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A far more robust version <\/strong>of this blog post lives in Chapter 3 of Rich Girl Nation<\/em><\/a>, \u201cKnowledge is Power.\u201d Grab your copy now!<\/p>\n<\/div>\n I\u2019m just going to put this out there now: I don\u2019t really understand why people are sometimes offended by the idea of early retirement. Every once in awhile, you\u2019ll get someone who\u2019s utterly aghast at the idea of retiring before you\u2019re decrepit. <\/p>\n \u201cBut what are you going to do with all your time? Aren\u2019t you going to be so bored?\u201d I don\u2019t know about you, but the last time I was \u201cbored\u201d was when I was 12 and my computer access was revoked for abusing my Club Penguin privileges.<\/p>\n I have a list longer than my 5\u20191\u201d body of things I want to accomplish, books I want to read, places I want to visit, languages I want to learn, and skills I want to master. Hell, sometimes I\u2019m worried that if I don\u2019t start now<\/em>, I might not do it all before I die.<\/p>\n Early retirement doesn\u2019t mean hanging up the work laptop to watch Jeopardy all afternoon and count the wrinkles in your crow\u2019s feet. It means that if you want to work, you can work on your terms, and if you want to f*** around for a few years, you can do that, too. My dream is to create stuff like this for the rest of my life and never have to worry about if it makes any money or not (because spoiler alert \u2013 it really doesn\u2019t). <\/p>\n In short, it means total freedom.<\/p>\n And I get it \u2013 total freedom can be scary. \u201cFreedom\u201d <\/em>for Saturday and Sunday is fun. Total freedom<\/em> makes you face yourself in a whole new way. So I can understand why, to some extent, people cling to their employment as an identity-defining facet of their lives. I\u2019d love to challenge you (and myself) to give yourself more credit than that. You are more than your job, and you have more to offer the world than you probably even realize.<\/p>\n When we talk about financial independence, I don\u2019t mean in the broad, touchy-feely way that we feel empowered by the ability to pay for our own stuff (although that\u2019s valuable, too).<\/p>\n \u201cFinancial independence\u201d in this context means you have so much money invested that the compound interest and returns on your investments make enough every year that you can keep using your money at a pre-defined pace and it\u2019ll always replenish itself.<\/p>\n Sounds pretty dope, right? And lucky for us, there\u2019s an easy way to calculate what your financial independence number is. In other words, it\u2019s a very easy equation to determine how much money you need to have invested in order to live on the amount indefinitely. <\/p>\n I feel like the first time people hear about this concept (myself included), they\u2019re incredulous \u2013 like it\u2019s too good to be true. <\/p>\n The consumer culture we live in has a very specific script it prescribes for us. Ready for this? Get your Prozac handy, because it\u2019s going to knock you on your ass.<\/p>\n Grow up, take out student loans to go to college, work an entry level job to pay them back, buy a car, buy a home, saddle yourself to hundreds of thousands of dollars in debt because that\u2019s the \u201cadult\u201d thing to do, make yourself feel better and numb the madness through impulse purchases, alcohol, Netflixes binges, and sugar, then live your entire life chained to the treadmill of your 9-5 so you can afford the aforementioned debt minimum payments!!!! Then, when you\u2019re 65+, you can have whatever measly contributions you made to your 401(k) to live out the rest of your days in some retirement community and call it a life.<\/p>\n Are you depressed? Because that just depressed the shit out of me. <\/p>\n Financial independence basically takes the script and rejects it outright: Instead of blindly taking your number at the deli of traditional life decisions, it says, \u201cActually, I\u2019m going to keep my fixed expenses as low as humanly possible, work hard, get insanely creative with my income, invest like hell, and walk away from all that noise at 35 or 40 so I can spend the next 50 years doing whatever I want instead.\u201d<\/p>\n There are plenty of critics of this idea, but you know what? I don\u2019t think it hurts to strive for it, even if you don\u2019t actually intend to retire early<\/strong>. What about just having the choice<\/em>? Wouldn\u2019t the option<\/em> feel pretty good? I don\u2019t know about you, but I do my best work and feel most fulfilled when I don\u2019t feel utterly stuck.<\/p>\n A few really beneficial side effects of pursuing financial independence:<\/p>\n It resets your reward system to be grateful for what you have. Because you\u2019re turning down the consumer hamster wheel, you learn to appreciate the little things. You no longer need bigger, better, newer and fancier to keep your amygdala tickled.<\/p>\n<\/li>\n You\u2019re constantly thinking critically and applying your skills in new ways to try to earn or save more, which can be fulfilling in and of itself.<\/p>\n<\/li>\n And, most importantly, it gives you something compelling to work toward<\/strong>. More on that below:<\/p>\n<\/li>\n<\/ul>\n It\u2019s a binary that\u2019s going to test your willpower every time. If it\u2019s \u201chave\u201d or \u201cdon\u2019t have,\u201d what human being in their right mind would ever consistently be capable of choosing \u201cdon\u2019t have\u201d?<\/p>\n The secret isn\u2019t having stronger self-control, it\u2019s putting structures in place and creating a mindset that simply tests your self-control less often.<\/p>\n That\u2019s why financial independence is so damn compelling. The choice is no longer \u201chave the thing or don\u2019t have the thing,\u201d it\u2019s, \u201chave the thing now or get closer to my impending permanent freedom forever.\u201d <\/p>\n I\u2019m not kidding when I say once I saw this, it lit a fire under my ass that blasted me into 2035.<\/p>\n When I first discovered financial independence in 2018, I spent about $2,600 per month, give or take a few hundred. It fluctuated a little (some months it may be as low as $2,300, others might see it float up closer to $3,000), but $2,600 was the average. In other words, I needed $2,600 each month to maintain my lifestyle.<\/p>\n Once you know how much you spend per month (a crucial component of this equation, and a byproduct of an effective budget), you know enough to determine your number \u2013 just multiply it by 12 to understand what your annual<\/em> spend is, then multiply THAT by 25. (This is based on something called the 4% rule. To listen to an episode about the 4% rule, head here next<\/a>.)<\/p>\n $2,600 per month * 12 months in a year = $31,200 per year<\/p>\n My life, as I lived it then, cost about $31,200 per year.<\/p>\n $31,200 * 25 = $780,000<\/p>\n In this example, once I have $780,000 invested, I can retire. Why? Because if we assume an average rate of return of 7%, I can use $31,200 of my money every single year, and the interest will always replenish that money used. (Again, in this mathematical vacuum \u2013 some years will be better, others will be worse.) <\/p>\n If you\u2019re sitting there like, wait, hold on \u2013 so you could just live forever on $780,000? Theoretically!<\/p>\n For example, in year one, I could put myself on the Payroll of KGT for $2,600\/month, and be left with the following:<\/p>\n $780,000 \u2013 $31,200 = $748,800<\/p>\n Assuming the market returns 7% that year, I\u2019d finish with $801,216. Notice anything funny there? It\u2019s more than I started with! That\u2019s the law of large numbers. Of course, I wouldn\u2019t be taking out $31,200 all at once; I\u2019d withdraw $2,600 month over month, which means the balance would stay higher, longer. This example is conservative in the sense that it removes the big chunk all at once.<\/p>\n The idea is that this magic math problem can go on indefinitely. <\/p>\n
\n\nWhat\u2019s financial independence?<\/h4>\n
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If the choice is, \u201cBuy and have the shiny thing or refrain and don\u2019t have the shiny thing,\u201d you\u2019re automatically set up for failure<\/h4>\n
Let\u2019s talk about how to calculate your number<\/h4>\n