3 Reasons Why We Cannot Be “Financially Independent, Retire Early”
Building up savings is getting harder and harder.
How can we achieve F.I.R.E.?
Retire within the next 9 years.
By saving up to 70% of gross annual income.
People in the FIRE movement choose to live a borderline extreme, frugal lifestyle. So they can achieve financial independence as soon as possible. Let’s take a look at what it takes.
This article on investopedia mentions that we need a savings rate of 70% to achieve FIRE. And this, my friends, is the most difficult task to achieve.
TLDR:
#1: Earning a lower income and trying to survive on 30%.
#2: Doing this alone.
#3: Life is short; don't make it more boring.
The first assumption below shows a 50% savings rate for an annual gross income of $50,000. Savings must stay invested in a portfolio and get a minimum return of 5% a year. The return required is a very realistic rate of return. A globally diversified stock portfolio generates 7% over the long term—more than 10 years. Some savvy investors use a variety of assets to get the investment returns they need.
We will need a grand total of 16.6 years before we can retire.
The second assumption shows a 70% savings rate. Like magic, we can retire within 9 years!
By increasing our savings rate by 20%, we shaved off 8 years of "working".
Tinker around the calculator. here. Use your own annual income and test it out.
#1: Earning a lower income and trying to survive on 30%.
We have to understand that percentages are one of the worst ways to track expenses. Someone might have a mortgage of $30,000 per year, but it could be only 10% of their income. The same mortgage repayment could be 50% of someone else's yearly income.
#2: Doing this alone.
If you are single and young, this could be a great starting point to get started. Sudden increase to a full-time salary, many individuals suddenly need "nicer stuff". Billionaire Mark Cuban suggested that we continue living like students. This prevents lifestyle inflation.
If you are dating or married, your partner might have a very different approach to their money habits. This will cause friction and flights to occur.
#3: Life is short; don't make it more boring.
I would never want to horde money and become stingy with those that I love. We work hard to provide for ourselves and our loved ones.
Have you ever heard of people in their twenties and thirties suddenly passing away? I cannot bring my wealth to the grave.
Let's enjoy a little, experience travel a little, and excite our lives a little.
A simple formula to work with:
Experiences Now vs. Stability Much Later.
The extra $1,000 we set aside in 2024 would not have grown much in one year.
Would spending the money today make you happier?
How much will it grow over the next 30 years?
