10 DAY CHALLENGE
Starting point. Basic strategy meant for those starting near rock bottom.
DAY 8 - SAVINGS
Having implemented all changes of the makeover so far, it should be possible to save at least $500/month… more if you’re making more than minimum wage. Those ambitious enough to retire extremely early should be able to save more as well as earn more.
It matters very little whether your saving is done in a savings account, a checking account, a money market, or even under the mattress. As long as your cash position is less than $10,000, the difference in interest rates is minute. Besides, keeping a non-working cash position is useless for early retirement. The so-called emergency fund is only useful for workers who live above or close to their means, but for extreme early retirement you live at less than half your means. In a short while we’ll start building a position in a brokerage account. This will be accessible to be liquidated in case of any “emergency”.
NET WORTH
it seems that everybody calculates net worth differently. For early retirement or financial independence, there is only one way to do it.
The only thing that matters to your net worth are assets that can easily generate income. Sum up the total of these categories
All savings accounts and checking accounts.
All brokerage accounts.
All real estate you own that you rent out. If any are mortgaged, subtract the debt.
Do not include the following
Any kind of tax-deferred/locked retirement account (unless you are older than 55).
Your current home.
Cars, boats, aircraft, or other big ticket items (unless they are generating income).
Jewelry and lavish clothing.
Now compute your expenses level. If you are a home-owner that does not own your home, the mortgage payment is an expense. If you own-own your home, your expense level should be lower.
If you have any kind of pension coming in, subtract that number from your total expenses.
Calculate your annual expenses. Multiply this by 25. Is it lower than your net worth? If yes, congratulations, you are financially independent and historically speaking you can go for a few decades without a job. Now multiply your expenses by 35. Do you still qualify? If yes, then historically, you could go on forever.
If either is a no, then you still have work to do, literally. Work hard to maximize your networth while minimizing your expenses. For most people the latter is far easier since the leverage factor is in the hundreds e.g. $100 saved per month translates into $30000 less in retirement requirements.
10 day challenge