How much money do you need to retire?
How much is enough? an intriguing question. Part of the answer lies with you and the rest with the 4 percent rule (based on the Trinity study).
First, you start looking at your expenses for the last few years and see how much you have been spending per year on an average. Let’s assume that number is $40,000 per year.
Second, apply the 4 percent rule, according to which to cover your yearly expenses of $40,000 each year you must have $1,000,000 ($40,000 multiplied by 25) invested assets. That $1,000,000 will last you your entire life assuming you don’t start living extravagantly.
Calculate your FIRE number
Steps for financial freedom
Financial freedom starts with financial education. I can count numbers because I was educated to count numbers the same way you will understand how money works once you educate yourself on how it works.
Financial education isn’t hard. You must read at least one book on money and you will have a better knowledge of it. (You can start with any one of the books I shared here.)
1. Start Saving more
On the journey of financial freedom, you will encounter many ways to achieve it but the below steps are very common across the FIRE community.
The total money makeover by Dave Ramsey has all the details, what I am sharing here is my learning from the book and the summary in my words. I recommend you read the book.
Save More
$1000
Start paying yourself first. Start with a $1,000 goal and start saving as fast as you can.
This step could be easy for a few and extremely hard for some. You must start with this step though to put you in the mindset of saving more. This is to get you started and get going.
2. Pay off your Debts
Debt Free
Zero debt
Debts are dream crushers. ( from Your money or your Life).
Debts will keep you working your entire life, debts will keep you poor. Remember we are trying to be financially free not financially burdened.
3. Save for emergencies
Save Yourself first
3-6 Months
Emergencies are real, the year 2020 is the worst example of it when millions of people lost their jobs (MarketPlace.org Post).
You must save in an emergency funds to survive at least three to six months without income. That’s enough time to look for another job and not rely on credit cards.
4. Buy Assets, and Invest More
Invest More
Assets
Start buying assets. Assets are investments that make you money and do not take your money.
If you are a beginner, The Simple Path to Wealth by J L Collins (link). The book will teach how easy it is to invest money.
5. Spend on Education
Get Educated
Spend
Education has given us a job, salary, a mindset on how to live in the society. Then why stop.
Educating ourselves on new topics will keep us in the game.
Start funding for your education, college 529 plans are the best accounts to start with. (what are 529 plans?)
Conclusion
Financial freedom is crucial when most of us are spending our time on what we don’t like just for the sake of earning more. But earning more won’t give us happiness when we don’t know how much more we need.
“Faith is taking the first step even when you don’t see the whole staircase” – Martin Luther King Jr.
Achieving financial freedom seems too hard to achieve too but when you take those first steps and keep walking you will start seeing more of those staircases.
Slowly and steadily we all can achieve financial freedom, financial freedom will give us more time, and we can spend the time earned on things we like and value.
If you don’t have time to read and love watching videos then this 10 minutes video by Matt D’Avella will change your perspective towards money.
If you want to be financially fit and like reading books, Read my post on best-books-for-financial-education
References
Note: Post contains affiliate links.
