Travel the world when you are young.
We all do not want be in a boring job for lifelong. So everybody wants to retire as early as possible and want to travel the world while they are young and energetic. And all want to live their life such a way they like.
Retirement is not the old age or being without doing work. It means doing the work we love and passionate about. For example travelling all over the world or create your dream company. To live your life in your own terms, you will need financial freedom obviously.
When I research about the financial freedom, I got to know about the FIRE moment. Expansion of FIRE would be Financial Independence Retire Early. Those who loves to follow FIRE moment, rejects a traditional lifestyle. They want to use their lives’ early stages in best way and want to retire early as possible.
If we take a traditional financial life cycle, until our 20’s we go to school and college to fulfil the preparation stage. From 20-35 age, we spend our most of the time for professional and career development. From 35-60 age, we will build our own family and develop the wealth. And get retired in 60 years. This is the traditional financial life cycle of a normal person.
But those who are in Fire moment, they want to retire in their 30s. They are not the bigger business people. They all are normal working people. When we search about people who have achieved the early retirement, there is one person called Mr. Money Mustache who was a software engineer before. He planned with his wife without spending too much and being a minimalist. So he followed the plan very well and was able to retire at his 30s.
We have to study about two step principle to know about how Mr. Money Mustache made it possibel.
1. Frugal Living and Aggressive Investing.
If we talk about the Frugality, means a being a stingy person. Basically by frugal living, being a minimalist without spending too much on the clothes, automobile and impulsive purchase. We have to follow high saving, high income and high investing principle. Your focus in your 20s should be in highly earning, saving and investing.
For investing, you do not have to be a money expert. It is enough to make a scenario for a passive income by beating the inflation of money. So we can spend the return from the passive income after our retirement by calculating a specific amount for it.
Examples for Passive income. FDs, Index Funds, Real Estate other growth Mutual funds.
2. 4% Rule
The 4% rules says, calculate your average annual expenses. And multiply that by 25. So you will get the amount needed for you to retire.
Retirement Amount = Average Annual Expenses * 25
We do not have to work if we achieve this amount using our savings and investment. So you can use only the 4% of that money for your expenses. The yearly return is increases with the time and if you use only the 4% of that, it will not affect your saving money and return.
These all are obviously a rough estimation since our expenses increases every year. But at least we can get the clarity about when we can retire.
So Let us do a rough estimation….
When you start earning as a youngster, your expenses will not be higher enough. But when you get married and have children your expenses will go up.
For an easy calculation, lets say your salary is 40K per month. If you multiply the 40K by 12, for an year you need 480000.
So Amount needed to retire= 480000 * 25 = 12 Million.
To achieve this amount, you have to earn more and do the saving and investment correctly.
You can retire as early as possible as you amplify your savings and investments. After achieving the retirement amount, you have to withdraw only the 4% from your investments and manage your expenses.
Why we call this 4% rule?.
In average, any investment in USA gives the return of 7%. And USA’s average inflation rate is 3%. If we subtract these two. We have 4% in our hand. Accordingly you have to know your country’s return and inflation to calculate you withdraw percentage in your retirement.
This 4% rule will be 96% accurate as per the research and studies.
So after you retire?
After getting you financial freedom using this strategies, you can work on your interest, passion and hobbies and generate an income from that as well. This financial freedom will help you to live your life in your terms.
If you want to increase you financial knowledge in savings and investment…
Until Next Time!