There is one number that tells you how close to freedom you are. One simple number to track:
The percentage of your income that you save
Each time you permanently reduce your spending, you give yourself a double boost:
- You free up more of your money that can be saved and invested
- You reduce the amount of money needed for the same lifestyle after retirement
Small changes have a massive impact
As you can see small changes in the percentage you save have a massive impact on how long you will need to work.
For instance, increasing your savings rate from 5% to 10% knocks 15 years off your time to financial independence!
Eating out less frequently, living close to where you work and driving a little less, living in enough house, and cutting down on spending that gives you no pleasure, can drastically reduce your time to freedom.
With a current average personal savings rate of under 5% it’s no wonder that people are expecting to have to work until they are over 70.
You increase your financial strength with every percentage point increase in your saving.
Calculating your savings rate
To calculate your savings rate:
Work out how much money came into your account over a year and how much of that you kept (in savings accounts, investments, retirement accounts, or mortgage repayments excluding the interest).
How quickly can you reach financial independence?
It is possible to get to a 50% savings rate (17 years to retirement) or even 75% (7 years) without feeling like you have given up anything of value.
You will probably end up happier and fitter, because you are spending your time on more fulfilling activities: walking, cycling, reading, creating, learning, etc.
If you are willing to make big lifestyle changes or choices. Such as living in a smaller house than you can afford and designing a life without cars. Then you can genuinely get yourself to early retirement in less than 7 years!
A simple step to take today …
Work out your savings rate and years until financial independence.