What's Your Number?steemCreated with Sketch.

in #introduceyourself7 years ago (edited)

My mother was an eighth-grade math teacher, so you can imagine her reaction when I was asked not to return to the advanced placement math class in junior high due to my lack of comprehension of the subject. I never did quite "get" math class, which naturally caused me to find a field where math is not a prerequisite...law.

Thankfully, the math behind FIRE (Financial Independence Retire Early) is straight forward: Figure out what you need to live each year, multiply by 25, and you now know your number. Based on the widely accepted principles of the 4% safe withdrawal rate ("SWR"), which we will discuss and debate in a later post, once you reach your number, you can stop working and live off of those investments for the rest of your life.*

By way of example, if you were to spend $80,000 per year to survive (all expenses, on average), you would need to have $2MM socked away. If you currently have $0 saved, and are putting away $1,000 per month, it would take you 37 years (assuming an average 7% annual return) to reach $2MM. If you are starting your working life today (at 23 years old), you will be 60 by the time you save enough to retire. I don't know about you, but retiring at 60 is not retiring early (key principle to the RE part of FIRE).

Accordingly, you will need to shorten the amount of time it takes you to reach your number. Short of winning the lottery, this can be done by pushing on one of two levers at your disposal: (i) reducing annual spending; or (ii) increasing annual savings, or both.

If you decrease your annual spending, to say $60,000 per year, your new number becomes $1.5MM ($60,000 x 25). With the same rate of saving ($1,000 per month), you will reach $1.5MM during the 33rd year (at age 56). But, if you also take the reduction in annual spending and save the difference (an added $1,666/month), you will reach your $1.5MM goal during the 21st year (at age 44).

This highlights the power of making wise financial choices early in life and how being intentional with spending can lead to greater financial flexibility in life.

My personal journey is well underway, but i wish I had given more thought to this principle a decade ago, I could have been halfway towards FIRE if I had.

Sort:  

Great explanation of this concept! I want to help build the FIRE community here at Steem.

I really like the visualization the Mr. Money Mustache uses showing how quickly you can retire (regardless of income) if you increase your savings rate.

As always, the key is living on less than you make so that you can piggy bank something. And the less you live on, the sooner you can retire.

Cheers,

dcj

Screen Shot 2018-01-24 at 12.09.18 PM.png

Thanks, Franks. I am not inventing this, just relaying it in this new medium. I hope to continue to develop my posts in a way that make them relate-able and digestible. Any thoughts, comments or ideas would be welcomed and appreciated.

You should always have at least one image. The first image of your posts becomes the thumbnail in the feed and makes your contributions more visible when people are checking the latest posts.

You can get free images from sites like Pixabay or USplash

Thank you, GOTT. Like I said - I was really excited and kind-of rushed this one. I am going to plot out future posts a little more in advance. I appreciate the feedback, though, and will start incorporating pictures on a go-forward basis.