“Financial Independence” …. This is a phrase that essentially tops the list of every adult man and woman. Some see it as “getting lucky” by winning a lottery, or speculating in something that makes one crazy rich. Yet, it is surprising how few adults can tell someone else what it actually means to them – what set of criteria defines “financial independence” to them. Is it one’s current gross salary? Is it that plus another $60,000 a year / $5,000 a month? Or, is it having $10,000 a month after taxes, all through investment interest? It is very important to know.
There is a saying about an idea without a plan is just a dream. Everything, anything one wants to achieve needs a plan, a starting definition. One can formulate an objective, a goal, a statement of what one wants to accomplish, an idea of “what by when”, a plan. Also, make that plan a written plan that one can alter and update and track progress against.
Next point to tackle is to determine how badly one wants that financial independence. If one has calculated what is needed for how long to reach the objective by such a date, then one has to decide how reasonable a reach the objective is, and if one will do what is needed.
Some people have written that they reached financial independence at a relatively early age, some in their late 20s, some mid-30s, by being very, very frugal. Some said that they lived on 25% of their post-tax income, putting the other 75% into projected investments, doing so for five years to reach their goal. Sweet! Great if one can do that.
Some experts, as in financial planners, and experienced doers had a number of recommendations if a person was single versus if a person wanted to be married, with a home, and with children versus the person who has already committed to spouse, home, and family. It is all certainly easier to do if one has few commitments.
Financially, it comes down to having uncommitted funds to invest at the end of the month. More is better as it gets one to goal sooner. It is as simple as that. $10,000 at 12% average over 50 years is $2,890,000. Earn more or cut costs. Also, incomes are not equal. Investment interest is taxed at 14%. $100,000 salary income is taxed at least at 25% unless some heavy duty exemptions and such are involved. This type of knowledge certainly helps. The Internet is a great source of experience and information. Double-check and triple-check info before using it.
With the above in mind many experts recommend to fully fund one’s 401k or retirement fund, or one’s IRA. Remember that $10,000 a few paragraphs ago. This is how investing long-term works and that is the advantage of it. Also, the more that is invested in 401k and retirement, the less taxable dollars there are as 401k and retirement dollars are deducted before taxes. Uncle Sam is generously allowing one to earn a nice retirement on Uncle Sam’s money. It is nice to have such a nice Uncle.