If you want to achieve financial independence retire early, then you will need to do 100 percent of the things
I'm about to show you in this video
I'm gonna show you four sets of numbers that you will have to know if you want to eventually have enough
fu money to declare financial independence or early retirement
Even if you have no interest in fire, your financial future will be better off if you know these numbers as well
Hey, I'm Jared and on this channel
We like to talk about all things personal finance and investing
Please Hulk smash that thumbs up button because I pretty much only feel comfortable when I'm around you
You're kind of like the sweatpants of my life
if you haven't thought these numbers through then it's kind of like walking around outside with your eyes closed and
Hoping that you're going to make it to your Chipotle destination to get yourself one of those big fat
Delicious burritos. The first number you need to know is your ongoing
Network now. I would say that everyone should know this but it's especially important for my fire people out there
You're gonna need to know your net worth because it's going to be the ultimate
Tracker to tell you when you were able to declare financial independence or early retirement
Some people will calculate this differently, but it's basically your assets
So the money in your bank accounts investment accounts the market value of your home and things like that - your liabilities
so how much you have left on your mortgage or any other debts that you have in some cases people will add the value of
Their car to their assets but since cars are constantly decreasing in value. It makes sense to just consider this
I consider that a sunk cost and leave it out of your numbers altogether
One thing that I like to do is break down my net worth one step further between my liquid and a liquid
illiquid net worth so if I wanted to say eff it load all of the available cash into a bag and go live in the
Woods, then how much would I have in that bag at this point in time?
This would be my liquid net worth think of things like cash
You have extremely easy access to as well as any money within your taxable
Investment accounts since these are pretty easy to get ahold of very quickly things more illiquid would be things you can't sell as easily
So this will be your home because selling a house kind of takes a little bit of time
your liquid assets wouldn't include your retirement accounts because if you wanted to have access to those early depending on the type of
retirement
you'd have to do a
backdoor Roth IRA to get some of that money which takes a little bit of time as well one thing you're gonna want to make
Sure
You have broken down is the different types of retirement accounts and how much you have in each one
Because they are not all treated equally you want to have a good idea of this breakdown
So if you have some of your retirement money in a Roth 401k and some in a traditional 401k
then you want to be able to
Visually see this so that you know how much you're gonna have to complete a back-door Roth on if you want to make the whole
Process just a little bit more difficult, but also be more accurate
You're gonna want to keep track of how much of your Roth IRA money is from your actual
Contributions because you have access to this contribution money
tax-free at all times
This portion of your money would be consistent would be considered liquid the last thing that I like to keep track of at the bottom
Of my net worths spreadsheet is four percent of my net worth
This gives me a very rough idea of how much I can withdraw every year based on the four percent now
this isn't the exact number since a big portion of your assets may be tied up in something like
Equity in your home and things like that
but it's at least going to give you a semi close idea of where you're currently at in your
Financial life as you get closer to your actual fire date
You can take the time to break this down in a way where it's a lot more accurate
If you want access to the net worth calculator spreadsheet that I use an update every month
Then I'll throw a link down in the description for you to get a copy of it
I'm one of those weirdos that likes to manually enter the numbers in once per month because it kind of helps me feel a little
bit more connected to the numbers and gives me a chance to log into each of those accounts just to make sure that everything is
Kind of in order if you are looking for a free piece of software that does all this for you
Then I would recommend signing up for a personal capital account
they do a really good job at allowing you to plug in all of your accounts and doing a lot of the
Calculating and math for you. I'll throw a link down in the description to create a personal capital account
The next number you're gonna want to monitor on a regular basis on your way to financial independence or early retirement
Is your savings rate if you track any one number then this is the most important one
Think of it as the holy grail of financial independence retire early numbers
you need to get this number as high as
Absolutely possible
If you want to have any chance at achieving financial independence retire early in my opinion at very least
You need to be at a 50%
savings rate and I would even consider that kind of low if you're trying to fire in any sort of reasonable amount of time if
You need some tips. I made a video on how I save 70 percent of my income
every single month
Link is in the description or somewhere around my head if you were married and you both earn an income
Then you will need to take your combined household income and induct your total household bills
You may personally have a 60% savings rate
But if your significant other is only at a 30% savings rate
Then you were combined a savings rate is only 45%
If you feel like your savings rate is lacking
Then you have to start figuring out where to cut your expenses and how you're going to grow and close that gap by
Increasing your income. The next number you need to know is the minimum amount of money
You need to live on every single month. Not the number do you think is about right?
We're looking for the exact numbers here
If you already complete a monthly budget, then this should be pretty easy to calculate
All you do is cut out all of the excess spending from your budget to get to that bare-bones number
This is gonna help give you a good idea of the minimum amount of money that you need to fire
Of course, you may want more than that to fire, but it's always a good measuring stick to see where you're currently at
I also like it from the standpoint of knowing how much you need to live on just in case you happen to get laid off
Or the company you work for shuts down completely
Remember that if you work for someone else and they're your only source of income then your job is not very safe
I've actually found this process to be kind of fun to do and it actually makes you feel a little bit
Liberated about once or twice per year. I'll sit down and go through my budget and cut out anything
That is a non-essential. This has been a great exercise to help me. Keep such a high savings rate
Not only does it remind me of how much I don't need to live on but it also helps keep me thinking about the areas
That I may have kind of let get out of control when it comes to spending it
honestly gives me comfort and confidence that I can easily get by if something did end up happening if you're born on a Friday or
Saturday night and you're a nerd like me then you can also build a couple of
Budgeting scenarios to test out how things would look if a certain life event happened to you
I am a big time weirdo and I enjoy doing this in my spare time
You need to know how much you actually need for financial independence
Retire early. This is the actual goal post that you were aiming for if you're early in your fire process
Then you can get away with not calculating this number immediately
Since you have a little bit of time
But I would suggest thinking about it sooner rather than later once you start thinking about this number
It's going to help you think through some of the variables and help you create a little to-do list for yourself
Plug your investments into a compound interest calculator to get an idea of how your money is going to grow over time
this is where you start thinking about if you're going to move to a lower cost of living State or
Are you gonna stay in your current city or state which may be a little higher cost of living?
Are you trying to pursue fat fire lean fire regular fire?
barista
fire blah blah blah fire or even planning on firing
Overseas start thinking about this now and start diving into the type of lifestyle
you were okay with living when you were financially financially independent financially financially independent or
When you eventually retire early once again
I put together a whole financial independence retire early playlist for you with all the videos that I've made on fire
I'll throw the link down in the description or somewhere around my head leave a comment down below letting me know if you've thought about
Any of these numbers for yourself yet? Don't forget to Hulk smash that thumbs up button
Feel free to subscribe if you like and want more videos just like this one. I'll see you in the next one friends a Dios