Wed, 4 March 2015
163-The Impact of Your Savings Rate on Your Time to Financial Independence (A Tribute to the Value of "The Shockingly Simple Math Behind Early Retirement")
I spent years consuming personal finance literature and the idea of saving 10 to 20% of my income was hammered into my head. That is the standard percentage that is recommended to be saved by prudent, diligent people.
I took that number with me into my foray into the financial planning world without ever questioning it. But, somewhere around 2011 I had my world rocked by reading Early Retirement Extreme by Jacob Lund Fisker.
The most useful concept I took from that book was the huge connection between savings rates and years to financial independence.
For some reason, I never really connected the percentage of my income I was saving to the actual amount of money I had and what I could do with it. Maybe for you it's intuitive, but it wasn't for me.
Consider this. Have you thought about the fact that:
I never did until I read the Early Retirement Extreme (ERE) book. And it hit me like a lightning bolt.
In the ERE book, Jacob lays out a chart demonstrating the impact of savings rates on the years to retirement and it completely changed my perspective.
A year or so later the popular finance blogger Mr. Money Mustached published a post called "The Shockingly Simple Math Behind Early Retirement" in which he laid out in chart form the connection between the percentage of income saved and the years to work until retirement.
That chart is powerful.
Since reading that chart I have shared it with dozens of people to empasize the value of controling the major thing they can control, which is their level of expenses.
In today's show I share with you the details of this approach.