FrequentFlyer9000
New Member
Perhaps this will be helpful in getting someone else started on the same path. This will be a four part post.
There are the main things to consider:
How much money do you need per year to be "financially independent"?
Here is how I figured it out:
A: Figure out your baseline budget.
So here is how it might look, all added up:
There are the main things to consider:
- How much money do you need per year to be "financially independent"?
- How much money in the bank do you need to be able to live off of returns?
- What kind of lifestyle do you need/want? What are you willing to sacrifice?
- What is your backup plan in case you want additional income after reaching independence?
How much money do you need per year to be "financially independent"?
Here is how I figured it out:
A: Figure out your baseline budget.
- Think about your expenses. What do you consider a "baseline" spend per day that you need to get by without really cutting important things? $10? $20? $40? $60? This does not include gifts, vacations, big purchases such as a car or furniture, etc.
- Give yourself a baseline budget to "test" - if you decided you can live off of $40 a day for baseline budget (this is high, but totally acceptable), then multiply by 30 and give yourself a monthly target of $1200 (30 days x $40).
- Track all of your expenses using a handy smartphone app, every day, for a few months - ideally a year. It becomes second nature. At first it was such a weird feeling, but now I just type the expense into my phone every time I take my wallet out. I use the "Spending Tracker" app, but I'm sure there are other good ones.
- How realistic was your target? Are you able to get close to it on average across 12 months? If you find your actual baseline spend is way higher or lower, adjust accordingly. It is a fine line between really penny-pinching and not being a wasteful idiot. For me, it was cutting back on ordering food for dinner and starting to cook 90% of days. It saved me tons of money, but my lifestyle didn't really diminish at all. So be smart about what you cut - don't kill yourself and stop enjoying life at all.
- Mortgage
- All types of insurance
- Gym membership
- Online services (Netflix, Spotify, etc.)
- Utilities (incl. internet, phone, etc.)
- Transportation (gas for commuting / subway pass / monthly train pass, etc.)
- Other
So here is how it might look, all added up:
- A: Baseline Budget - $1200 a month, x 12 = $14,400 per year
- B: Recurring Expenses - $1600 a month, x 12 = $19,200 per year
- C: Big Stuff / Fun Stuff / Vacations / Money to Burn - $1000 per month = $12,000 per year
- Total: $3800 per month = $45,600 per year