Your savings rate, measured as a portion of your income, plays a pivotal role in achieving financial independence. It relies on two key factors: your annual earnings and your living expenses. The interplay between these figures reveals a surprising truth.
If you spend 100% or more of your income, retirement planning remains distant unless external sources fund it. This leads to an indefinite career.
Conversely, if your expenses are 0% and you sustain this post-retirement, you could retire immediately. A career duration of zero.
Between these extremes, lies an intriguing landscape. Saving and investing prompts your money to grow independently, generating earnings that compound further. This compounding effect can rapidly escalate, creating a self-sustaining financial momentum.
Once these earnings cover your living costs while allowing for inflation-adjusted growth, retirement becomes feasible.
Saving a reasonable fraction of your income, like 50%, and managing expenses within the remaining 50%, positions you for financial independence within a reasonable span – roughly 16 years.
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