– So in this video today we’re going to be talking about how much money you need to have set aside in order to live off of your investments completely. And I know that the title of this video may sound crazy about retiring by 30, and there are a lot of people out there selling a pipe dream of you can retire by 30 as long as you invest in this course, or go buy real estate and while that may work for some people I’m not here to sell you guys a course or to pitch you on any kind of product like that.
What we’re going to simply talk about here is how much money you need to have invested in order to live off of your investments and essentially not have to work to earn your money. And believe it or not, there are actually countless people out there who have in fact retired as early as 30 years old, by following this exact strategy that I’m going to outline. So if this idea of retiring early and not having to work for your money is something that interests you.
What I want to ask you guys to do is go ahead and drop a like on this video just show your support. I really do appreciate that as it helps out with the algorithm and allows this video to get shared with more people. But what we’re going to look at in particular in this video is something called the 4% rule, and that essentially shows you just how much money you need to have set aside, in order to live off of your investments.
Now you can in fact live off of different types of investments like real estate or the stock market for example or a business that’s providing income for you. But what we’re going to use in this video as an example is a passive stock market investment, and we’ll show you exactly how much money you need to have invested in order to live off of that income.
So the goal here with this strategy is to simply invest your money and have a large amount of money invested and then you would essentially be living off of the interest income or the growth of that money without touching the principle.
And as I’m sure you guys can imagine if you’re not touching the principal or your initial investment, then your money could foreseeably last forever. Now, the sooner you’re able to retire is all based on how much money you’re able to save up and how little money you are spending each and every month, and there’s actually a whole movement of people that are following this exact strategy, and it’s something out there called FIRE, and FIRE stands for financial independence retire early. And there’s a lot of people who are doing blogs and videos and all kinds of stuff about this concept, and there are countless examples out there, of people who have retired as early as 30 or even less.
By following these strategies.
Alright, guys so there are basically three steps you have to follow in order to do this, and as I’m sure you can imagine, step number one is to be frugal or to spend as little money as possible, because ultimately what you’re looking to do is save and invest enough money that the interest or the dividends, or whatever the growth is paying for your monthly living expenses. And as I’m sure you guys can guess if your monthly expenses are $6,000 versus $3,000, you’re going to need a lot more money invested to cover those expenses. So being frugal and saving as much money as possible is actually going to serve two different purposes here. Well, number one, the less that you’re living on the more of your paycheck you’re able to save up, and the more of your paycheck you’re able to save up, the more you’re able to contribute to that freedom fund, which will eventually be paying for all of your living expenses. And then second of all by spending as little money as possible every single month, you actually don’t need to save up as much money to potentially live off of the interest or the growth of your money.
And we’re going to go over those exact numbers right now. Alright, guys so step number two that you have to follow here is going to be a tough one, but that is going to be saving 50 to 70% of your take-home income and again, if you’re looking to retire by 30 years old, let’s say you want to work from 20 to 30, and then not work for the rest of your life, you’re going to have to take some drastic actions here. And that is why you need to live off of a microscopic amount of money. And that’s why step number one is so important, by cutting down as much as possible on those monthly expenses. So, people who are trying to do this, you’re not going to see them driving brand new cars, you’re not going to see them going on vacations, they’re probably going to be, you know, eating canned beans and doing campfires in the backyard as summer entertainment.
Not that there’s anything wrong with that, but they are literally spending as little money as possible because they’re focusing on the long-term picture of what they are trying to do. So people who are following this FIRE movement are often aiming to save 30 times their annual expenses, and that will allow them to withdraw about 4% per year without basically touching that principle and that is where that 4% rule comes into play. And that is basically where you’re able to draw from an account about 4% per year, and over a long period of time-based on the growth of that account and those investments, it shouldn’t be chipping away at the principle which should, in theory, give you unlimited money. So what you’re aiming to do here is to lower your monthly expenses as much as possible. Figure out what it costs you to live per year, multiply that by 30, and then save up that amount of money by saving 50 to 70% of your paycheck every single week or month, or however often you are getting paid.
Alright so now the question you guys have been waiting for, just how much money do you need to have saved up and invested to live off of that money following the 4% rule. Well if your annual expenses are $20,000 per year, they would recommend having 30 times that amount of money saved and invested, so $600,000. If your annual expenses were $35,000, that number becomes 1.05 million. If you’re somebody spending $50,000 per year on your living expenses you would need to have $1.
5 million saved and invested, and for the final figure here, if you spent $100,000 per year on cars and housing and food and all of that, you would need to have about $3 million to successfully follow this strategy.
So I’m sure this goes without saying guys, the best way to follow the strategy and to reach that retirement as quickly as possible is going to be to keep your monthly expenses as low as possible. And just to put it in perspective for you guys, every additional $100 that you spend per month if you follow this is an additional $36,000 you need to have set aside in that freedom fund to support that $100 of monthly spending. So if you’re serious about this and you want to retire at 30, or even younger, you are spending literally as little money as humanly possible. Alright, so the final step to following this strategy is going to be passively investing in the stock market.
So most people following this strategy are actually following the Warren Buffett style of passively investing in index funds. And if you’re not familiar, index funds are basically a way for you to have diversified exposure to the stock market. Where you’re not essentially picking what stocks are going to outperform, you’re just passively owning the entire market.
So people following this strategy are not out there trying to beat the market, they are not stock traders or stock pickers they simply passively invest in these low-fee index funds, one of the most popular ones being VOO or the vanguard 500 funds. And essentially what you are doing, is buying a small piece of the 500 largest publicly traded companies out there, and all the different dividends those companies pay are all collectively put together, and then you earn a quarterly dividend from that ETF.
And over the last hundred years or so the stock market, on average, has returned about eight to 10% per year. So if you were only drawing 4% from that account, based on historical data, you should never be touching that principle over a long period of time.
And that is how you would be able to live off of 30 times your annual income if you save that money and invest it. Now that being said that is the perfect segue into the sponsor for this video which is Webull. So if you guys are interested in getting started with investing in the stock market, this is a totally commission-free broker out there, meaning you’re not paying any fees to please trades with them and you can purchase the Vanguard 500 ETF that we’re talking about in this video right on that Webull platform, and not only that, they’re willing to give you up to two completely free stocks just for opening up an account with them.
Number one, if you open the account, you’re going to get a free stock worth up to $250, and then when you fund the account, you’ll get an additional stock worth up to 1000. So if you do the math there, that is two completely free stocks worth up to $1,250. Now I am affiliated with Webull, so I do earn a commission in the process if you use my link, but if you guys are interested in grabbing two completely free stocks that are going to be down in the description below. So finally, the last thing I want to do here is to put all of this together and go through a real example of how you could in fact follow this strategy and even retire by 30.
Now again, this is going to require some very drastic savings because essentially you’re trying to work for about 10 years of your life and then not have to work for the rest of your life.
So most people will never be able to accomplish this, because of the amount of sacrifice that is required, with that being said, let’s go ahead and run through the numbers now. So let’s say you’re earning a salary of $75,000 per year from your job, and ideally, you don’t have any, you know school loans, student loans, medical bills, or anything like that.
So you haven’t gotten sucked into consumerism and you don’t have a brand new car so your expenses are as low as possible. And I know this sounds like you know the theoretical situation, but this was actually about the same situation I was in, when I graduated college I was 20 years old, now I was making about $68,000, so a little bit less, but I had no debts, I had no car payment, and so I was somebody who could have potentially followed this strategy. So after you pay your taxes, your take-home pay is going to be around $56,250.
Now we know already in order to pull this off, you need to save 50 to 70% of that take-home pay in order to actually build up enough money to live off of that income. So we’re going to assume you are saving 70% of that take-home pay. So you would need to live off of 30% of that post-tax income, which amounts to just over $16,000, or around $1400 per month.
Now, is that possible? It absolutely is.
Is it easy? Absolutely not, you’re certainly not going to be going out to the bar and buying beers or going out to dinner, you’re probably going to be living in a tiny apartment driving an old car and eating at home for breakfast, lunch, and dinner. But if that type of sacrifice is worth it to you for the long-term picture, it is something you may be willing to do yourself. So each year you would be saving and investing a staggering amount of money, which is 70% of your take-home pay or just over $39,000.
And that is how you would be able to pull this off, and assuming you kept that cost of living the same at around $16,000, just over 16,000.
your freedom number, or 30 times your annual expenses, would be just over $506,000. So, how long would it take you to save up that money? Let’s go ahead and answer that now. Well if you took that $39,375 per year of money that you are saving and investing in the stock market, earning 8% return, and as we said, historically, it’s an eight to 10% so we’re going to go on the conservative side, well in 10 years at 8% return career you would have $570,408.40, meaning you could then, if you kept those living expenses the same, following that 4% rule, not have to work for your money past that point.
And just to circle back guys what this really comes down to is the level of sacrifice involved. Are you really willing to live off of about $1400 per month, or do you want to have vacations and going out to get dinner and things like that? So it’s not people who are doing this that are out there traveling and dining it’s people that are living as frugal as possible and finding enjoyment in other areas of life other than just, you know, spending money on dining and things like that. Now, is this a strategy I would personally follow? Probably not because I am one of those people that enjoys traveling, I enjoy dining, and I do spend a little bit more than the average person, so my freedom number would be multiple millions of dollars, but instead I follow the strategy of earning as much as possible and saving a lot of that earned money, and then eventually allowing that to supplement my income by having that interest or the growth of my money paying for a lot of those things that I want.
And believe it or not, guys, there are honestly countless people out there that have followed this exact strategy and retired at 30 or less. One of the most well-known people being Mr. Money Mustache, he has a whole blog where he documented this whole journey of becoming financially independent and retiring early with both him and his wife. So I’m going to link up his blog down in the description below as well as a couple of other stories about people who have followed this exact strategy and retired at 30 or less. So that’s going to wrap up this video guys, thanks so much for watching.
If you’re new to this channel, make sure you subscribe and hit that bell for notifications so you don’t miss future videos, and I hope to see you in the next one.