 40% and sometimes as high as 80% while I was fast tracking my financial independence. The only way I was able to fast track was by cutting way back on my living expenses and investing the difference. If you want to save money on housing (typically your biggest expense), check out how to live rent free and the fundamentals of house hacking.

At the end of the day it comes down to a personal choice, but I was happy moving to a smaller apartment, moving closer to my office, and eating out less, to bank the difference. And I definitely was able to bank the differencesaving at least an additional $13,000 per year by cutting back. While I dont have the exact figures, I estimate that cutting back for 2 years, before buying my first home, I was able to save about $25,000 that I invested in 2011 and 2012, and that cutting back is now worth more than $100,000 in my investment accounts. Im going to continue to let it grow and hopefully making that decision 2 years ago will compound in 20 years into a lot more money. It was totally worth cutting back on my three biggest expenses. Try it out.

After doing the simple math that making $50,000 was definitely not going to be enough to fast track my financial independence, I knew I had to make a lot more money to invest. I startedside hustlingintensely in 2010, back when it was just called freelancing or gigging. Ive probably had over 25 different side hustles over the past 7 years, but the smartest thing I did was invest as much money of my side hustle money as possible.

One day in 2011, I sold a $50,000 website project, then that same day, someone who lives in my building posted on the community message board looking for someone to watch his cat for the next few days for $60. I was around for the weekend, so I jumped on it. Two days later, I sold one of my mopeds for a $300 profit. The next week, I resold 4 tickets to a Kanye West show for $550 profit.

A few weeks later, I took the $60 + $300 + $550 = $910 and the $50,000 x .70 = $35,000 after estimated taxes, and put the $35,910 directly into my Vanguard Total Stock Market Index fund from my phone. This was all side income, which I was investing 100% of at the time to fast track my financial independence.

Today, as Im writing this in 2017 that $35,910 is now worth about $108,000. The $910 alone that I made on the side increased in value to over $2,700. Not bad for building a website, watching a cat, selling a few tickets, and flipping a model.

At the height of my side hustling, I had seven pretty consistent income streams and was only living off one of them. The rest went right into investments. Every day I look for money making opportunities like this and then I do the most important step of allinvest it, so it can grow.

First, its essential to switch from a saving to an investing mindset. Its not possible to fast track financial independence by keeping your money in a savings accountinvesting is an essential ingredient. I have made more money through investing than anything else and most of it in my sleep! Just recently, I was looking at my investing returns over a 90 day period and realized that I had made over $15,000 in gains from one of my investments, which is more money than I made in 6 months working at my first job after college. If you really want to make money, then you need to be investing as much money as you can.

As Ive written about before, if you increase your savings/investing rate 1% every year, you can retire up to 2 years earlier, or if you save just 5% more then you could retire 10-15 years earlier. The math is pretty simple and the higher your % saving/investing rate, the faster you will able to reach financial independence. During my most intense months, I was saving 60%+ of my income and 100% of my side hustle income. Earlier this year, I tested myself and was able tosave 82% of my total income. While that might be a little extreme, it makes a massive difference for your future net-worth.

Remember what I said about living differently? A 50% saving/investing rate is more common than you would think amongst the FIRE (financial independence early retirement) crowd. I know a lot of people that save this much each month because they get it. Saving 50%+ of your income is definitely going against the status quo, but thats how you fast track wealth. If you want to go deeper, here are two posts onhow much money you should be savingandmy investing strategy.

At 24 years old, with no money, I had no idea how I was going to save my target $1,250,000.Its been shown in a bunch of research studies that our brains cant actually comprehendthat much moneythe numbers are too large and abstract to most people. It was daunting, to say the least.How was I going to make all that money?

This is why a lot of retirement calculators just arent that effective. They tell you that youll need $2,000,000 saved in 30 years, but dont break down the steps to get you there.

Recent psychology research also highlights that our brains work best when we break down large goals into daily goals. I figured out that to reach $1,250,000 in 30 years (expecting a return of 6-7% per year) using my investing strategy, I would need to save $50 per day to retire in 30 years. Every dollar I could save after $50, I would be fast-tracking my financial independence. Its also worth noting that I didnt start at $50 per day, I scaled up to it starting at $5 per day and then pushing it a few dollars more when I could.

Research also highlights that we should accomplish these daily goals through better habits. The key to building wealth is really in our daily habits. The better our money habits, the more money we will make, save invest, and grow. To go deeper, here are mybest money habits.

The five steps I used to fast track financial independence are simple in theory but can be difficult in practice. Like many things in life, its all about the effort and execution. You need to be consistent. Consistency is more important than anything elseyou cant just follow these steps for a few months. If you want it, youll prioritize it. You can also start as slowly or quickly as you want.

In 2010 when I made the decision to chase financial independence, I jumped in 100%, but thats just what I needed to do to get going.The key to building any sustainable results is to start at your own pace, start making more money where you can, and really push your investing percentage higher 1% at a time. It really adds up and every $1 you are investing today will compound as long as you keep it invested. As Ive mentioned before every $1 I invested in 2010 is worth almost $4 today.

It took almost all of my energy for six straight years to go from broke to financially independent. I also got lucky the stock market has grown so much over the past 7 years, but I was ready. Building wealth is about controlling as many of the variables as you can and then letting it grow.

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Fast Track Financial Independence (5 steps) | Millennial Money

theFIREstarter – Financial Independence. Retire Early

Greetings!

Welcome to theFIREstarter! If you are interested in themes such as Financial Independence, Retiring Early, Downshifting, or simply just working less and living more then please stick around, I think well get on just fine

If all of that sounds right up your alley then you can follow along by:

Subscribing by EmailFollowing me on twitterSubscribing by RSS feed

If you’d rather have a poke around first then by all means do so! You can always subscribe later by using the link at the top right of the menu above.If you want to get the full story you can start from the very first post here or for a more casual read, just see what catches your eye on the list of all posts page.

My thoughts and plans have slightly changed in the few years since I set up the blog, you can learn a little bit more about me and the main points on what those plans were and how they’ve changed here, here, here, here and finally here.

If you’d like to keep a track of new developments, money saving tips, money making tips, my adventures in attempting self sufficiency and simple living, free financial hacks and spreadsheets, and my general musings on Financial Independence, Personal Finance, investing, and the occasional humorous rant, then please consider following along. Those links again:

Subscribe by EmailFollow me on twitterSubscribe by RSS feed

Thanks for visiting!

TFS.x

Most random photo I could find from November!

Hey all!

Well as the name of the title probably suggests our good run of savings rates has come crashing to a spectacular end, with a lot of heavy spending all hitting us in one month (all entirely optional really, it has to be said!).

Lets find out how/why/what the hell happened shall we?!

Quick note: This turned out to be quite a monster update in the end I would go for a wee grab yourself a cuppa before continuing if I were you!

Read the rest of this entry

See original here:

theFIREstarter – Financial Independence. Retire Early

Fast Track Financial Independence (5 steps) | Millennial Money

05 Jul Fast Track Financial Independence (5 steps)Grant SabatierFounder of Millennial Money and Author of Financial Freedom. Dubbed “The Millennial Millionaire” by CNBC, Grant went from $2.26 to over $1 million in 5 years, reaching financial independence at age 30. He’s passionate about helping others build wealth and is addicted to Personal Capital.Latest posts by Grant Sabatier (see all)

One of the most common questions I get is How can I reach financial independence or retire early? While its never been easier to get rich slowly (save 10-20% and invest in index funds), its actually a lot harder to fast track your financial independence (when work is optional).

And when I say fast track financial independence, I am talking about retiring in 10 years or less from today, even if you are starting with very little. You need to make a lot of money, cut back on your three biggest expenses, invest as much as you can, and keep track of your net-worth using a free tracker like Personal Capital.

Honestly, trying to make as much money as you can and reach early retirement can be pretty stressful. There were weeks where I hardly slept and I definitely wasnt chilling as hard as I hustled. Im not going to sugar coat it for youit was the hardest and most intense thing Ive ever done in my life. While I always say that saving is an opportunity, not a sacrifice, trying to essentially go from broke to financial independence in 6 years requires a pretty big sacrifice.

But would I do it again? Absolutely. While tired, I was pretty happy most of the time. I enjoyed the challenge, the discipline, the mistakes, and simply doing something different than 99% of people out there. I like being different and a little weird; its just more fun. Chasing early retirement is definitely not the status quo.

Most people just didnt get it. They thought I was crazy. You save 80% of your income? You have a six figure income so shouldnt you have a nice car? Im sorry, Grant, but why do you live in such a crappy apartment when you make so much money? None of it phased me. I had a goal. Its what I thought about when I woke up and what I thought about when I went to sleep. How was I going to escape the rat race? How was I going to make more money?

Whether you are just starting your financial independence journey or you are deep in it,heres how I was able to fast track and go from broke to financial independence in 6 years. This is what I did and what I wished I did (like sleeping more and learning when to treat myself sometimes).

In 2010 when I started my financial independence journey, I didnt set a goal for how long it would take. All I knew was that when I did the math I was never going to be able to retire if I was only able to save 5-10% of a $40,000 $50,000 income.

The math I did was pretty simple. If I was able to save $5,000 per year maximum, even with an expected compounding rate of 6%, I would have about $433,000 in 30 years. While that might seem like a lot of money today,its not going to be that much in 30 years, because of two expected variablestaxes and inflation. You will need to pay tax on that money when you take it out, assuming a 30% tax rate that cuts the after-tax value to $308,000, which when adjusted for 2% annual conservative inflation amount (it could be higher than this even!), then the future value of that money after taxes and inflation is approximately $170,000.

While $170,000 is still a lot of money, its not going to be in 30 years. It definitely wont be enough to live on for 20+ years.

Typical wisdom is that you need 25x your annual expenses to retire early. When I did this calculation, I anticipated my annual expenses would be at least $50,000 in the future (who knows if I will actually be able to live off $50,000 in the futureI sure hope so!). But it was the best starting point I had, so by simply multiplying 25x by $50,000, I determined that I would need to save $1,250,000. Thats a big number, but it was my target.

You can sit down with a piece of paper and see how much money you need to retire early by checking this calculator I built.

Keeping a budget is really hard and its what stops most people from really fast tracking their financial independence. Of course, its important to keep track of your money, but if you really want to save, then you need to look first optimize your three biggest expenseshousing, transportation, and food.

The average American spends 70% of their money on housing, transportation, and food, so if you can spend less on them (say 25% or so, then you can bank the difference). If you move to a smaller apartment, walk to work, and cook at home, you could realistically increase your savings rate to 25%+ or even higher.

By reducing what I spent on my housing, transportation, and food costs, I increased my savings rate to 40% and sometimes as high as 80% while I was fast tracking my financial independence. The only way I was able to fast track was by cutting way back on my living expenses and investing the difference. If you want to save money on housing (typically your biggest expense), check out how to live rent free and the fundamentals of house hacking.

At the end of the day it comes down to a personal choice, but I was happy moving to a smaller apartment, moving closer to my office, and eating out less, to bank the difference. And I definitely was able to bank the differencesaving at least an additional $13,000 per year by cutting back. While I dont have the exact figures, I estimate that cutting back for 2 years, before buying my first home, I was able to save about $25,000 that I invested in 2011 and 2012, and that cutting back is now worth more than $100,000 in my investment accounts. Im going to continue to let it grow and hopefully making that decision 2 years ago will compound in 20 years into a lot more money. It was totally worth cutting back on my three biggest expenses. Try it out.

After doing the simple math that making $50,000 was definitely not going to be enough to fast track my financial independence, I knew I had to make a lot more money to invest. I startedside hustlingintensely in 2010, back when it was just called freelancing or gigging. Ive probably had over 25 different side hustles over the past 7 years, but the smartest thing I did was invest as much money of my side hustle money as possible.

One day in 2011, I sold a $50,000 website project, then that same day, someone who lives in my building posted on the community message board looking for someone to watch his cat for the next few days for $60. I was around for the weekend, so I jumped on it. Two days later, I sold one of my mopeds for a $300 profit. The next week, I resold 4 tickets to a Kanye West show for $550 profit.

A few weeks later, I took the $60 + $300 + $550 = $910 and the $50,000 x .70 = $35,000 after estimated taxes, and put the $35,910 directly into my Vanguard Total Stock Market Index fund from my phone. This was all side income, which I was investing 100% of at the time to fast track my financial independence.

Today, as Im writing this in 2017 that $35,910 is now worth about $108,000. The $910 alone that I made on the side increased in value to over $2,700. Not bad for building a website, watching a cat, selling a few tickets, and flipping a model.

At the height of my side hustling, I had seven pretty consistent income streams and was only living off one of them. The rest went right into investments. Every day I look for money making opportunities like this and then I do the most important step of allinvest it, so it can grow.

First, its essential to switch from a saving to an investing mindset. Its not possible to fast track financial independence by keeping your money in a savings accountinvesting is an essential ingredient. I have made more money through investing than anything else and most of it in my sleep! Just recently, I was looking at my investing returns over a 90 day period and realized that I had made over $15,000 in gains from one of my investments, which is more money than I made in 6 months working at my first job after college. If you really want to make money, then you need to be investing as much money as you can.

As Ive written about before, if you increase your savings/investing rate 1% every year, you can retire up to 2 years earlier, or if you save just 5% more then you could retire 10-15 years earlier. The math is pretty simple and the higher your % saving/investing rate, the faster you will able to reach financial independence. During my most intense months, I was saving 60%+ of my income and 100% of my side hustle income. Earlier this year, I tested myself and was able tosave 82% of my total income. While that might be a little extreme, it makes a massive difference for your future net-worth.

Remember what I said about living differently? A 50% saving/investing rate is more common than you would think amongst the FIRE (financial independence early retirement) crowd. I know a lot of people that save this much each month because they get it. Saving 50%+ of your income is definitely going against the status quo, but thats how you fast track wealth. If you want to go deeper, here are two posts onhow much money you should be savingandmy investing strategy.

At 24 years old, with no money, I had no idea how I was going to save my target $1,250,000.Its been shown in a bunch of research studies that our brains cant actually comprehendthat much moneythe numbers are too large and abstract to most people. It was daunting, to say the least.How was I going to make all that money?

This is why a lot of retirement calculators just arent that effective. They tell you that youll need $2,000,000 saved in 30 years, but dont break down the steps to get you there.

Recent psychology research also highlights that our brains work best when we break down large goals into daily goals. I figured out that to reach $1,250,000 in 30 years (expecting a return of 6-7% per year) using my investing strategy, I would need to save $50 per day to retire in 30 years. Every dollar I could save after $50, I would be fast-tracking my financial independence. Its also worth noting that I didnt start at $50 per day, I scaled up to it starting at $5 per day and then pushing it a few dollars more when I could.

Research also highlights that we should accomplish these daily goals through better habits. The key to building wealth is really in our daily habits. The better our money habits, the more money we will make, save invest, and grow. To go deeper, here are mybest money habits.

The five steps I used to fast track financial independence are simple in theory but can be difficult in practice. Like many things in life, its all about the effort and execution. You need to be consistent. Consistency is more important than anything elseyou cant just follow these steps for a few months. If you want it, youll prioritize it. You can also start as slowly or quickly as you want.

In 2010 when I made the decision to chase financial independence, I jumped in 100%, but thats just what I needed to do to get going.The key to building any sustainable results is to start at your own pace, start making more money where you can, and really push your investing percentage higher 1% at a time. It really adds up and every $1 you are investing today will compound as long as you keep it invested. As Ive mentioned before every $1 I invested in 2010 is worth almost $4 today.

It took almost all of my energy for six straight years to go from broke to financially independent. I also got lucky the stock market has grown so much over the past 7 years, but I was ready. Building wealth is about controlling as many of the variables as you can and then letting it grow.

+ GET A FREE 5 DAY “MAKE MORE MONEY IN LESS TIME” EMAIL COURSE

Success! Now check your email to confirm. FIGHTING THE SPAMBOTS!

Read the original post:

Fast Track Financial Independence (5 steps) | Millennial Money

Financial independence – Wikipedia

For the concept of independence from another person for support, see Dependant.

Financial independence means you have enough wealth to live on without working.[1][citation needed] Financially independent people have assets that generate income (cash flow) that is at least equal to their expenses. Income you earn without having to work a job is commonly referred to as “passive income”.[2] For example, if someone receives $5000 in dividends from stocks they own, but their expenses total $4000, they can live on their dividend income because it pays for all their expenses to live (with some left over). Under these circumstances, a person is financially independent. A person’s assets and liabilities are an important factor in determining if they have achieved financial independence. An asset is anything of value that can be readily turned into cash (liquidated) if a person has to pay debt, whereas a liability is a responsibility to provide compensation. (Homes and automobiles with no liens or mortgages are common assets.)

Age and existing wealth or current salary don’t matter – if someone can generate enough income to meet their needs from sources other than their primary occupation, they have achieved financial independence. If a 25-year-old has $100 in expenses per month, and assets that generate $101 or more per month, they have achieved financial independence, and they are now free to spend their time doing the thing they enjoy without needing to work a regular job to pay their bills. If, on the other hand, a 50-year-old earns $1,000,000 a month but has expenses that equal more than that per month, they are not financially independent because they still have to earn the difference each month just to make all their payments. However, the effects of inflation must be considered. If a person needs $100/month for living expenses today, they will need $105/month next year and $110.25/month the following year to support the same lifestyle, assuming a 5% annual inflation rate. Therefore, if the person in the above example obtains their passive income from a perpetuity, there will be a time when they lose their financial independence because of inflation.

There are many strategies to achieve financial independence, each with their own benefits and drawbacks. To achieve financial independence, it will be helpful if you have a financial plan and budget, so you know what money is coming in and going out, have a clear view of your current incomes and expenses, and can identify and choose appropriate strategies to move towards your financial goals. A financial plan addresses every aspect of your finances.[3]

Since there are two sides to the assets and expenses equation, there are two main directions one can focus their energy: accumulating assets or reducing their expenses.

Accumulating assets can focus one or both of these approaches:

Another approach to financial independence is to reduce regular expenses while accumulating assets, to reduce the amount of assets required for financial independence. This can be done by focusing on simple living, or other strategies to reduce expenses.[4][5]

The following is a non-exhaustive list of sources of passive income which potentially yields financial independence.

The rest is here:

Financial independence – Wikipedia

Financial independence – Wikipedia

For the concept of independence from another person for support, see Dependant.

Financial independence means you have enough wealth to live on without working.[1][citation needed] Financially independent people have assets that generate income (cash flow) that is at least equal to their expenses. Income you earn without having to work a job is commonly referred to as “passive income”.[2] For example, if someone receives $5000 in dividends from stocks they own, but their expenses total $4000, they can live on their dividend income because it pays for all their expenses to live (with some left over). Under these circumstances, a person is financially independent. A person’s assets and liabilities are an important factor in determining if they have achieved financial independence. An asset is anything of value that can be readily turned into cash (liquidated) if a person has to pay debt, whereas a liability is a responsibility to provide compensation. (Homes and automobiles with no liens or mortgages are common assets.)

Age and existing wealth or current salary don’t matter – if someone can generate enough income to meet their needs from sources other than their primary occupation, they have achieved financial independence. If a 25-year-old has $100 in expenses per month, and assets that generate $101 or more per month, they have achieved financial independence, and they are now free to spend their time doing the thing they enjoy without needing to work a regular job to pay their bills. If, on the other hand, a 50-year-old earns $1,000,000 a month but has expenses that equal more than that per month, they are not financially independent because they still have to earn the difference each month just to make all their payments. However, the effects of inflation must be considered. If a person needs $100/month for living expenses today, they will need $105/month next year and $110.25/month the following year to support the same lifestyle, assuming a 5% annual inflation rate. Therefore, if the person in the above example obtains their passive income from a perpetuity, there will be a time when they lose their financial independence because of inflation.

There are many strategies to achieve financial independence, each with their own benefits and drawbacks. To achieve financial independence, it will be helpful if you have a financial plan and budget, so you know what money is coming in and going out, have a clear view of your current incomes and expenses, and can identify and choose appropriate strategies to move towards your financial goals. A financial plan addresses every aspect of your finances.[3]

Since there are two sides to the assets and expenses equation, there are two main directions one can focus their energy: accumulating assets or reducing their expenses.

Accumulating assets can focus one or both of these approaches:

Another approach to financial independence is to reduce regular expenses while accumulating assets, to reduce the amount of assets required for financial independence. This can be done by focusing on simple living, or other strategies to reduce expenses.[4][5]

The following is a non-exhaustive list of sources of passive income which potentially yields financial independence.

View original post here:

Financial independence – Wikipedia

financial independence / early retirement – reddit

Ive been reading this thread for almost two years and have been on the journey to financial independence for almost ten years. Below is going to be a question I pose to fellow readers and contributors. I have posted one question two years ago on whether or not to sell our house to downsize to a residence closer to work and dramatically reduce our commuting time. We pulled the trigger almost a year ago and have been so much happier than before, even happier than we anticipated in ways we didnt foresee. Now, theres another issue that may result even further

I performed well enough in my job that I was rewarded with a management opportunity about eight years ago. Ive always been a solid individual contributor. Ive also been a glutton for punishment and worked a lot of overtime to develop the skills to get that opportunity. When it was offered, I initially wasnt interested because I just didnt want to manage people. I eventually gave in to the promise of more money and decided to go for the promotion. I wasnt sure when the next offer to move up the corporate ladder would come up. Plus, I always kept the idea alive that I could demote myself back into my old role if I wasnt happy.

I wasnt happy. Sure, I learned quite a bit during the past years, but I often found myself not only busy during expected deadlines, but also a never-ending series of special projects would come up. Three years into that promotion and I was beyond burnt out. After trying out the same role at a couple other companies, my burn out wasnt cured, but has gone dormant. My current position requires even more time managing and less time performing actual job duties. Notably, my satisfaction at work has diminished further. I spend a lot of time on activities I dont feel worthwhile and have to greatly rely on my staff to understand the issues in detail. I wish for more time to better understand things, but my role requires me to comprehend an inch deep and a mile wide.

Sadly, or not, Im still perceived, as far as I can tell, as a top performer. Ive managed to internalize most of my dissatisfaction and keep it covered up. Ive even been able, knowing that we have no debt and a significant net worth, to bring up issues no one else would dare bring up and push for some action in making things better.

As part of my New Years resolutions, I want to bring up with my boss the possibility of me moving into a different and preferable department while taking a step down in rank. After seven years in a management role in a role with numerous deadlines, I realize that I will not become happier doing this work and am hoping to return to a role that, although also challenging, was more satisfying.

I also believe this move would provide for less stress. My wife and I are hoping to start our family this year after many delays, all within our control, and I believe my focus should be with my family and not with trying to maintain or climb the corporate ladder.

So, I wanted to put a little financial independence math together below to show what the differences would be in taking the reduced role now versus later, or never.

The Math: With a reduced role and income, we are on target for an early retirement date of 50 years old. If I were to gut out this management role for another three years, and then take the reduced role, we would be on target to retire at age 46. If I were to gut out this management role until financial independence, we would be on target to retire at age 44. I am very conservative in all of my calculations, assuming a gross rate of return on investments at 7%, inflation at 3% and assuming only inflationary salary increases.

The Reasons Not To Step Down: With starting a family, Im unsure if my wife may want to take extended time off to be with our future children. She enjoys working for now and doesnt have any stated desire to stay at home, but I would want her to have that option. If she were to stay home, we could potentially reduce certain expenses and delay retirement by another couple of years at stay on track for retirement around 52 or 53.

The Explanation: If I go forward with this to my boss, how should I explain my intentions to go the opposite way on the corporate ladder? How could this be justified in my bosss eyes? I understand that it shouldnt matter, but sometimes honesty, especially in Corporate America, is not the best policy.

Reddit, what advice would you give? I am happy to clarify anything and everything. I think I am living the classic example of one more year syndrome. Its a real thing.

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financial independence / early retirement – reddit

Financial independence – Wikipedia

For the concept of independence from another person for support, see Dependant.

Financial independence means you have enough wealth to live on without working.[1][citation needed] Financially independent people have assets that generate income (cash flow) that is at least equal to their expenses. Income you earn without having to work a job is commonly referred to as “passive income”.[2] For example, if someone receives $5000 in dividends from stocks they own, but their expenses total $4000, they can live on their dividend income because it pays for all their expenses to live (with some left over). Under these circumstances, a person is financially independent. A person’s assets and liabilities are an important factor in determining if they have achieved financial independence. An asset is anything of value that can be readily turned into cash (liquidated) if a person has to pay debt, whereas a liability is a responsibility to provide compensation. (Homes and automobiles with no liens or mortgages are common assets.)

Age and existing wealth or current salary don’t matter – if someone can generate enough income to meet their needs from sources other than their primary occupation, they have achieved financial independence. If a 25-year-old has $100 in expenses per month, and assets that generate $101 or more per month, they have achieved financial independence, and they are now free to spend their time doing the thing they enjoy without needing to work a regular job to pay their bills. If, on the other hand, a 50-year-old earns $1,000,000 a month but has expenses that equal more than that per month, they are not financially independent because they still have to earn the difference each month just to make all their payments. However, the effects of inflation must be considered. If a person needs $100/month for living expenses today, they will need $105/month next year and $110.25/month the following year to support the same lifestyle, assuming a 5% annual inflation rate. Therefore, if the person in the above example obtains their passive income from a perpetuity, there will be a time when they lose their financial independence because of inflation.

There are many strategies to achieve financial independence, each with their own benefits and drawbacks. To achieve financial independence, it will be helpful if you have a financial plan and budget, so you know what money is coming in and going out, have a clear view of your current incomes and expenses, and can identify and choose appropriate strategies to move towards your financial goals. A financial plan addresses every aspect of your finances.[3]

Since there are two sides to the assets and expenses equation, there are two main directions one can focus their energy: accumulating assets or reducing their expenses.

Accumulating assets can focus one or both of these approaches:

Another approach to financial independence is to reduce regular expenses while accumulating assets, to reduce the amount of assets required for financial independence. This can be done by focusing on simple living, or other strategies to reduce expenses.[4][5]

The following is a non-exhaustive list of sources of passive income which potentially yields financial independence.

See the rest here:

Financial independence – Wikipedia


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