Becoming financially independent

[jasonjp1016]

I was watching Leo’s video “Expose yourself to more experience” and there was a lot of talk of developing skills so you’re not a wage slave.

It got me thinking about my journey of financial independence that I’m currently working on right now.  So I was looking thru the forum to see if anyone was talking about financial independence by aggressively saving and investing a.k.a “The F.I.R.E. movement.  To my surprise I didn’t find anything.  

The basic premise is you invest enough money into index funds that you can live off indefinitely.  So for example if you need $40K a year to live off, you would have to save up $1,000,000.  This is called the 4% rule.  Basically you could maintain always having $1,000,000 plus keep up with inflation through the years and never run out of money.

$1,000,000 sound like a lot of money and it is but with a decent job it’s actually doable within 10 years for a lot of people.  For example if you invested $5000 a month for 10 years you would be close to $1,000,000 at  a 10% return.  Yes, you will need a high paying job to hit your goals quick.

Instead of having a fancy house and car you live a more moderate lifestyle, spending well below your means and saving the rest.  I’m sure for a lot of people this seems impossible, especially if you’re living paycheck to paycheck.  But for a lot of Americans, we waste so much money on stupid shit that it really is possible for mandatory work to become more of an option.  For example instead of buying a BMW you could drive a Toyota.

Even if you cannot do this in 10 years, if you consistently save thru your working years, most Americans could retire millionaires by cutting out the fluff and saving more.  Thus reducing mandatory working years.

So why is this relevant to the forum?  Once you don’t need to work you can focus on what’s important to you regardless of outcome.  The need to succeed no longer matters once you no longer need the money.  So now you could write that book, write that song or whatever your passion may be without having to worry about basic survival needs because they’re already met.

I can put in some links and answer any questions that people may have in this post generates any interest.

 

[Bob Seeker]

My current most frugal possibility: work construction for 1-2 months full time at $55/hour, move to Mexico and live for ~$500/month for 1-2 years while building skill in my art form, then use it to make money.

[Leo Gura]

Not a good strategy.

Firstly, you will require far more than $1M investments to actually live off it, after taxes, inflation, etc.

And your investments could actually lose you money. You are assuming you would make good investments, which is a bad assumption.

And finally, your whole strategy is just one of leeching rather than providing value to the world, therefore you are very likely to fail. And even if you succeed, you will not be satisfied.

[Joel3102]

37 minutes ago, Leo Gura said:

And your investments could actually lose you money. You are assuming you would make good investments, which is a bad assumption.

Investing in index funds is a pretty safe investment. Studies show that if you can withdraw 4% from you investments as year and your investment base will not deteriorate over any 30 year period in history. There hasn’t been a ten year period where the market hasn’t gone up 

[Average Investor]

Making the first million dollars is going to be quite tough in the first place for most. It is totally doable over a lifetime though even if you worked minimum wage I think. Obviously, a lot of factors are involved, but assuming someone can spare any money and invest regularly. 

I think this is best placed a long side most things. If you actually listen to people on finance shows you will come across some that finally hit that number they need. Then all of the sudden they have nothing to look forward to. All of their energy and happiness was coming out of the pursuit of getting that money and they have it now. 

Financial independence is greatly important though. Going the middle way with investing and finances will probably suit most the best. It's needed for building wealth, but most go too far with it. Learning key concepts and really having a good understanding can make most a millionaire on that alone in their life time. 

I don't personally get all that jazzed up about retiring early. Ideally I would like to find the work that I would want to do in retirement, but do it now instead. 

[Superfluo]

@Leo Gura

How do you know when you achieve financial independence? There's a vague but implicit threshold like 1Mln or do you always have to calculate all the stuff (cost of living, desires, taxes, inflation, retirement, investments return, spending habits, etc.)? 

[Leo Gura]

Trust me, once you earn $1 million, you will no longer be satisfied with living on $40k year.

$1 mil is not as much money as you think.

What are you gonna do on those years when the market crashes? You gonna be selling your stock as half value just to get your $40k?

To me financial independence means that your income doesn't come from a boss who controls how much you can make, and if you earn enough to pay all your bills and have some left over for cushion.

[IAmReallyImportant]

11 hours ago, Joel3102 said:

Investing in index funds is a pretty safe investment. Studies show that if you can withdraw 4% from you investments as year and your investment base will not deteriorate over any 30 year period in history. There hasn’t been a ten year period where the market hasn’t gone up 

Most inffective way. If you study investment you can safely with a similar risk earn much more. 

[Joel3102]

Just now, IAmReallyImportant said:

Most inffective way. If you study investment you can safely with a similar risk earn much more. 

Expand? How can one safely beat the market? 

[IAmReallyImportant]

1 minute ago, Joel3102 said:

Expand? How can one safely beat the market? 

Rational thinking, analysis, mathematics, insider Infos from trusted sources etc. .

I think you have to be excellent to do this but it is possible. 

Edited June 11, 2021 by IAmReallyImportant

[Joel3102]

1 hour ago, IAmReallyImportant said:

Rational thinking, analysis, mathematics, insider Infos from trusted sources etc. .

I think you have to be excellent to do this but it is possible. 

Hedge fund managers whose full time job earning insane money don’t outperform the market, I’m not arrogant enough to think I’m smarter 

[Yarco]

20 hours ago, jasonjp1016 said:

$1,000,000 sound like a lot of money and it is but with a decent job it’s actually doable within 10 years for a lot of people.  For example if you invested $5000 a month for 10 years you would be close to $1,000,000 at  a 10% return.  Yes, you will need a high paying job to hit your goals quick.

Not just a high-paying job. You'd need to be in the top 1% pretty much to accomplish this.

Most people don't EARN $5,000 per month. Let alone have $5,000 per month left over after paying their rent/mortgage, food, utilities, etc.

If you lived at home and had $0 expenses, your parents paid for everything, you still need to take tax and employee expenses into account. Realistically you have to earn $80,000 per year and spend $0 for the entire year to save $5,000 per month after tax!

So for someone who actually lives by themselves and pays for stuff, you're looking at requiring a salary (or household income) of like $150,000 to accomplish this. Because at least here (in Canada), your tax rate goes up to like 30%+ once you exceed $60k per year. So from that point onward, you're basically working for 70% of your salary for the rest of the year.

Even more if you live somewhere like California or New York where cost of living is through the roof.

Most people are living week-to-week and have close to $0 in their bank account after each pay once they pay for rent and food.

This is such boomer advice. "Just save $60k a year bro."

A consistent 10% return on your investment is also insanely optimistic. Try like 4 - 5%

Have fun with this strategy over the next couple of years as we enter hyperinflation. If you don't put your money into tangible assets, your fiat money risks becoming worthless and losing all that effort that you put in.

The real "Great Reset" that's coming is rich (excluding the mega-rich) and poor alike being reset back to 0 if our currency hyperinflates:

 

Edited June 11, 2021 by Yarco

[Hello from Russia]

Why don't you just become very creative instead of doing this bs. Way less riskier and way more rewarding too

[IAmReallyImportant]

2 hours ago, Joel3102 said:

Hedge fund managers whose full time job earning insane money don’t outperform the market, I’m not arrogant enough to think I’m smarter 

There are some who do of course.

[IAmReallyImportant]

2 hours ago, Hello from Russia said:

Why don't you just become very creative instead of doing this bs. Way less riskier and way more rewarding too

I agree! Best tip is always to become expert in a field and be creative in this domain.

[Nobody_Here]

9 hours ago, Leo Gura said:

Trust me, once you earn $1 million, you will no longer be satisfied with living on $40k year.

$1 mil is not as much money as you think.

What are you gonna do on those years when the market crashes? You gonna be selling your stock as half value just to get your $40k?

To me financial independence means that your income doesn't come from a boss who controls how much you can make, and if you earn enough to pay all your bills and have some left over for cushion.

@Leo Gura is right -- in fact, what he described is exactly what happened to many members of the FIRE movement during the peak of Coronavirus.

I would be bored being completely retired for most of my life. I think self-employment is a better option than retiring at 30.

[jasonjp1016]

19 hours ago, Leo Gura said:

Not a good strategy.

Firstly, you will require far more than $1M investments to actually live off it, after taxes, inflation, etc.

And your investments could actually lose you money. You are assuming you would make good investments, which is a bad assumption.

And finally, your whole strategy is just one of leeching rather than providing value to the world, therefore you are very likely to fail. And even if you succeed, you will not be satisfied.

It really depends on lifestyle.  You have to carry no debt and live very efficiently. 

Your investments could lose you money in the short term.  There are no guarantees in anything, but historical data suggest your return would average 10% per year if you ride the crazy rollercoaster of the ups and downs of the total U.S. stock market.  Good investment means investing in broad index funds and not individual stocks.  

It could be argued you're leaching, but you're also are investing in companies that are moving technology forward.  I'm not saying it would provide happiness, but it would free you from the rat race of the 9-5 allowing to focus on what's important to you.

Edited June 11, 2021 by jasonjp1016

[jasonjp1016]

One of the pioneers of this strategy.

[jasonjp1016]

9 hours ago, Leo Gura said:

Trust me, once you earn $1 million, you will no longer be satisfied with living on $40k year.

$1 mil is not as much money as you think.

What are you gonna do on those years when the market crashes? You gonna be selling your stock as half value just to get your $40k?

To me financial independence means that your income doesn't come from a boss who controls how much you can make, and if you earn enough to pay all your bills and have some left over for cushion.

Market crashes typically don't last too long.  You would need some money in safer allocations for when crashes happen to ride the storm.

[jasonjp1016]

Also this doesn't mean you retire and do nothing it just means you're more flexible to do what's really important.