If you save a reasonable percentage of your take-home pay, like 50%, and live on the remaining 50%, you’ll be Ready to Rock (aka “financially independent”) in a reasonable number of years – about 16 according to this chart and a more detailed spreadsheet* I just made for myself to re-create the equation that generated the graph. If you drew this on a graph, it would not be a straight line, it would be nice curved exponential graph, like this: It can quickly become a runaway exponential snowball of income.Īs soon as this income is enough to pay for your living expenses, while leaving enough of the gains invested each year to keep up with inflation, you are ready to retire. Then the earnings on those earnings start earning their own money.
As soon as you start saving and investing your money, it starts earning money all by itself. In between, there are some very interesting considerations.
#Shockingly simple math behind early retirement for free
If you are spending 0% of your income (you live for free somehow), and can maintain this after retirement, you can retire right now. If you are spending 100% (or more) of your income, you will never be prepared to retire, unless someone else is doing the saving for you (wealthy parents, social security, pension fund, etc.). While the numbers themselves are quite intuitive and easy to figure out, the relationship between these two numbers is a bit surprising. If you want to break it down just a bit further, your savings rate is determined entirely by these two things: Your savings rate, as a percentage of your take-home pay It turns out that when it boils right down to it, your time to reach retirement depends on only one factor: Money Mustache, but how can I possibly know when I’ll have enough to retire myself, with a completely different lifestyle?”
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