After working for 2 multinational corporates and then for a start-up, I finally acknowledged to myself that I didn’t like big or small companies. Both types were rampant with politics and the constant high stress levels left me feeling depleted and unfulfilled. So I started to search the internet for how to retire early. By this time I had missed my 35 year mark. It was 2014 and I was 38. The first article I came across was Jeremy’s story on Go Curry Cracker and I found it so inspiring, I started following them and digging into the whole concept around FIRE, Financially Independent Retire Early. It was like I had finally found my peeps, everything I had been thinking about was right there in front of me! I started reading Early Retirement Extreme and learned about how Jacob lived on $7000/year living in the Bay Area! Whew, I really wish I could do that but that’s closer to my monthly cost so I am never getting there. Then I discovered Brandon’s site, MadFientist (my favorite) which pointed me to Mr. Money Mustache and JL Collins Stock Series which led to me to reading, “Your Money or your life” by Joseph Dominguez. I realized that every minute I spent working was taking me away from doing the things I love.
The cost of working is much more than you think. In fact you spend several hours a day getting ready and traveling to / from work and when you get home, you need time to unwind. If you start to count all those hours you need just to get you to work and then to relax (including those vacations), and use those hours to calculate how much you really make per hour, you may find the cost of working to be pretty high. I started listening to podcasts and started focusing on increasing my financial IQ and every day was so exciting as I learned new things that enabled me to pull together a strategy to become financially independent and to give me the freedom to do what I want.
First I needed to figure how much we needed to save to retire and what a safe withdrawal rate would be so my portfolio could last for the next 50 years (after all I am still pretty young!). As I researched the subject, I came across The Trinity Study.
Three professors from Trinity University studied the safe withdrawal rates and introduced the 4% Rule. In a nutshell, the study concludes that a person has sufficient savings in assets if 4% of his/her assets are sufficient to cover a year’s expenses.[3][4] What this amounts to is, if you have 25 Xs your annual expense needs and you invest your money in stocks, which may fluctuate on a yearly basis but over the long run grow, it is safe to withdraw 4% from it every year.
For example, if your annual expenses amount to $60k, you will need $1.5M to retire. Using the formula above, I defined the Magic Amount we needed to save to achieve financial independence and retire early. The next question is how to invest it and more about this in the next post.
Armed with this magic, but alarmingly big number, I pulled together a plan to achieve my goal. I will share it with you in complete transparency so you can achieve the freedom to do what you love and not be stuck in a job you don’t.
NOTE: I am not a Financial Advisor. I am just sharing my story on how I achieved FIRE.
References
“Retirement Spending: Choosing a Sustainable Withdrawal Rate,” by Philip L. Cooley, Carl M. Hubbard, and Daniel T. Walz (all professors at Trinity University in Texas)