If you drew this on a graph, it would not be a straight line, it would be nice curved exponential graph, like this: If you save a reasonable percentage of your take-home pay, like 50%, and live on the remaining 50%, you’ll be Ready to Rock (aka “financially independent”) in a reasonable number of years – about 16 according to this chart and a more detailed spreadsheet* I just made for myself to re-create the equation that generated the graph.So let’s take the graph above and make it even simpler.I’ll make some conservative assumptions for you, and you can just focus on saving the biggest percentage of your take-home pay that you can.
Assumptions: It’s quite amazing, especially at the less Mustachian end of the spectrum.
A middle-class family with a 50k take-home pay who saves 10% of their income ($5k) is actually better than average these days.
But unfortunately, “better than average” is still pretty bad, since they are on track for having to work for 51 years.
Money Mustache, we talk about all sorts of fancy stuff like investment fundamentals, lifestyle changes that save money, entrepreneurial ideas that help you make money, and philosophy that allows you to make these changes a positive thing instead of a sacrifice.
In addition, the Internet presents us with retirement calculators, competing opinions from the mainstream media, financial doomsayers, unpredictable inflation, and a wide distribution of income and spending patterns between readers.
I reviewed my own path to age-30 retirement in “ factor: Your savings rate, as a percentage of your take-home pay If you want to break it down just a bit further, your savings rate is determined entirely by these two things: How much you take home each year How much you can live on While the numbers themselves are quite intuitive and easy to figure out, the relationship between these two numbers is a bit surprising.
If you are spending 100% (or more) of your income, you will be prepared to retire, unless someone else is doing the saving for you (wealthy parents, social security, pension fund, etc.). If you are spending 0% of your income (you live for free somehow), and can maintain this after retirement, you can retire . In between, there are some very interesting considerations.
As soon as you start saving and investing your money, it starts earning money all by itself.
Then the earnings on those earnings start earning their own money.
It can quickly become a runaway exponential snowball of income.
As soon as this income is enough to pay for your living expenses, while leaving enough of the gains invested each year to keep up with inflation, you are ready to retire.