With the rise of social media, we have an entire segment of influencers who brag about
how they managed to find a way to make enough money to retire in their 20s or 30s.
Now all they do is post pictures of their mansions, Lamborghini, or private jets until
someone exposes them that they have been renting out their mansion or that luxury car or the
private jet.
Yes, I am talking about you, Dan (Bilzerian).
Definitely, there some people who managed to make millions by building a tech startup
while still being in college, but that's an exception, especially if you consider that
9 out of 10 startups fail, I am not trying to discourage anyone, feel free to give it
a try but the question that I want to focus on in this video is - can your average guy
retire early?
Is it possible for someone who works 9 to 5 to retire within a span of 10 or 15 years?
If you are in your 20s, can you retire by your 30s without starting a business or winning
the lottery?
The answer is Yes!
There is an entire movement on the internet called FIRE; financial independence retire
early movement.
They claim that if you live frugally throughout your 20s and invest the vast majority of your
income, you can retire by your 30s and never have to work again.
Your investment will cover all of your bills, so you can finally quit your job and start
your journey of traveling around the globe in 80 days.
You might not be able to afford a private jet or live in a 50 million dollar mansion,
but nonetheless, you can maintain your normal standard of living without working another
day in your life.
In this vidoe, we are going to find out how much money you need to save to retire by your
30s?
How should you invest your money to be able to do that?
And what is the rule of 4 percent?
why rich people will always be rich If you take a look at what exactly makes rich
people rich is that you will find out that they have the capital that keeps earning them
money even if they do nothing.
Imagine having a billion dollars in a savings account that pays you 3 percent interest annually.
That is 30 million dollars a year, that is enough to provide you with a super-luxurious
life.
Which means you can spend 30 million dollars every single year, and your wealth won't decrease
even by a single Penny.
And that's what separates rich people from the rest.
Most people can't break the cycle of poverty or the middle-class trap because they make
just enough to live comfortably.
Even if they end up making more, They move to a bigger house, get a better car, and level
up their standard of living.
There is nothing wrong with that.
At the end of the day, the ultimate goal of money is to improve the quality of your life.
Especially, since you will be able to pass that house to your child and make his life
a lot easier.
If he is smart enough, he will repeat your footsteps and at least acquire another house
throughout his life and then pass two properties to his child.
After repeating this process over and over, after a few generations, your grand grand
grand child maybe will be left with multiple properties or at least some wealth to provide
him with the comfort of financial freedom.
But that looks like a dumb strategy to most
people.
Why would you work so hard and prevent yourself from all the pleasures life has to offer so
that your grand grand grand kids would live a better life?
It's their problem.
They will figure it out.
So, Here is a better idea: the fire movement claims that you don't have to work your entire
life to build wealth.
All you have to do is dedicate 5, 10, or 15 years of your life to building wealth.
And that's it!
By living extremely frugally and saving over 80 or 90 percent of your income, you can save
enough capital that you can invest and live off from the interest that your capital will
be generating.
That was impossible a few generations ago, but we are lucky to be young in 2020.
The world has developed to the point where anyone who is born or at least lives in a
first world country has the opportunity to break that cycle of poverty and become financially
free within a span of a decade.
As of 2018, the average household income is a little over 63K dollars.
Hypothetically, since the average return on an index fund that invests in the s&p500,
for example, is 10 percent, by saving 630K dollars and investing it in such fund, every
year, you will be able to withdraw 63K dollars, and your initial investment of 630K will still
be there.
630K is, of course, a lot of money, but nonetheless possible for most people.
Surgeons, doctors, or engineers easily make over 100K dollars a year after taxes.
By saving just a little over half of their income for 5 or 6 years, they can save that
much money.
Sounds like a good plan, right?
Well, not everything is sunshine and rainbows.
The inflation rate in the US is around 2 to 3 percent, which means if you don't want the
real value of your investment to decrease every year by 2 or 3 percent, you should not
withdraw more than 7 percent of your investment.
On top of it, if you want your investment to grow by at least a small margin like 2
percent, you are left with just 5 percent.
If you also deduct another percent for market fluctuations, you are left with just 4 percent,
and that's what the rule of 4 percent is.
So, if you want to be able to withdraw 63K dollars and be confident that eat inflation
won't wipe out your wealth over time, you have to invest 1.575 million dollars in an
index fund like the sp500.
That might look like a big sum of money, but nonetheless, it's realistic.
With a high-paying job and a frugal life, it's possible to achieve that in, give and
take 10 years.
What's important to note here is you can't achieve that by having a regular job, no offense,
but if you are earning enough just to cover you basic needs, there is no way you can save
that much money.
So the idea is you should work on getting a high paying job but still live like a student
and invest over 80 percent of your income, and in 5 to 10 years, you will be able to
retire for good.
What's also important to note is what kind of retirement do you want.
Do you want to drive a Ferrari and spend over 200K a year, then you will have to work a
lot more and invest 2,3 or 5 million dollars so that you can confidently spend 200K dollars.
But if you are fine with spending 50K a year, you can retire a lot faster, it all comes
down to your spending habits.
But, do not start investing unless you first
take care of your debts, especially high interest rate debts.
It doesn't make sense to get a 10 percent rate of return when you have a 20 percent
credit card debt.
But this rule doesn't apply to your mortgage.
With a mortgage, you are building equity at least, so focus first on getting rid out of
your high interest debts and then move towards savings.
Regardless of how brilliant this plan looks like, it has its problems.
What is the point of sacrificing the best years of your life just to be able to retire
earlier, especially your 20s?
These are the years when you want to party, hung out, and experience new things.
Besides, I don't think that most people want to retire at 30 and literally do nothing after
that.
Work isn't just about earning money, but it gives you meaning and self-fulfillment, especially
when you love your job.
So here is a slightly better idea, instead of denying yourself even the basic pleasures,
don't strive to retire at 30 or 35 but rather focus on building an investment portfolio
that can at least cover your basic needs such as shelter and food.
Instead of saving over 80 percent of your income, say 30 or 40 percent.
In 10 or 15 years, you might not be able to complete retire, but if you want to quit your
job, take a break, experience something new, you can easily afford that.
By withdrawing 4 percent out of your investment portfolio, you can easily pay the rent and
put some food on the table.
And no matter how glamorous the idea of financial freedom looks like, do not sacrifice your
health for it, because financial freedom means nothing if you end up losing your health in
the process.
Don't eat garbage, for example, just to save an extra dollar.
Once you reach that point where you are financially
free, where you don't have to accept a certain job for the sole purpose of how much does
it pays, you start making slightly different decisions.
Now since we are at the end of the video, pull out a notebook and a pen and answer these
basic questions: How much money do I need to maintain my standard
of living?
How much do I need to invest so that I can withdraw 4 percent every year to main my standard
of living without touching the principal?
And how much can I save every month?
Then you will find out how many years you have to save to be financially free.
And finally do you want 2 free stocks from we bull to start investing?
Of course you want!
So use the link in the description and get your 2 free stocks.
And now its time to give this video the thumbs
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Thanks for watching and until next time.