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The First Three Steps to Financial Independence | 1 Minute Money Talk

 

Financial independence is when your wealth is sufficient enough to live on without needing an income from a job.

 

To achieve this state, there are three steps you must take to even begin this journey. So these are the prerequisites.

 

Step #1: Have $1,000 cash as an emergency fund.
  • This is our basic emergency fund to have until we pay off all credit card and high interest debt.

 

Step #2: Pay off all credit card and high interest debt.
  • If you have credit card debt, you need to drop everything and treat this as an emergency.

 

Step #3: Build an emergency fund of 3-6 months of expenses.
  • Then, after paying off all the credit card, you should build up your emergency fund from $1K to 3-6 months of expenses.
  • So, figure out how much you typically spend in a month and then save 3-6 months of that number.

 

These are the basic steps to even get started. There are additional steps that you must take if you’re really serious about achieving financial independence.

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How Much Money Should I Have Saved By 30 | 1 Minute Money Talk

 

Obviously, this number is different for everyone. If you want to retire by 40, your number is going to be different from someone who wants to retire at 60.

 

However, there are some big financial companies out there that have done studies on this. One says you should have 1 times your annual salary while the other says 0.5 times your annual salary by 30.

 

A study from 2017, says the average American salary for 25-34 year olds is $40,300. At thirty, you should try to have either $20K or $40K saved.

 

But, I think this is low. If you’re watching this video, then you probably care about your financial situation more than the average.

 

I would shoot for 3+ times your annual salary. And so if you’re making $40K, strive to have more than $120K saved at 30 years old.

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How to Become Wealthy | 1 min money talk

Becoming wealthy comes down to three things:

  1. Make more money
  2. Spend less money
  3. Invest the difference

 

Continually improve these three steps and you will become wealthy.

 

Step #1: Make more money

You need to get a raise at work, find a new job, take on a second job, start a business or side hustle. Get your hands on more money. You won’t get rich making minimum wage even if you crush the next two steps.

 

Step #2: Spend less money

If you become an income-machine but spend it all, you will never get rich. You have to not only make more money, but keep it so you can invest it. Eat ramen and beans for all I care, just don’t blow all your earnings.

 

Step #3: Invest the difference

Becoming wealthy is all about widening the gap between how much money you make and save, but then investing that extra money. You need to invest it and make a return on your money. This can be in the stock market, real estate, your business. Investing is about owning an asset that grows in value over time.

 

These are the three steps and they all work together. You have to improve all three if you want to become wealthy.

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How to Retire Early and Never Have to Work Again

Your Life Laid Out

You graduate in your twenties. You work 40 years until you retire in your 60’s. Hopefully you’ve been saving enough to make retiring a possibility. Now that you’re retired, is your health and energy level high enough to enjoy your retirement?

Money is a chain that keeps us slaves to our jobs and career. To those of us who want to retire early, money is a tool to free up our time and live a life we choose.

 

The Discovery of An Alternative

When I got my first job out of college, it was eye-opening because the thought of working for another 40 years made me shiver. I wanted better control of my future.

I started looking into alternatives. How could I start a business that made me rich, side hustles, blogging, new career paths that made more money, etc… I researched everything.

Eventually, I stumbled upon articles recommending finance books to read.

One of the classic personal finance books is called Rich Dad Poor Dad and I read that first.

Then I read it again.

Books and blogs slowly started to shape my thoughts about work and money, saving and investing.

After consuming so much content for a year, I looked back and saw my spending had been slashed and my investment contributions were much higher.

The idea of retiring early was fueling this change in my habit.

 

The 4% Withdrawal Rate

Retiring early is the concept of having enough assets that you do not need to work because the growth from your investments covers your expenses. The rule of thumb is that you can withdraw 4% of your investments each year because over a long period of time the stock market has returned higher than 4% + inflation.

Basically, we have to understand how much money we’ll spend per year and than multiply that number by 25.

So, if you want to spend $40K per year in retirement, you need $1M. Want to spend $80K? You’ll need $2M in assets.

If you can spend less, you need less of a nest egg.

 

Retiring Early = Freedom

The idea of retiring early is a concept in freedom. Currently, I am a slave to my paycheck. I trade my time in order to gain money.

When I talk about retiring early, I don’t necessarily want to retire early and do nothing, but rather have the option to work on projects that provide more life satisfaction by not having to work 9-5.

Accumulating enough assets will allow me to not work again if I choose. Instead, my money is working for me by increasing in worth over time.

This was an overview of the concept, getting to that point is the hard part. However, knowing there is an alternative to working 40 years is motivating.

You need to earn more, save more, and invest the difference.