Read on Twitter
How anyone can reach financial independence in 5 years or less.
// A thread
// A thread
First the basics...
What is financial independence? (FI)
FI means you can cover all of your expenses without working to make money.
This is often referred to as passive income and means you can do whatever you want, whenever you want and never worry about money.
/1
What is financial independence? (FI)
FI means you can cover all of your expenses without working to make money.
This is often referred to as passive income and means you can do whatever you want, whenever you want and never worry about money.
/1
So how does one reach FI?
There's only 2 variables.
Your expenses and your income.
There are 2 types of income, your active income and passive income.
The goal is to increase the passive income enough to cover your expenses so you can cut out the active income.
/2
There's only 2 variables.
Your expenses and your income.
There are 2 types of income, your active income and passive income.
The goal is to increase the passive income enough to cover your expenses so you can cut out the active income.
/2
Thus there are two ways to accelerate your way to FI.
Increase your income.
or
Reduce your expenses.
There is a lot out there about increasing income, but not nearly as much talk about reducing expenses.
/3
Increase your income.
or
Reduce your expenses.
There is a lot out there about increasing income, but not nearly as much talk about reducing expenses.
/3
Here are some ways to reduce your expenses:
1. Own a cheap used car
2. Live in a cheaper house or apartment
3. Avoid any debt, interest payments suck
3. Make more food at home and buy in bulk
4. Don't buy so much "stuff"
5. Buy items used and resell your used items
/4
1. Own a cheap used car
2. Live in a cheaper house or apartment
3. Avoid any debt, interest payments suck
3. Make more food at home and buy in bulk
4. Don't buy so much "stuff"
5. Buy items used and resell your used items
/4
Why is reducing expenses so powerful when reaching FI?
Because reaching FI is a function of your savings rate.
The higher % of your income you save the faster you are FI.
Here's a great chart from the ERE forums showing how long until retirement based on savings rate.
/5
Because reaching FI is a function of your savings rate.
The higher % of your income you save the faster you are FI.
Here's a great chart from the ERE forums showing how long until retirement based on savings rate.
/5
As you can see you can fully replace your income and be FI within 5 years with an 80% savings rate.
This is where most people think this is impossible. How could anyone save 80% of their income?
Let's take a closer look and see how one could do this.
/6
This is where most people think this is impossible. How could anyone save 80% of their income?
Let's take a closer look and see how one could do this.
/6
There are tons of articles about living on $20k a year or less. I am also making a thread about how anyone can live on $20k a year so stay tuned.
It comes down to 4 key things...
1. Low housing costs
2. Low food costs
3. Low transportation costs
4. Not being consumerist
/7
It comes down to 4 key things...
1. Low housing costs
2. Low food costs
3. Low transportation costs
4. Not being consumerist
/7
I also highly recommend you check out: https://earlyretirementextreme.com/
Jacob the author lives off around $7000 per year and is incredibly happy. Even if we lived off of double his expenses we would be able to reach FI in no time.
/8
Jacob the author lives off around $7000 per year and is incredibly happy. Even if we lived off of double his expenses we would be able to reach FI in no time.
/8
Now I understand not everyone makes $100k a year so living on 80% of their income would be much lower than $20k a year.
While it is very possible to live happily on $10k or less per year. This is where it may be worth it to focus on increasing your income.
/9
While it is very possible to live happily on $10k or less per year. This is where it may be worth it to focus on increasing your income.
/9
Ways to increase your income
1. Negotiate a raise or switch companies for higher pay
2. Invest your money for yearly interest
3. Do odd jobs and gig work
4. Sell your used items or flip things
5. Start a side hustle
/10
1. Negotiate a raise or switch companies for higher pay
2. Invest your money for yearly interest
3. Do odd jobs and gig work
4. Sell your used items or flip things
5. Start a side hustle
/10
Side hustling has been warped lately into mostly online projects that take months or years of consistent effort to pay off.
These are great and pay off huge, but I would like to offer some more practical side hustles everyone can start to increase their income asap.
/11
These are great and pay off huge, but I would like to offer some more practical side hustles everyone can start to increase their income asap.
/11
Side hustles you can start right away:
1. House sitting or dog walking
2. Delivery or Uber Driving
3. Mowing lawns or shoveling snow
4. Growing fruits and vegetables & selling to friends
5. Clean peoples cars, windows, houses, etc.
/12
1. House sitting or dog walking
2. Delivery or Uber Driving
3. Mowing lawns or shoveling snow
4. Growing fruits and vegetables & selling to friends
5. Clean peoples cars, windows, houses, etc.
/12
To summarize, reaching FI is a result of two factors.
Your income and expenses.
Income - Expenses = Savings
These savings can be invested to earn a return. You are able to live perpetually off of 3% of your total investments.
/13
Your income and expenses.
Income - Expenses = Savings
These savings can be invested to earn a return. You are able to live perpetually off of 3% of your total investments.
/13
This means you can reach FI faster by either increasing your income or reducing your expenses.
I prefer reducing expenses as it is easier and is effective immediately, however increasing your income is just as viable. Just a bit tougher to do.
/14
I prefer reducing expenses as it is easier and is effective immediately, however increasing your income is just as viable. Just a bit tougher to do.
/14
To reach FI in 5 years or less you just need to save 80% of your income.
Don't write this off as impossible.
If you want it badly you will find a way, and you'll likely find it much easier than you imagined.
/15
Don't write this off as impossible.
If you want it badly you will find a way, and you'll likely find it much easier than you imagined.
/15
Hope you enjoyed this thread about reaching FI in 5 years.
I write about ways to reach FI through lifestyle changes and personal finance strategies so give me a follow if you want to see more like this.
Thanks for reading, have a great day!
I write about ways to reach FI through lifestyle changes and personal finance strategies so give me a follow if you want to see more like this.
Thanks for reading, have a great day!
