How LITTLE Money Do We Need In Order To Become Financial Independent?

25 Times Your Annual Spending is A Lot of Money

Let’s be honest. If you are reading this as 20 something years old, and you have just started to make some money. GOOD FOR YOU! You are better off than many other people.

But not everybody is that lucky. Some might just get all these “FIRE information” when they are 30, 40 well maybe even 50+ years old.

Nobody told them they could do what they REALLY wanted if they just saved and invested some money.

BUT! Even if you are stoked about the idea of chasing FIRE, and you are 25 years old. If you are a diligent saver and save 60 % of your income. It will still take you 12 years of working, saving and investing. (7 % annual return)

If you start when you are 25 years old, it means that you will be 37 years old when you have reached your goal of 25 times your annual spending.

That is not bad at all.

But you would still have wasted a lot of time being at a soul-sucking job you don’t like.

Psssst… My Little Secret You Can’t Tell Anyone

I got several new friends by being a part of this FIRE community. And many of them are super badass. The ones that are probably the coolest are the following:

Jacob Lund Fisker

Pernille Wahlgren 

Pete Adeney (Don’t know him personally)

They do differ a bit from each other.

When you meet Pernille she seems to have a very normal/glamorous life with expensive vacations with the entire family. And Jacob is a bit more extreme and is spending less than 10.000 $/year with no kids. Pete Adeney has one kid, he does own a couple of cars but prefers to bike around.

But the thing they have in common is that they have all reached financial independence by having a normal job.

Said in another way. They all have more than 25 times their annual spending saved and invested.

But they have another thing in common. 

And here is my “secret”. 

Not any of them touches the principal of their portfolio. 

Yep, that’s right.

All of them have some sort of new business or job, that covers their expenses. None of them uses the money they have in the portfolio. It is more like a nice cushion if they didn’t feel like making an income.

But FIRE is not about not working. It is about doing stuff you like more, and you decide how many hours you feel like doing it.

So why should you save up 25 times (or more) of your annual spending? To “retire”, but never touch that principal.

Why don’t we just save up 2-5 times our annual spending? Do a bit of work, which is nice. Go for a couple of mini-retirements. And let compound interest do the rest of the work?

Do We Even Need 25 Times Our Annual Spending?

“How much money you would like to retire with??”

It is often the question we hear when we talk about personal finance. But it is the wrong angle to ask the question.

How LITTLE money can we retire with is the right way to ask that question.

The “25 times-your-annual-spending-rule” is based on the thought that we never want to run out of money. And why is that?

What if the day we hit the graveyard, that will be the same day that our accounts are empty. If that is the case. We could change our goal.

The average danish person is going to be 81 years old. 

So if we want to hit the graveyard with no money. AND we don’t want to have an income from when we are 65 years old. (Which is almost impossible because we have the public retirement funds)

That means we only need to have 16 times our annual spending saved and invested. Because we have only have 16 more years to live.

Even with 16 times our annual spending, and a conservative allocation of 50 % bonds and 50 % global stocks (because we are old and worried about stock market crashes). You only have a 5 % chance of running out of money.*

At the bottom 10th percentile you still end up on the graveyard with 2 times your annual spending to your name.*

And we are more than likely to end up with MORE money than when we started our retirement as 65 years old.

You can have as little as 10 times your annual spending in a 100 % global stock portfolio and STILL only have a 45 % chance of running out of money.

And remember the goal was to have an empty account when we were about to die.

Early Retirement 2.0

So how LITTLE money do we need to retire early?

This graph will show you how much you need to have saved and invested to hit 16 times your annual spending at age 65.

The assumptions are the following:

  • We spend 25.000 $/year (175.000 DKK) (That is what Pete Adeney is spending, which is not too extreme.)
  • We invest in a 100 % global stock portfolio

Or we can put it another way.

How many times our annual spending do we need according to our age, to hit 16 times our annual spending at age 65.

So if you read this at 40 years old. And you would like to spend 15.000 $/year when you are 65 years old.

You are going to be perfectly fine if you have 51.000 $ saved and invested.

From that point, you can just earn what you are spending. Which is probably something you can earn by working part-time or work for a couple of months each year.

Or!

Just continue working, stashing up way more cash than you would ever need.

At the moment I have about 75.000 $ (520.000 DKK) invested, which is about 4-5 times my annual spending. If I just leave that money till I’m 65 years old they will probably compound* into something like 640.000 $ (4.400.000 DKK). (After inflation)

Which is more like 36 times my annual spending.

In that case, I will be 65 years old, but I have money for the next 36 years, without relying on interest there is more than inflation.

So take it easy!

You probably have way more money in your portfolio than you need to!

*www.portfoliovisualizer.com

Got Questions? Write Me!

I would always like to hear from you.

No matter what you have to say!

Write me at:

Loui@wannabewalden.com

Set Your Kids on FIRE

I’m sitting here in a café in Cebu – Philippines. Trying to look cooperate in my beige wife beater. Sipping the least expensive coffee on the menu (1 $/cup). While I’m scrolling through the investment platform I use.


I’m doing that because I need to open an investment account for my good friends new born child.


This is the fourth time I’m doing so. Whenever one of my good friends are having a kid. I will be the “financial uncle” who helped their parents not to fuck up their financial future.

FIRE… My Kids?! NO!!!!!!

Oh yes. And here is why.

Your kids are not going to worry about money from when they being born till they gotta move away from home.

Well yes. They might start to “worry” about money when they become teenagers. But that will only concern 15 $ for a couple of beers they can hammer. When they have told you they were going to watch some movie at their friends place. (Yes, I have done that)

So from when a kid is born. We have 20 years of undisturbed investing. Which is a good long time span to invest in stocks.

My Mom Tried to Set Me On FIRE

The biggest risk is not taking any risk

Mark Zuckerberg

My mom did the best thing she thought she could do.

She opened an account for me and my sister. Paying 15 $/month to the account. And in 18 years. That money would be around:

(12 months x 15 $) x 18 years = 3240 $

That is not too shabby when you are 18 years old, and need to buy pots and pans for your new place to live.

But what my mom didn’t do. Was to make money do the heavy lifting. And take advantage of those 18 years of undisturbed time.

I was born in October 1990. And I got these money from my mom when I decided to leave home when I was 18. That will be around late 2008.

If my mom would have invested that money in a 100 % world index portfolio. I would have had 5200 $. And that is with the financial crack in 2008. The year before I would have had about 7000 $ to my name.*

The worst 20 year period to invest in stocks the last 50 years was from 1989 to 2009. So despite investing the worst 20 years. My mom would still have a 5,7 % annual return. AFTER taxes and fees are paid.*

It is Not The Parents Fault

The sad thing is. Alot of people are doing this. With the best intentions. They are doing it because nobody has told them that there is a better way to give your kid a head start.

And that is why I’m writing this article.

What you have to do is:

  1. Just do what you normal would. (Like my mom for example)
  2. Transfer them to an investment account
  3. Find the cheapest and broadest diversified stock index portfolio (Preferably an environmental one)
  4. Invest in that

It was a coincidence that I was borned in the worst time to invest in stocks. If I was born in 1974 and my mom would have started invested there. The annual return would have been 12,3 %. (After fees, taxes and inflation*)

Then the 15 $/month would have turned into:

12,150 $ (After fees, taxes and inflation*)

That is almost 4 times more money, than if she just had kept them in cash. Or about 9000 $ just left on the table.

Set Your Kids on FIRE (With Gasoline)

We can take it even further.

Imagine if we swapped that 15 $/month out with 50 $/month instead.

Yes, that would be an awful lot of money your kid will end up having. But who says that these money is for the kids?

Well it is. But if we did saved up 50 $/month on a seperate account for them. We could withdraw from that fund, whenever they had an expensive birthday or similar. It would just be like saving up for the 15 year old birthday.

Let’s take an example.

If we had a kid 18 years ago, and we managed to save and invest 50 $/month from the day it was born. Their account would look something like this*:

If our kid had an account like that. We could easily withdraw a couple of 1000 $ here and there, without it meant that they didn’t have any money when the turned 18.

*Ifa.com

1:1 Coaching

Have you read about all this FIRE thing. And still are confused where to start?

Or do you just need a mentor to along your journey?

That is why I have started the 1:1 coaching. I walk the talk. And as I write this I’m in the middle of my mini retirement.

Check the whole thing out here on this site, and feel free to write me questions. Or if you just want to say hello.

School Project Video On FIRE

For a month ago I said yes to participate in two young boys school project about financial independence.

I said yes, because I know how important the youth is.

In every single rowing club I know, the future success of the clubs determines on how big (and good) of a youth department they have.

All of the rowing clubs who neglect the young ones, is slowly digging their own graves. As time past by, there will only be grumpy old men back at the club. And that is not to appealing to anyone (sorry old men).

FIRE and Kids

Sometimes I feel frustrated about that I never got introduced to FIRE as kid. I’m quite sure that I would have been mature enough to see the benefits of that lifestyle, and probably be financial independent at my current age.

That’s why I would like to give my knowledge about FIRE to as many kids as I can.

They should know from very early age that we are able to shape the life we want, and not what society expect from us.

And that the road to happiness is not filled with mindless consuming.

I told the two boys that I was willing to come a make a presentation about FIRE on their school if they wanted to.

If you read this as a kid, and think it would be fun for your school to hear about FIRE. I’m willing to come and tell about it. For free.

Feel free to contact me on: Loui@wannabewalden.com

The Video

They told me they got an A for the this project.

Unfortunately it is in danish with no subtitles.


How Random is The Stock Market?

How random is the stock market?

Many say that they can predict the stock market. While others admit that they can’t and stick to a passively managed solution. (Hint: I’m one of the boring passive folks)

I can’t help it, I keep study how investments works. And no matter how much I study the most frequent answer is that a passively managed investment portfolio is the best solution for the mass.

The other day I learned that we can (kind of) predict the stock market.

There is a certain pattern that keeps showing up in the stock market.

Have you ever heard of the Francis Galton?

He was a super nerd borne in 1822. But he was a nice nerd!

Francis Galton was the man who build the foundation of statistics. Which we are going to talk about.

He invented a board, which later on ended up with the name The Galton Board. (I don’t think he came up with that original name him self)

He discovered that if we want to quantify almost everything. There is a certain trend, or a pattern. Which would look something like this:

Billedresultat for standard deviation curve

This will later on be called “The Standard Deviation”.

That pattern will show up every time we want to measure something. If we want to quantify the average height of a person in this world the mean is likely going to be 1.70 m (Just a guess).

And far out on the left. There is likely to be 1 out of 10.000 which is going to have height of 1 m. And far out on the right, there will be a person who is also 1 out of 10.000. But that person has a height of 2.15 m.

Galton and The Stock Market

In this modern society, we are bombarded with information. There is so much information that we often don’t acknowledge how big of a privilege it is.

All of the statistics and research I can find on almost everything today. Is something that people in the 1920 could not even dream of.

The 4 % rule was is not something people knew about back in the days for example.

The cool thing about Galton’s finding. Is that we see the exact same pattern in the stock market. At ifa.com I have taken a  50 year period (600 months), and looked at the monthly return of a 100 % stock index portfolio. And this was the pattern that came up:

As we can see, it is the exact same pattern as Galton’s standard deviation.

Galton and My Portfolio

600 months, is a long period. So I thought it would be a fun experiment to see how my monthly returns would look like.

Will my monthly returns have the same bell curve?

After I read my first book called “A safe investment” I then bought my very first stock in August 2013. That book suggested that you bought 10-20 individual stocks, in different sectors and kept them forever.

Which I initially did. Later on I learned about how almost everyone is better served with index funds. So just before I graduated as a building constructor in November 2015, I sold all of my individual stocks and bought index funds instead.

From August 2013 to November 2015 I had individual Danish stocks, and from November 2015 til this date, I have had global diversified index funds.

From august 2013 to this day there have been 62 months. Only 1/10 of the 600 months I demonstrated from the IFA example.

But you know what ?!

My Galton curve ended up almost the same as the 600 month.

Which I was quiet stoked about.

As you probably can see. I have three months of +9% monthly returns, and I only had 2 months of -4 % or worse. If we believe in Galton’s theory there will be 3+ months of -9 %/month or worse ahead of me!

Yikes!

But what I do know that If I stay in a 100 % stock index portfolio, I will have approximately 1 %/month before costs on the long run.*

How To Predict the Stock Market With Galton

This means that we can predict the stock market. We know that the majority of monthly returns will end up in the middle. Which will be around -2 to +2 %.

But we also know that when we have a monthly period with is either a -20% or  +20 % that it is most likely to be a 1 out of a 600 scenario. And according to the statistics is not going to happen again in our life time.

There will be periods where we will have more negative monthly returns (bear market) and there will be periods where we have more positive periods (bull markets).

But if we stay in the market, we know that this bell curve will show up.

So when a bear market shows up, just stay the course, and remind yourself that someday it will be more tilted to the right.

A Short Awesome Video on Galton and The Stock Market

*IFA.com

Coast FIRE – Ever Heard of That?

The other day I learned a new term – Coast FIRE.

The traditional way of chasing FIRE is to have all of your expenses covered by a passive income, often in a stock index fund.

We know that in order to have enough for the rest of our lives, we need to have 20-25 times our annual spending.

But Coast FIRE is a bit different. And it is quite powerful for many of the young fellaz out there trying to reach FIRE.

The power of compound interest is very big when we are able to save money as young. If we have a 7 % annual return, our money will double every 10th year or so. This means that if you have a 1000 $ it will double to 2000 $. From there it will double to 4000 $ and so on. If we have a good amount of money when we are 30 years old. That money can easily double 4-5 times.

Or said different. Our 1000 $ at age 30 can easily grow to 16.000-32.000 $ in our life time. 

What Is Coast FIRE?

With Coast FIRE we take advantage of that compounding.

Let’s imagine that you read this in age 25 (no worries if you are older). If you can to get to 500.000 DKK (76.000 $) by the time you are 30 years old, you never have to worry about that retirements saving again. From there we won’t have to add another dollar for the rest of our lives to that account. Because it will compound into A LOT of money.

If we leave 500.000 DKK (76.000 $) in a stock index fund from 1976-2016 we would have ended up with about 13.000.000 DKK (2.000.000 $) (adjusted for taxes, inflation and fees)*. That amount at age 70 will roughly put us in the top 1 % wealthiest here in Denmark.

And that is Coast FIRE. Figuring out how much money you will have to save and invest, and them leave the entire portfolio until the day that you retire.

If we earn 20.000 DKK/month (3000 $) after taxes, and saving 50 % of that in able to reach Coast FIRE, we are only spending 10.000 DKK (1500 $) a month.

If we are able to reach 500.000 DKK (76.000 $) at age 30, we can from there go out and take a part-time job that pays us 10.000 DKK/month. Because that is what our spending is. And with peace in mind know that our financial situation is going to be great because of compound interest.

We can take up jobs that we find more enjoyable than the stressful corporate job. I could see myself as a rowing/crossfit trainer or having a small mason company. Because that is something that I enjoy.

But even if we do stuff that we love for 40 hour/week, that too will be an ignoring task. I love rowing for example, but after two months on a training camp, doing nothing but, eat, rest and train, I look forward to come home. But I still love rowing.

How to Reach Coast FIRE in Two Years

And I’m here to tell you that we can reach Coast FIRE in as little as two years. If you are between 20-30 years old when you read this. You will be able to become very rich and not spend 40-50 hours/week on a job.

Let’s imagine that you get inspired to reach FIRE. but the numbers you need to reach are to overwhelming, so you decide to go for Coast FIRE.

At this very stage, your portfolio is at 0 $, but you have burning desire.

If we earn 20.000 DKK/month (3000 $) after tax, and save 50 % of it. That means we save 120.000 DKK/annual (18.000 $). Because we are young it can make sense to leverage our investments with as much as 2:1. Said another way, for every 100 $ we invest, we borrow another 100 $, so we end up investing 200 $ instead.

Now we are saving 240.000 DKK/annual (36.000 $) instead of the 120.000 DKK. That means that we can hit our 500.000 DKK in as little as two years from now.

But Loui?! Then I would have 240.000 DKK (36.000 $) in debt.

Yes that is correct.

240.000 DKK (36.000 $) can seem like a big sum of money when you are young. But if we compare it to how much money they can compound into AND how much money we can earn in our entire life. That money is only a couple of percentages of our entire earning power.

If you read this, and decide to do it. You can have a full-time job for as little as two years for your WHOLE life. From there you only have to make 10.000 DKK/month, which is something that you could do part-time with jobs you actually like. Or you could work full-time a couple of months, and then travel to cheaper places where 7.000 DKK/month would make you live a royal person.

And that portfolio is going to grow. If we want to, we could start to withdraw from it down the road. Because it becomes big enough to finance everything on our budget, and retire at a traditional age with bit less money than 13.000.000 DKK (3.000.000 $).

*IFA.com

What If We Had Another 2008? (It will be fine)

As the avid reader might have read in my monthly FI updates. I write that I will reach my first big milestone of a 7 % withdrawal rate in about 3 years.

I calculate this very simple.

  1. I divide my yearly spending 110.000 DKK (17.000 $) with 0,07
  2. I look how big my portfolio is now.
  3. I subtract step one with step two. 1.600.000 – current portfolio.
  4. I divide the result from step three with the average amount I save in a year.

And that is how I end up with 3 years. Give or take.

I don’t calculate with any return on the investment. Just to make it more simple.

How would things look if the 2008 stock market started tomorrow?

Or what about if it happen the day that I would quite a fulltime job?

The picture below is how my portfolio would look like if I keep save and invest 24.000 DKK/month (4.000 $).

16.000 DKK of those money would be my own, and 8.000 DKK of them would be borrowed/leveraged.

From 1/1/2008 to 31/12/2010 I would end up with a 1.530.000 DKK (236.000 $) and with an annual return on investment of -3 %.

Even with a -40 % in 2008 I would have reached my first milestone of 7 % SWR on my annual spending.

What would happen if three years from now, where I’m likely to hit that milestone and the crash happens then?

In this scenario where we have the 2008 crash right where I’m “supposed” to hit my first milestone. The portfolio will crash. Just before I hit those 1.600.000 DKK the portfolio is going to tank. But as you can see. Even with 40 % reduction in my portfolio, I’m going to hit that number if I keep investing, and work for another 8-9 months or so.

And that isn’t too bad.

I mean. The 2008 crash was one of the worst we have seen in this century. Not that I’m saying it won’t happen again. What I’m saying here is that even with one of worst scenarios, we are only postponing our milestone with a couple of months.

It is going to be a bumpy right. But sit back and relax. It is just a matter of a couple of months. Or maybe a year or two. (If shit really hits the fan)

Cut the Period You Reach FIRE in Half, Book Review

I have never read a book from cover to cover before I turned 21 years.

But reading since then has change my life radical. Being able to learn from the best minds in this world is something I love. A book can be distilled knowledge from people who have researched a topic their entire life. And I’m able to learn that in 5-10 hours by reading their books.

I still find that astonishing.

This article will be a review of the book:

Life Cycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio

Why this book?

Because it have made a huge difference on how I approach my investing. And it has been the reason why I might cut the period I reach FIRE in half the time.

If we just research a little about how to achieve financial independence. We learn that it is wise to buy stock index funds, in order to diversify. And if we want to diversify further, we can add bonds into the mix.

Now we have chosen our assets.

Is there another we can diversify aswell? YES!

We can diversify on time.

The stock market can be extremely volatile in single year. It can go 50 % up, but it can all so go 50 % down. If we start to look on longer time periods, like 5, 10, 15 or 30 + years, the stock market will become less and less volatile.

If we know that we want a million dollars to declare us self financially independent. With an allocation on stocks and bonds of 80 % stocks (800.000 $) and 20 % bonds (200.000 $). It would be way more ideal if would could loan the money upfront as young. And pay of the loan till the day we retire.

If a +50 % stock market crash happens early in our life, it wouldn’t be that catastrophic, because we will have time to rebounce. But if it happens when we are +50 years old. Then we are fucked.

When we are young, we don’t have that much money. So how can we get harder exposure to the stock market as young?

By leveraging.

The authors of Lifecycle Investing tested a leveraged strategy against a normal target date fund. This is where you pick a retirement date, and then the stock allocation ramp down from a 90 % stock allocation to 50 % when we retire. And they tested it against a fixed stock portfolio of 75 % stocks and 25 % bonds.

They tested it with different stocks and bond allocations to see if there was different scenarios where the traditional way would be better. With a stock allocation 200 % – 83 % (moving from a 200 % to 83 % stock allocation in retirement) we will have the same worst output as a 75 % stocks / 25 % bonds, but a median return there is 63 % higher, and in the 90th percentile it will be almost 100 % bigger returns. 

There are many more different allocations in the book.

But the biggest takeaway is even if we are really conservative about your retirement. It can still make sense to leverage early on.

Then the allocation would be like 200 % stocks moving to a 32 % stocks, and the rest would be bonds. By doing so we are likely to end up with 22 % more, than a traditional conservative allocation of 50 % stocks and 50 % bonds.

Lifecycle Investing will appeal to you, if you have bought into the idea of index investing to become financial independent, and want to take it a step further.

The worst enemy with this strategy will be our own psychology. When shit hits the fan, we need to stay calm, and follow our plan. And not everybody can handle that with a 200 % leveraged portfolio.

But if we think we handle the rollercoaster ride, we can diversify with time by leveraging as young. And reach our FIRE number earlier.

How Much Money Is Enough? Fuck the 4 % rule.

I often read blog posts on how people are retiring with 1.000.000 USD and then live off 40.000 USD/Year.

Put it another way. They stick to the 4 % rule.

There has been made a study called “The Trinity Study”. Which is often referred to in the FIRE community.

They took a close look on how much you can withdraw from a portfolio with different allocations to stocks and bonds.

I think the 4 % rule is ridiculous conservative. 

Take a look at the chart below from the trinity study:

This chart will tell us if you have a 1.000 $ portfolio and a 100 % stock allocation, and we withdraw 8 % of the initial amount (80 $), we have a 76 % chance of success.

76 % of every 30 year period between 1926-2009 would never run out of money.

That 76 % means that you NEVER EVER earn another dollar in your life.

So if we are 20 something years old spending a modest 15.000 $/year. (Which I do)

We could retire with as little as:

15.000 $ / 8 % = 187.500 $ 

And have a 76 % chance of NEVER running out of money if we NEVER earn another dime.

“But I don’t feel comfortable withdrawing 8 % of my portfolio”

All right. Then let’s round it up to a withdrawal rate of 7 %.

Then we can retire with a 100 % stock portfolio of:

215.000 $ and have 87 % chance of NEVER running out of money.

If we make a 30 year Monte Carlo simulation with a portfolio of 215.000 $ and withdrawing 15.000 $/year annual*:

If we look at the chart above. We can be pessimistic and say that 1 out 10 times the portfolio will not survive.

We can also be positive and see that 1 out of 10 times we will end up 7.200.000 $. Or put it another way, more than 30 times you initial investment.

We could also only do average. And end up with 1.500.000 $.

And we have done this by laying in over hammock for 30 years.

If we however can manage to earn some money.

And I’m not talking about a huge amount of money.

Let’s just say that we start a business of doing something we like. We don’t want the business to be something we do everyday.

Let’s call it a “Fooling-around-company”.

What if we could make 5.000 $/ year with this company?

Then we only need to withdraw 10.000 $/year on our portfolio. This is how a 30 year Monte Carlo simulation look like if we only withdraw 10.000 $/year instead of 15.000 $/year*:

We have now gone from a 87 % success rate to a 96 % success rate.

And in 30 years you will at the 50th percentile end up with 2.400.000 $ instead of your 1.400.000 $

So by earning 150.000 $ over that 30 year period. (5.000 $/year x 30 years = 150.000 $)

We are likely to have another million on our account.

Or we could withdraw 4 % each year instead of withdrawing a fixed amount of 10.000 $/year. This means if the value of our portfolio goes up, our spending can go up.

Then the situation will look like this*:

After 30 years of withdrawing we are more likely to withdraw 16.000 $ /year. And if we are lucky it will be +30.000 $/year. (Adjusted for inflation)

So please. Be a bit skeptical whenever you read the we need 25 times our annual spending.

If we are willing to be a bit flexible, by doing so we can retire A LOT sooner.

* www.portfoliovisualizer.com/monte-carlo-simulation

1# My Monthly Financial Independence Update

I thought it would be fun to share how far I have come with my financial independence project. I have always enjoyed watching other people’s numbers. And here I am. About to do one myself.

I have never understood why personal finance should be a tabu. But I can feel there is a slight resistance in me. Telling me that I shouldn’t tell everyone about my finances.

But here it goes:

 

This is how my allocation looks like September 2018.

I have about 465.000 DKK (72.500 USD) invested in stock index funds. Where 125.000 DKK (19.500 USD) is money I have borrowed to a rate of 1%.

And 58.000 DKK (9.000 USD) in cash.

My first goal is to have a SWR on 7% on my 110.000 DKK/year budget. Which is about 1.600.000 DKK (250.000 USD).

523.000 DKK / 1.600.000 DKK = 32,6 %

If I continue the way that I save, invest and borrow. I will hit my 1.600.000 DKK in about 36 months from now.

This month savings rate was at about 78 %. Which is quiet high for me. I have a 3 year rolling savings rate of 58 %.

This month I have chosen “only” to invest 5.000 DKK and leverage it with another 5.000 DKK so in total 10.000 DKK (1.500 USD). Because I would like to have som surplus cash when the market is going to tumble.

Never hesitate to contact me if you have any questions.

Cheers

The Power of Spending Less

In a very long period of my life I thought that in order to become rich you need to earn a lot of money. When I started to study have the financial independent I found that this wasn’t the whole truth. The most important part to become financial independent is to spend less.

If we have two people. One is earning 500.000 $/year, the other make 50.000 $/year. If they both save 10 % each month they will have the same retirement date.

Because their 10 % is going to fund 90 % of expenses. It doesn’t matter what the amount is. The percentage is what we are looking for.

If we instead could live on 50 % of the income our situation will look like this:

Which is WAY BETTER!

“What about the rate of return then? That must be an important factor.”

Not really. That chart below is from the book Early Retirement Extreme.

It clearly shows us that when we can save +60% of our income, the rate of return is less important.

From the book “Early Retirement Extreme”

And if you have read my other article on How I’m Retiring in 5 Years or Less you can tell that I sometimes recommend people to leverage their investing. If we save and invest +60% of our salary, and we borrow the same amount to invest for. This means we hit our retirement number in half the time. And do some time diversification. If we have more money in the market early, they will make dividends, and they will have more time in the market to prove their performance.

The average savings rate here in europe is around 5 %*. And if we look at the chart above we will never be able to fund. Even if we have the same rate of return as some of the best investors in the world like Warren Buffet. He has averaged around 20 %/year. If we earn 50.000 $/year and we are saving the 5 % of our income and get a ROI on 20 %/year we will be able to retire in 25 years. While this seems like a relative short time period. We need to get the same ROI as the best investor in the world.

Yes you can be the next Warren Buffett. But I think you will have a higher chance of winning the lottery. If we instead save a large amount of money. And maybe leverage. We now have the odds with us.

* https://data.oecd.org/hha/household-savings.htm