Save Half of Your Income - Financial Independence in Less Than 15 Years.

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Randon,

This strategy for financial independence is simple and does not require any fancy calculations to prove its validity.  Saving and investing half of your income nearly guarantees that you will be financially independent in less than 15 years.  Of course there are no complete guarantees when it comes to money, but this comes very close.

There are two sides that make this equation work.  Your savings and your spending.

The Savings

The savings is rather self explanatory.  When you are saving such a large amount, and investing it, it grows rapidly.  If you assume a 7% growth rate on your investments, you will have more than 25 times your living expenses saved up in less than 15 years.  In nearly all investing scenarios in the past century, this is a large enough amount of saved principal to perpetually produce enough income for you to live on for the rest of your life.  Using the tax code to your advantage by savings in tax-advantaged accounts also allows these savings to go much further than if you were to have spent the funds in the year you earned the income.

The Spending

The other side of the equation, the spending, is also extremely important to make this work.  The fact that you have chosen to live on half of your income means that you have effectively reduced your cost of living when you are financially independent as well.  This means that the amount of principal you need to be financially free is less, and thus translates into earlier financial independence.  It also means that is forces you to acquire the beneficial skills of learning how to make the most of every dollar rather than being a poor steward of the resources you’ve been given.

The Pushback

This strategy may be simple in understanding but it can be difficult in implementation. You will of course have to practice that ever-fleeting characteristic of self-control. This is easier the earlier you start because it will simply become a life habit.

But most likely your greatest hurtle will be the pushback from friends, family, and society saying, “No one can live on half of their income!” Well, this is untrue. Pure and simple.

How is it that two families of the same size, in the same geographic region, are able to both live well when one family’s income is $75,000 and the other’s is $150,000? Or $50,000 and $100,000. This is not hypothetical. I see this in my work with clients all the time. And the higher income does not produce a more fulfilling life (it is actually often the reverse of this). So then why not live on $50,000 when you make $100,000? You will save hundreds of thousands of dollars over your lifetime in taxes and be financially independent in less than 15 years.

This is Not Deprivation

This is not about deprivation.  This is about intentionality.  You can still live a life full of experiences and joy as you save.  It is about choosing to give yourself the flexibility that comes with financial freedom and hedging yourself against the uncertainty of the future.  Even if you enjoy your work and want to continue in it after 15 years, the worst case scenario is that you have set yourself up to be able to stop saving, begin giving extremely generously, or switch to more rewarding work at lower pay.  Early financial independence is not about not working.  We need a purpose and we need to continue to grow.  Early financial independence is about creating the freedom to pursue those things that provide the greatest value to us and others.

With love,

Dad