Achieving Financial Independence … prank or reality?

Achieving Financial Independence - Prank or Reality

It’s confession time!  The first time I read about the concept of achieving financial independence, I thought it was some April Fools prank.  Retirement only happened at 65, right?  The thought was too intriguing however to not dig into further.  After all, traveling the world why I can still move all four of my limbs properly sounded very enticing.

What became obvious very quickly was that I am not alone on my newfound journey to achieving financial independence.  There is a whole community of people just like you and I out there, who would love to retire early and enjoy life vs dedicating it to working for someone else.  Not one to take perception as fact, I posted a simple question on a “little” online treasure trove called Reddit.

At what age did you guys catch on to FIRE (Financial Independence / Retire Early) and why?
Achieving Financial Independence PieChart
Reddit – https://redd.it/6d4zps – 05/25/17 Results

What became apparent that a few people catch on in their 30s and 40s.  All the while, the majority of people get hooked on achieving financial independence in their 20s.  Kudos to you guys.  I guess, having caught on in my early 30s makes me a late bloomer.  The question remains, are we all a bunch of dreamers or can this be real…

Achieving Financial Independence

Prank or Reality?

Reality

Yay 😊

Achieving financial independence turns out to be a surprisingly simple equation.

~ spend less than you earn = savings = investment potential / gains = financial independence ~

Let’s break it apart with an example.  Imagine someone making $50,000 / year after maxing out 401(k) retirement contributions and paying income taxes.  Additionally, we are going to make the assumption that the ultimate retirement savings comfort level/goal is $1 million dollars.

During the accumulation period, we are banking on 5% investment gains (adjusted for inflation).  Following retirement, we will choose less risky investments and bank on 4% investment returns.  These 4% returns will cover all living expenses, so the $1M balance will never be depleted.  Are you still with me?  Let’s take a look…

Achieving Financial Independence Retirement Table

If you manage to save 10% of your $50,000 after tax income, you are looking at 49 years of work to accumulate the desired $1 million retirement stash.  Ouch!  That’s not desirable at all.  Well, let’s increase that savings percentage to 40% and you are looking at “only” 25 years of working for someone else.  Woohoo … much better.  If you are striving for the ultimate, save 80% and retire after “just” 17 of work.  Much, much better!  And guess what, your 401(k) contributions will add to your retirement cushion even more!!

How can you be on your way to achieving financial independence?

Reduce your expenses as much as you can!  The lowest level of expenses results in the highest savings percentage.  And early retirement will inch closer and closer with every dollar you save!

Track your Expenses

Set up a Budget

Invest Windfalls

Pay Off Debt

How can you save a large % of your paycheck?

Save Money By…

brown bagging your lunches

buying cars which are within your budget

taking advantage of cash back credit cards

minimizing your grocery bill

avoiding emotional spending

manicures & pedicures – going it on your own

traveling on a budget

considering tuition when picking a college

discovering your local library

not smoking

spending your $$$ wisely during the summer

Increase your disposable income!  Yes, I know that is easier said than done.  It is important that you do not settle.  That means looking for better-paying employment opportunities and even picking up side hustles if you can.

Invest Any Disposable Income You Have

Investing in stock online for beginners … what to expect and not to expect

Index Investing and why it is the simple way of coming out up top

How to Set Up an Online Brokerage Account

Are you on board the financial independence train?  Drop me a note in the comment section and let me know how it’s going 🙂

If you enjoyed this post, be sure to check out this complete listing of posts for other personal finance must reads!

4 thoughts on “Achieving Financial Independence … prank or reality?

  1. I think redditt probably skews toward the younger side.
    Anywho… I always knew I wasn’t going to be able to work until 65, my plan was and is to claim SS at 62, then I thought I would go on till 59.5 when IRA became available, or at 55 when my tiny pension could kick in but by 47 I thought screw it and quit on the spot. The first few months I thought I was taking a break (a sabbatical of sorts) now I don’t think I could to it any more and used the extra time to learn that I wasn’t alone and that I may be able to make it alright never going back again. Who knew…

  2. What I found interesting with your chart was that saving 10% of your income means a 49 year career to get $1,000,000 but doubling it to 20% takes 13 years off that figure. However, going up to 30% only takes 6 years off the 20% figure. It looks like the bang for the buck is at the 20% level.

    Saving for retirment vs meeting immediate needs/wants is always a tug-of-war. Looking back on my life (I’m 56), if I had only saved more when I was young….but when I was young, I made $15,000 per year as a school teacher. Today teachers start at about $45,000. Saving $1,000 then was saving a month’s salary; today, forme, saving $1,000 is saving a week’s salary, and since I’m married, it is like saving half of what we as a couple earn in a week. i’m not knocking saving, just saying that people who can’t do it now may not be missing out on as much as reading financial blogs might make them think,

    • Financial Muse says:

      All great points! Reaching your early retirement goals heavily depends on your earnings potential and your ability to cut expenses to a point where you can save large %s of your income. After that it is all about letting compounding work its magic!

      The idea is to keep expenses low in those early years when starting out (i.e. keep living like a college student, have roommates, etc) vs buying new cars and real estate. At the same time, increase your earnings via side hustles, promotions/raises, etc.

      I do believe that one’s 20s and 30s are an imprtant time when it comes to retirement savings. The loss of compounding gains during those early years can add many years to your work life. Starting salaries tend to be the challenge for all at that point in time.

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