So refreshing to know most people can be successful on this path if they put their mind to it. However, if John spends $1k a month and saves $1k a month out of a $2k salary (50% saving rate), it will take him only 17 years of working to retire. $1k sounds reasonable, but not so much to someone spending $9k! It will take Bob about 51 years of work to retire (assuming his lifestyle remains similar). Let’s say Bob makes $10k a month, but spends $9k a month, then he has $1k left (10% saving rate). Further posts will cover how and which investments. Keep in mind that the savings need to be invested to generate the passive income. It is related to your savings and your lifestyle. I found it stunning that the saving rate required is almost unrelated to your income. Why is a high saving rate important?īy definition, reaching FI means you either have enough money sitting there for you to use for the rest of your life, or you have recurrent passive income so that you do not need to trade your precious time for money, unless you choose to. However, do not beat yourself up if you can’t max out as you planned, maybe you were a bit too ambitious. If you can improve over time (likely as you will not fall into the lifestyle inflation trap, and your income will increase), it would be even better. There is no real need to compare with others down to the decimal places. The saving rate you target is a very personal choice, as some people would rather not sacrifice their current standard of living, whereas other people are totally fine to spend the bare minimum to reach the survival zone. ![]() No need to waste your precious time to reinvent the wheel. In the end, the ultimate objective is to keep it simple, because it is a simple tracker of your saving effort. ![]() Note that all items should be measured with the same time frame, i.e. = (All sources of income – Taxes – all other Expenses) / (All sources of income – Taxes) Keep the formula simple = (Money saved or invested) / (All sources of income – Taxes) My suggested formula for calculating saving rate This is the reason why I would exclude it from the bucket of money at disposal. However, you can’t choose to decrease your taxes indefinitely after trying to optimize to the max, nor avoid paying child support, nor any over expenses that are absolutely necessary and/or out of your control. For example, you may choose to live in a nice 3-bedroom house or a 1-bedroom condo, thus home expenses are within your control. What matters more is to measure it constantly, the same way over time. ![]() Some bloggers include their taxes, some others don’t. More or less, it is the amount you save, divided by the money at your disposal, such as salary, commission and other incomes. They say we should save, but how do we measure it?īefore diving into the numbers, let’s define what a saving rate is. Indeed, you would likely want to know what kind of effort you must endure and for how long, before you are set for the rest of your life. It is a very common question in the FIRE community.
0 Comments
Leave a Reply. |