If you're new here, this blog will give you the tools to become financially independent in 5 years on a median salary. The wiki page gives a good summary of the principles of the strategy. The key to success is to run your personal finances much like a business, thinking about assets and inventory and focusing on efficiency and value for money. Not just any business but a business that's flexible, agile, and adaptable. Conversely most consumers run their personal finances like an inflexible money-losing anti-business always in danger of losing their jobs.
Here's almost a thousand online journals from people, who are following the ERE strategy tailored to their particular situation (age, children, location, education, goals, ...). Increasing their savings from the usual 5-15% of their income to tens of thousands of dollars each year or typically 40-80% of their income, many accumulate six-figure net-worths within a few years.
Since everybody's situation is different (age, education, location, children, goals, ...) I suggest only spending a brief moment on this blog, which can be thought of as my personal journal, before looking for the crowd's wisdom for your particular situation in the forum journals.
To retire extremely early, you need a 4%+inflation return of investment along with an 80% contribution to your savings for the next 5-6 years. You also need to be free of consumer debt and personal obligations such as taking care of someone who is not working or otherwise paying relatively large amounts of money to/for someone else.
Assuming that you start with $0 in assets and an income of $30000/year(*) and reinvest your passive income, the numbers look like this
| Year | Total savings | Passive income | Expenses |
| 1 | 24000 | 960 | 6000 |
| 2 | 48960 | 1958 | 6000 |
| 3 | 74918 | 2997 | 6000 |
| 4 | 101915 | 4077 | 6000 |
| 5 | 129992 | 5200 | 6000 |
| 6 | 159192 | 6368 | 6000 |
Observe how the passive income exceeds expenses between year 5 and 6. This is entirely possible and I just wanted to give you the numbers to demonstrate that fact.
Having blogged about money saving strategies for over a year, hopefully I do not need to elaborate on how it is possible to live on $6000/year/person and how the difference between spending $6000 vs spending $20000 generally comes down to spending money extremely deliberately vs just spending it.
Neither have I made any wild assumptions about the salary. A $30000/year salary is “easily” obtained by a flexible and moderately ambitious person e.g. state trooper: $42000/yr, long haul trucker: $44000/yr, UPS driver: $66000/yr, toll booth operator: $40000/yr. Even an overly educated research scientist makes over $30k (typically $35-42k with a PhD).
Investment returns of 4%+inflation are easily obtainable in today’s environment. Please consider spending 500 hours of your time figuring out what they are.
It is obviously important that you do not cordon off your funds in retirement accounts. The tax advantage that retirement accounts provide tend to vanish at a $6000/year income level which makes retirement accounts much less appealing beyond the free match that a few employers provide.
Originally posted 2009-01-27 06:37:19.
