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I think about the same things and ask the same question. My current plan is to save most of my money so I can reach financial independence very early. I'm 25

I think about the same things and ask the same question. My current plan is to save most of my money so I can reach financial independence very early. I'm 25 now, I'll be financially independent by 27, meaning I'll have enough money invested to live indefinitely on interest/dividends. My total expenses/spending is $25k/year and I'm sure I can keep them there if I want to. Most people who start making a silicon valley software engineer salary right out of college could be financially independent by 30 if they wanted to. It's just a math equation of spending, income, and compound interest that most people have never considered. (If anyone doesn't get how this works, I can explain.) Once I'm financially independent, I no longer have to worry about money for myself, so I can fully commit to finding a better way to use my time. This will probably mean meeting and talking to lots of people who are doing stuff in the world and looking for an opportunity that I'm excited about helping with, and that's a good fit for my skills. This might mean writing more code or it might not, I can learn new things too. I might come to the conclusion that continuing to be a software engineer making a silicon valley salary, living frugally and donating all my extra money is the most beneficial thing I can do, but I wouldn't be surprised if I find something better. Meanwhile, while I'm working and saving all this money, I get to be an example of someone who is frugal, healthy, happy, and incredibly excited about and enjoying life, to my friends and anyone I meet. I can inspire other people who are in similar circumstances to myself, to reduce their spending and resource consumption while still being happy. Demonstrating to people that sustainable happy lives are possible and much more fun than "normal" consumerism/consumption is something I'm really excited about.

clock_tower 11y ago
Congratulations! I spent my 20s having spotty, unpredictable employment and chasing large personal projects that never paid off, so I'm looking at financial independence around 43 instead. ($55,000/year of dividend income, ignoring capital gains; this will be after the 15% tax on dividends.) I wish I'd taken this possibility seriously at an earlier point in my life; I commend you for doing that, and I hope you find good ways to use your time.
- grenzbegriff 11y ago
  Thanks :) 43 still gives you about 20 more years than most people to do something other than earning money to spend! Imagine what you'll get to do with that kind of time. I love hearing from other people who have a similar plan. And of course I'll suggest you could be independent sooner if you reduce some spending. ;) But that's your tradeoff to consider.
  - hanniabu 11y ago
    You guys speak of dividends. I'm not good with stocks so pardon my novice. May I ask what you invest in that earns you the best dividends and keeps you diversified? I'm also assuming you reinvest the dividends? Are there any tips you can give for someone wanting to start doing this? Are there any tricks you have that help you pay less taxes? And tricks to how one should diversify?
    - grenzbegriff 11y ago
      I put almost all of my savings into total stock market index funds. I use Vanguard so the expense ratio is 0.05%. Dividends are automatically reinvested so I don't have to worry about that -- from my perspective dividends look no different than the fund's value going up. Here are some resources that explain why to do this and how: https://www.reddit.com/r/personalfinance/wiki/investing https://www.reddit.com/r/personalfinance/wiki/investing http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/ http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-... There are endless ways to diversify. For example, my portfolio is "diversified" across all stocks. But the entire stock market goes up and down, so some people diversify by putting a percentage of their savings in something else, like bonds or money market funds. These tend to have lower historical average returns than the stock market, but they won't necessarily go up and down at the same time so your savings will not fluctuate as much. I haven't looked into paying less taxes, aside from maxing my 401k.
      - hanniabu 11y ago
        Wow, lots to look up and learn. Thanks for the leads and taking the time to comment!
jkaunisv1 11y ago
By my quick math you'd need at least $500k to live off the interest. Are you investing in a plain way (ie. index fund or similar) and just have a really good salary? It sounds like you're banking upwards of $75k/year.
- grenzbegriff 11y ago
  Yes just index funds, making about $200k/year pretax if I count salary+stock+bonus+401k match. I'll admit, not everyone makes $200k this early. But most people could be financially independent much sooner than they think if they realized that spending doesn't make them happier and started saving instead -- so I suggest this when I get the chance. :) Lots of people have no idea where their money is going because they don't track spending.
  - jkaunisv1 11y ago
    Totally - I have a happy frugal lifestyle as well and try to spread the word. I just don't make anywhere near that much :) My target is 35 and relies on buying land to cut a huge chunk of my annual expenses.
    - grenzbegriff 11y ago
      I'm happy for you! Having the option of retiring at 35, and being happy in the time until then, is a sweet deal. :)
likeapub 11y ago
how much savings will u have by 27? do you have a house too?
- grenzbegriff 11y ago
  I expect to have $500k by 27. No, I don't have a house, I split an apartment with a roommate close to work so I have a very short commute.
  - likeapub 11y ago
    500k is enough for retirement? are you going to live in a cheap city?
    - grenzbegriff 11y ago
      It's enough for me to live the way I live right now, indefinitely. I currently live in silicon valley paying very high rent ($1100/mo). If I didn't want to work I could live somewhere a lot cheaper. "Retirement" means different things to different people. I was talking about financial independence, which means I can choose to retire, but more likely it will mean I find work I enjoy more, without considering the pay as much. There are some risks, nothing is guaranteed: - I could have health problems that cost me too much even with health insurance - The market could crash and never recover But if the market crashes and doesn't recover, maybe I'd have to go back to work for a while. Health problems are a risk for everyone, and no amount of money is going to guarantee good health. However, I bet that leaving the office job early will reduce the risk of health problems overall anyway.
      - likeapub 11y ago
        good luck! i also hope to have 500k net worth soon too, probably in a few years. do you anticipate marrying and having a house soon?
        grenzbegriff 11y ago
BOOSTERHIDROGEN 11y ago
> (If anyone doesn't get how this works, I can explain.) would you mind explaining me?
- Jach 11y ago
  Looks like he put some links elsewhere in this thread, but I'm in a very similar situation with the same goal -- 25, saving up, hoping to "retire" in my early-to-mid 30s at the latest -- so here's how I look at it. The core idea and assumption is: you can get on average at least 5% annual growth by investing your savings instead of stuffing it in a bank account or under your mattress. As long as you can live on less than that per year, you don't have to work. For me I'd be fine living at $20k/yr. This makes my target goal in savings to be around $500k. So if you have $500k invested this January, by next January you should have $525k. As long as you can live on less than 5%, typically at most 4% ($20k) per year, then next January you withdraw your $20k and your total invested savings is $505k. One year later, that grows by 5% again, to $525,250. Take your $20k (which is now less than 4%), repeat until you die or we hit the Singularity. :) I think you need buffer room to handle the core assumption, though, and this is ignoring taxes and other things. For instance, Vanguard hasn't been doing that well for the past 2 years, though it will probably do better and the 10 year average yearly return from 2013 to 2023 will almost certainly be higher than 5%. You can buffer yourself against economic slumps by having more money or living more frugally -- additionally, there's the possibility of entering into the real estate business once you have some initial capital, that may also be a (somewhat risky) way of hedging since you may nominally be $1.5m in debt from your mortgaged properties, but as long as rent exceeding mortgage+repairs keeps coming in and the n-plex doesn't massively depreciate in value you have a steady stream of income that's independent of your savings that you could sell if needed to wipe away your debt.
- grenzbegriff 11y ago
  Jach's reply explains some of the logic. Basically if you can live on $X per year, then once you have $X * 25 invested, you can most likely live on the interest from that investment for the rest of your life without using it up. Here's an article shows the math: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim... In my case I'm saving between 80-85% of my after-tax income, which is how I can "retire" after between 4-5.5 years of work. Two ways to achieve this are to increase your income or to reduce your spending. Ideally both. Reducing spending generally means your life has less impact on the environment, you'll be happier. It's key to realize that money you save and invest earns more money for you, forever. A useful heuristic here is that if you can save $X per month, after 10 years of doing that you'll have $X * 173 in the bank. So suppose I currently buy lunch every work day for average of $10, if I instead pack a lunch that costs me $1, I'll save $200 / month. Over 10 years this adds up to $34000. Once you start thinking this way, it's easier to be excited about cutting your spending. And then you find that you can live and be happy on a much smaller amount of money than you thought. So not only do you build up your savings a lot faster, you actually need a lot less savings to be financially independent.

clock_tower 11y ago

Congratulations! I spent my 20s having spotty, unpredictable employment and chasing large personal projects that never paid off, so I'm looking at financial independence around 43 instead. ($55,000/year of dividend income, ignoring capital gains; this will be after the 15% tax on dividends.) I wish I'd taken this possibility seriously at an earlier point in my life; I commend you for doing that, and I hope you find good ways to use your time.

grenzbegriff 11y ago
Thanks :) 43 still gives you about 20 more years than most people to do something other than earning money to spend! Imagine what you'll get to do with that kind of time. I love hearing from other people who have a similar plan. And of course I'll suggest you could be independent sooner if you reduce some spending. ;) But that's your tradeoff to consider.
- hanniabu 11y ago
  You guys speak of dividends. I'm not good with stocks so pardon my novice. May I ask what you invest in that earns you the best dividends and keeps you diversified? I'm also assuming you reinvest the dividends? Are there any tips you can give for someone wanting to start doing this? Are there any tricks you have that help you pay less taxes? And tricks to how one should diversify?
  - grenzbegriff 11y ago
    I put almost all of my savings into total stock market index funds. I use Vanguard so the expense ratio is 0.05%. Dividends are automatically reinvested so I don't have to worry about that -- from my perspective dividends look no different than the fund's value going up. Here are some resources that explain why to do this and how: https://www.reddit.com/r/personalfinance/wiki/investing https://www.reddit.com/r/personalfinance/wiki/investing http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/ http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-... There are endless ways to diversify. For example, my portfolio is "diversified" across all stocks. But the entire stock market goes up and down, so some people diversify by putting a percentage of their savings in something else, like bonds or money market funds. These tend to have lower historical average returns than the stock market, but they won't necessarily go up and down at the same time so your savings will not fluctuate as much. I haven't looked into paying less taxes, aside from maxing my 401k.
    - hanniabu 11y ago
      Wow, lots to look up and learn. Thanks for the leads and taking the time to comment!

jkaunisv1 11y ago

By my quick math you'd need at least $500k to live off the interest. Are you investing in a plain way (ie. index fund or similar) and just have a really good salary? It sounds like you're banking upwards of $75k/year.

grenzbegriff 11y ago
Yes just index funds, making about $200k/year pretax if I count salary+stock+bonus+401k match. I'll admit, not everyone makes $200k this early. But most people could be financially independent much sooner than they think if they realized that spending doesn't make them happier and started saving instead -- so I suggest this when I get the chance. :) Lots of people have no idea where their money is going because they don't track spending.
- jkaunisv1 11y ago
  Totally - I have a happy frugal lifestyle as well and try to spread the word. I just don't make anywhere near that much :) My target is 35 and relies on buying land to cut a huge chunk of my annual expenses.
  - grenzbegriff 11y ago
    I'm happy for you! Having the option of retiring at 35, and being happy in the time until then, is a sweet deal. :)

likeapub 11y ago

how much savings will u have by 27? do you have a house too?

grenzbegriff 11y ago
I expect to have $500k by 27. No, I don't have a house, I split an apartment with a roommate close to work so I have a very short commute.
- likeapub 11y ago
  500k is enough for retirement? are you going to live in a cheap city?
  - grenzbegriff 11y ago
    It's enough for me to live the way I live right now, indefinitely. I currently live in silicon valley paying very high rent ($1100/mo). If I didn't want to work I could live somewhere a lot cheaper. "Retirement" means different things to different people. I was talking about financial independence, which means I can choose to retire, but more likely it will mean I find work I enjoy more, without considering the pay as much. There are some risks, nothing is guaranteed: - I could have health problems that cost me too much even with health insurance - The market could crash and never recover But if the market crashes and doesn't recover, maybe I'd have to go back to work for a while. Health problems are a risk for everyone, and no amount of money is going to guarantee good health. However, I bet that leaving the office job early will reduce the risk of health problems overall anyway.
    - likeapub 11y ago
      good luck! i also hope to have 500k net worth soon too, probably in a few years. do you anticipate marrying and having a house soon?
      - grenzbegriff 11y ago

BOOSTERHIDROGEN 11y ago

> (If anyone doesn't get how this works, I can explain.) would you mind explaining me?

Jach 11y ago
Looks like he put some links elsewhere in this thread, but I'm in a very similar situation with the same goal -- 25, saving up, hoping to "retire" in my early-to-mid 30s at the latest -- so here's how I look at it. The core idea and assumption is: you can get on average at least 5% annual growth by investing your savings instead of stuffing it in a bank account or under your mattress. As long as you can live on less than that per year, you don't have to work. For me I'd be fine living at $20k/yr. This makes my target goal in savings to be around $500k. So if you have $500k invested this January, by next January you should have $525k. As long as you can live on less than 5%, typically at most 4% ($20k) per year, then next January you withdraw your $20k and your total invested savings is $505k. One year later, that grows by 5% again, to $525,250. Take your $20k (which is now less than 4%), repeat until you die or we hit the Singularity. :) I think you need buffer room to handle the core assumption, though, and this is ignoring taxes and other things. For instance, Vanguard hasn't been doing that well for the past 2 years, though it will probably do better and the 10 year average yearly return from 2013 to 2023 will almost certainly be higher than 5%. You can buffer yourself against economic slumps by having more money or living more frugally -- additionally, there's the possibility of entering into the real estate business once you have some initial capital, that may also be a (somewhat risky) way of hedging since you may nominally be $1.5m in debt from your mortgaged properties, but as long as rent exceeding mortgage+repairs keeps coming in and the n-plex doesn't massively depreciate in value you have a steady stream of income that's independent of your savings that you could sell if needed to wipe away your debt.
grenzbegriff 11y ago
Jach's reply explains some of the logic. Basically if you can live on $X per year, then once you have $X * 25 invested, you can most likely live on the interest from that investment for the rest of your life without using it up. Here's an article shows the math: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim... In my case I'm saving between 80-85% of my after-tax income, which is how I can "retire" after between 4-5.5 years of work. Two ways to achieve this are to increase your income or to reduce your spending. Ideally both. Reducing spending generally means your life has less impact on the environment, you'll be happier. It's key to realize that money you save and invest earns more money for you, forever. A useful heuristic here is that if you can save $X per month, after 10 years of doing that you'll have $X * 173 in the bank. So suppose I currently buy lunch every work day for average of $10, if I instead pack a lunch that costs me $1, I'll save $200 / month. Over 10 years this adds up to $34000. Once you start thinking this way, it's easier to be excited about cutting your spending. And then you find that you can live and be happy on a much smaller amount of money than you thought. So not only do you build up your savings a lot faster, you actually need a lot less savings to be financially independent.