The time has come to ask yourself tough questions.
What is your financial picture?
Are you in debt?
At your currently savings rate, what year are going to retire? Are you going to be able to retire on your current path.
The path to wealth is simple, but it is not easy. – JLCollins, The Simple Path to Wealth, https://jlcollinsnh.com/
You are in control of your destiny. Your money is simply a reflection of who you are. If you look at how you spend your money you will see your value. You will see your reflection. Unlike a mirror though, if you are not happy with your current financial situation you can change it. It will not be easy, but it is very possible. You have everything you need right now to change your future.
The formula to build wealth is simple was laid out a long time ago in The Richest Man in Babylon.
Earn money – spend less that you earn – invest what is left over
Compound interest will do the rest. But you are not everyone else. You are ready to retire NOW.
I am right there with you. I am ready to retire and travel the world for the rest of my life.
That brings us to the savings rate. If you are contributing to a 401k or some other similar fund you are putting in a percentage of your income into that fund and your employer is matching a certain amount. That percentage is your initial savings rate.
In order to reach financial independence you need your investments to pay for your current living expenses. Generally, that is expenses x 25. That is the number you need your investments to reach to be able to “retire” and be paid FOREVER. – Sandlot voice.
Now in order to reach that investment number, you need to really crank up that savings rate. That means decreasing expenses and increasing income.
You really need a savings rate from 30-50% depending on your income. Now you increase that income you make and get there a lot faster.
Find out what you FI number is. Everyone has an FI number. For some it is small others it really big. And if you have debt you can work on eliminating debt and building up your savings rate at the same time.
Start small. It really easy to start with a little and crank up that rate over time. That way you can make adjustments to your lifestyle and spending where needed. And once you start seeing the money in the bank it will give you motivation to make the necessary changes to your lifestyle to support more savings. It will also make you be more creative in how you spend your time and money.
But the hard part is asking yourself: What kind of lifestyle do need? Vs. What kind of lifestyle do I want.
There is nothing wrong with wanting a fancy, Kardashian style lifestyle. But you will need to make Kardashian money to afford that lifestyle and keep it up over time.
Financial independence is about having control over your money not your money controlling you. You have the option to work if you want or walk away if you want. Maybe go see a movie in the middle of the day during a work week. Maybe going to Hawaii just because you can.
Who doesn’t want to go to Hawaii?
So what is my perfect savings rate?
I am currently saving 36% of my income. And that works really well for me. I am saving for my future financial independence, but I still have enough money to enjoy my current life, go on vacations, see a concert or a movie. But I certainly do not have enough to quit my job and sail into the sunset.
Life is balance.
You may need to save less now and pay more towards debt. Paying off debt should be your first priority.
But your investments also need time. Compound interest takes place over years. And the advantage of Dollar Cost Averaging happen when you purchase stocks both at high and low prices.
The key takeaway is that if you want to reach financial independence faster you should raise your savings rate. Use online calculators to figure out what you FI number and then figure out a plan to get there.
Be patient and persistent. Great things happen over time. The market always goes up. Maybe not in a day, week, or year. But over decades it always increases.
So find your perfect savings rate already. And let me know what it is in the comments. Maybe you can convince me that I need to increase mine.
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