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10 Levels of Financial Independence And Early Retirement | How to Retire Early

Long-term financial goals can sometimes seem
so big that they feel almost unattainable especially when we’re just getting started
on our road to financial independence. I and many others like me in the financially
independent, retired early community have found it helpful to break down the goal of
becoming financially independent into smaller and more manageable levels of financial independence. Not only because it makes it easier for us
to track our progress, which in turns helps us to stay motivated throughout the process,
but also because it helps us get over that initial hurdle of starting to chip away at
this mountain of a task.

In today’s video, I’m going to take you
through what I consider to be the 10 levels of financial independence as well as give
an example on how to go from the first level to the top level in your lifetime. Hey everyone Daniel here and welcome to Next
Level Life a channel where you can learn about Investing, debt, retirement, and many other
general financial education videos because the school's aren't going to do it for us. So if any of those topics sound interesting
to you or if you want to learn how to better handle your money and have more financial
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video with a friend, and leave a comment below letting me know what topics you’d like me
to cover in future videos.

Now obviously these ideas of the levels of
financial independence are not solely my own nor are they very new as there are many articles
and blog posts that have covered this topic already and have done so for many years. So consider this more of a summary of many
of the ideas expressed in those articles and if you want to learn more about the topic
feel free to check out some of the articles for yourself. I’ve left some links in the description. With that out of the way, let’s get started. Okay so real quick the 10 levels of financial
Independence are Level 0 Financial dependence, level 1 Financial solvency, level 2 Financial
stability, level 3 debt Freedom, level four coasting Financial Independence (also sometimes
known as freedom from employer), level 5 Financial Security, level six Financial flexibility,
level 7 Financial independence, level eight Financial Freedom, and finally level 9 Financial
abundance.

The levels are usually defined as something
like the following: Level 0 – Financial dependency is when your
debt payments and other living expenses are greater than your own income. This means that you are in one way or another
dependent on someone or something else to help you pay for your bills or if you happen
to be a kid and don't actually have any bills you need someone else, usually your parents,
to pay to put food on the table and keep the lights on and have a roof over your head. This is the level that all of us start out
on and it is referred to as level 0 because as a financial dependent you obviously have
no Financial Independence. Level 1 – Financial solvency is when you are
current on all your debt payments and you can meet your financial commitments and your
other living expenses without any outside help. Level 2 – Financial stability is usually defined
as when you have built some sort of emergency fund in addition to being financially solvent. Level 3 – Is again debt freedom and it's defined
differently depending on who you ask.

For some, it is being completely debt-free,
mortgage and everything. For others, it's being just free of the high-interest
debts like credit cards but you still might have a mortgage or other debts like student
loans. And for some others, it is paying off all
of your debts except for the mortgage but your credit cards and student loans or car
loans all that stuff is all paid off. Level 4 – Coasting Financial Independence
also sometimes known as freedom from the employer, Barista Financial Independence, or Agency
in blogs and other mediums. I personally like the idea of it being coasting
Financial Independence so that's what I'm going to be using in this video but know that
some people refer to it by one of those other titles but the idea is the same. You have reached the level of coasting Financial
Independence when you could, if you wanted to, step down from a job that may be higher-paying
but may also be either less satisfying or more stressful or both into a new job that
is lower paying but more enjoyable or less stressful or both.

This is because in the early years of your
career or just thought most recent years you have managed to save a very decent sum of
money that would be able to provide for the later years of your retirement after it has
grown even if you don't put much more in. Therefore all you need to do is make enough
money to get you to age 60 or 65 or 70 or whatever your numbers work out to be when
that amount of money you've already invested will be able to fund your lifestyle because
it's been given enough time to grow.

So in a sense, you've worked really really
hard and been very frugal in the first few years so that you can coast into your retirement. I have gone into more detail on the various
types of financial Independence in a previous video which I'll leave Linked In the description
if you're interested in learning more. Level 5 – Financial Security is effectively
when your cash flow from wealth such as you are investments has grown to large enough
that it can provide for your annual basic survival expenses. Now I say survival expenses because I do differentiate
that from living expenses survival expenses are just the basic things you need to survive
Food, Water, Shelter, some form of transportation, clothing and probably insurance. This does not include things like Netflix
subscriptions or cable bills or things like that it is purely survival expenses.

So this may not be exactly the ideal spot
to retire and I certainly wouldn't want to retire at this point but it is an important
level to keep in mind because it does give you… well security. If you were to get fired today and you were
on level 5 you would be okay you could survive until you found another job. This is essentially the first level that really
gives you I guess that piece of mind even if the lifestyle should you have chosen to
live it may not be the most lavish. Level 6 – Financial flexibility is similar
to Financial Security just one step up. It is when you have the ability to live off
of your current cash flow from your wealth assuming that you have a flexible spending
plan that adjusts for up and downs in the market.

So if the markets up 20% one year you're able
to spend a little bit more but if the market is down 20% the next year then you don't spend
quite as much. I’ve seen it defined many different ways
so it could vary depending on who you ask, but the one that I personally like the most
is that it is roughly half of your full financial independence goal, or roughly about 12.5x
your current annual expenses if you follow the 4% rule to get an idea of how much money
you need to retire like I’ve explained in previous videos. So it isn't quite Financial Independence yet
but it's close. Level 7 – Is financial Independence and it's
usually based on the 4% rule which I have covered in a previous video.

You can follow the 4% rule when you have saved
roughly 25x your annual expenses. The vast majority of the time this will be
enough money to allow you to maintain your current lifestyle in retirement and as a result,
you can be considered financially independent. And some articles end it right there but I
think there are a couple of levels that are a bit higher than that that are worth considering
even if some of us may decide to not ever try to achieve them because being at level
7 allows them to do what they wanted all along.

So let's talk about those other levels. Level 8 – Is Financial Freedom which I've
often seen defined as the cash flow from your Investments is greater than financial Independence
and a few more life goals. Life goals, of course, will differ for everybody
but this is could be something like taking a trip or two overseas or moving to a new
place you've always wanted to live but haven't had quite enough money to live there up till
now or whatever the case may be for you like I said it's different for everybody. Level 9 – Is financial abundance and this
is quite simply just that the cash flow from your Investments is more than you will ever
need. You could spend it if you really wanted to
but it would actually take some effort.

And the stuff from level 8 doesn't really
cut into it much at all. So you could up those goals even more and
still have more cash flow left over at the end of the year. This also probably has a slightly different
definition for each person depending on who you ask, but I like to think of it as roughly
3x your financial freedom number because this would allow you to experience a horrible bear
market where your investments go down by 50% and still has 1.5x the amount that you would
need to maintain the lifestyle you lead when you reach level 8.

To me, that means that it is likely more than
you will ever need, but again that one is strictly my own opinion on the matter. So those are the 10 levels of financial Independence,
now let's walk through a hypothetical example of how someone could go from Level 0 to being
financially independent in a single lifetime. John and Jane are recently married couple
each making $20 an hour at age 23 or $83,200 a year between them assuming no overtime.

They manage this because they are not only
good hard-working people but got great grades in school and we're selective about the job
that they decided to pursue. Obviously just like everyone else they would
have started off as Financial dependents and as they were going through college they would
have been building up student loans that they would not have had the money to pay off (assuming
of course that they didn't earn enough money while in school to keep up with the rising
debt). In all they have credit card debt, two car
payments and the student loans which have balances of $5,000, $35,000, and $60,000 respectively,
but since they got their jobs they are no longer financially dependent and their incomes
have allowed them to become current on all their debt payments without the help of others.

In addition to the regular monthly debt payments,
their annual expenses are $48,000 a year. So they are currently in level one Financial
solvency and trying to figure out a way to move to level 2 Financial stability. In order to do that they need to figure out
a way to build up an emergency fund. Now if they're following the 10 levels system
to a T then they would look to build a 3 to 6-month emergency fund of their survival expenses. However, this is not the only way to approach
it say if you were to follow Dave Ramsey 7 baby steps you would start off with just a
$1,000 starter emergency fund and then get right onto attacking your debts. And other Financial systems and plans may
have you approached it an entirely different way. Either way is perfectly fine because the 10
levels system is not meant to be a financial formula per say it's more there to give us
some sort of guidepost so that we can better track our progress towards achieving Financial
Independence.

But for the purposes of this video, I am going
to assume that they follow the 10 levels in order so we are going to be building up a
full emergency fund. In order to find how much of an emergency
fund they will need we will need to know how much money they need to survive not necessarily
on their current level of expenses while they have jobs but purely on Survival expenses
which are basically your four walls of your financial house or in other words food shelter
including utilities Basic clothing and some form of transportation as well as the insurances
that are related to that assuming there are any. In this case, I'm going to assume that their
survival expenses are right around $3,000 a month. Which means that in order to get a 3-month
emergency fund they would need $9,000 in order to get a six-month emergency fund they would
need to save $18,000. Both John and Jane feel that their jobs are
pretty darn secure and the market is doing fairly well so it's not likely at least in
the near-term that they would get laid off because the company has to downsize so they
decide together that they are comfortable with having just a 3-month emergency fund
of $9,000.

So with $83,200 a year in income, $48,000
a year and expenses, plus minimum monthly payments of $100 on the credit card which
is 2% of the balance, $550.78 on the car loans, and $621.83 on the student loans they will
have approximately $1,660.72 a month left over to start building their emergency fund. However, both John and Jane have been looking
into their finances and researching a lot lately and they become fired up at the possibility
of becoming financially independent while they're still young. So they want to see if there's a way that
they can speed this whole process up. And as it turns out thankfully there are many. After taking a look at the options they decide
that they're going to work as much overtime as they possibly can (for the sake of Simplicity
I'm going to assume that they manage to work on average 5 hours per week of overtime which
will increase their monthly income by about $1,300 a month, meaning that instead of $1,660
a month they will have $2,960 a month left over) and they're going to sell both of their
cars and buy some nice used cars with cash to help knock down some of that initial debt.

After putting out a couple of ads online they
managed to find buyers for each of their cars that is willing to give them $15,000. So they take that $30,000 and use $5,000 of
it to pay off the credit card balance and another $10,000 to buy a couple of used cars
from someone that they know takes good care of their Vehicles whether that be a family
friend or just a mechanic that they Trust. The remaining $15,000 is thrown at their car
loans. This means that the credit card loan is fully
paid off and therefore the hundred-dollar minimum payment is no longer needed. So John and Jane start throwing $3,060 per
month into their emergency fund and get it fully funded in 3 months with a little bit
left over at the end of the third month to throw out their car loan. Over the course of those first three months,
they managed to bring the car loans balances down to $18,423 thanks in large part to the
$15,000 that they threw at it in the first month after selling the cars and also making
the minimum payments in the first three months.

Now that their emergency fund is fully funded
however they're able to throw that $3,060 a month in addition to the $550 a month minimum
payment at the car loan and get it paid off in 6 months flat. So a mere nine months into their Journey John
and Jane not only have a fully funded emergency fund but they also have paid off both of their
car loans. Now there are just the student loans to tackle. And thanks to the fact that they've been making
minimum payments on them for 9 months and the fact that they had a little over $3,000
at the end of the ninth month after paying off their car loans their student loans now
have a balance of $53,263.

John and Jane follow the same pattern that
they did with the car loans throwing the $3,600+ which is what they now have left over at the
end of every month because they no longer had a $550 car payment to make and they managed
to get their student loans paid off in full in 13 months. So John and Jane have managed to become debt
free and have a fully funded emergency fund in 22 months. They have now reached level three and because
of that they now have over $4,200 a month left over to start investing. This brings us to level four coasting Financial
Independence. Let's assume that John and Jane want to retire
by the age of 65. That means that whatever they put in now needs
to be enough to grow to a point where it can support their lifestyle in retirement by the
time they're 65. If we assume a rate of return on an average
in the market of about 10% before inflation and an inflation rate of about 3% per year
on average then we can get a rough estimate of how much John and Jane need to put away
in order to achieve a state of coasting Financial Independence.

In this case, since they're 24 about to be
25 they will have somewhere in the neighborhood of 39 or 40 years to let the money grow before
needing to take any of it out. If their expenses were $48,000 a year at age
23 then 42 years later if we assume a 3% rate of inflation they would need a tad bit over
$166,000 each year to live on. Again assuming we follow the 4% rule to figure
out how much they need once they fully retire to be financially independent that means that
they would have to have at least $4.15 million invested in the market by the time they turn
65. In their case, they would need about $110,000
saved up give or take in order to achieve coasting Financial Independence and because
they're able to save about $4,233 a month now that they’re debt free, they’re able
to hit that goal in 2 years flat. Meaning that in theory, they would be able
to step down from their jobs to a more rewarding less stressful but probably lower-paying job
just 3 years and 10 months into their financial Journey. That is incredible! But like I said coasting Financial Independence
wasn't their end goal. They wanted to be fully Financial Independent
so they keep working and investing for now.

The next level is level 5 Financial Security
which is achieved when your cash flow from your Investments is greater than your annual
survival expenses which remember is $3,000 a month or $36,000 a year in John and James
case. Because they are debt-free, are making good
money at their jobs, and being intentional with their finances they Achieve Financial
Security in a little over 4 years with over $367,000 in their portfolio. It is been a mere 87 months or 7 years and
3 months since they began their financial Journey. John and Jane are 30 years old and they are
able to get by on their Investments alone. In theory, they could retire now, it wouldn't
be the most glamorous retirement and it wasn't their goal but it is an option they have. They don't have to worry about losing their
jobs anymore because even if both of them lost their jobs today they would be able to
make it long enough to either find a new job or some other source of income.

This is really the first level where you start
to get that piece of mind when it comes to money at least in my opinion. Next is financial flexibility which as I mentioned
earlier in the video has many definitions depending on who you ask but for the purposes
of this video, I'm assuming that it is roughly 12.5x your current annual expenses which for
John and Jane would be roughly $600,000 or about $855,000 if you account for inflation. This means that they would Achieve Financial
flexibility 9 years and 8 months into their Journey not accounting for inflation or about
11 years and 9 months if we do account for inflation.

John and Jane continue investing through all
the highs and lows of the markets until they reach Financial Independence exactly 14 years
into their financial Journey assuming we don't account for inflation or 18 years and 3 months
if we do. So you might be wondering why did I split
up the accounting for inflation time frames and the not accounting for inflation time
frames should we always be accounting for inflation? Well technically yes but the reason I split
them up is because in my experience taking this journey myself as well as seeing others
take it, this journey changes how you view a lot of things and more often than not those
changes lead to you valuing things such as freedom of mobility and location and freedom
of time to be able to spend with the people you love more and valuing more material things
that cost possibly a lot of money less and less.

That's not to say that everybody becomes minimalist
going through this journey, I'm not saying that at all but I have seen a lot of people
who have gone through this journey become closer to minimalist than they were when they
started the journey as they find out more and more things that they used to buy just
don’t provide enough value or happiness for them to be worth the purchase. They find better uses for their money and
time and as a result, they generally tend to spend less. Which means that even though inflation is
technically increasing your expenses by making every dollar less and less valuable over time,
if you're also decreasing your expenses because what you value is changing it may even out
or in some cases, you may even see your regular expenses going down year-over-year as you
continue through this journey.

So that's why I split them up. And, before I go, I do want to mention that
based on what I've seen on various articles and forums some people really like to have
even more goals to chase as they go through this journey than what I've laid out today
in this video so if that's something that would help you feel free to break down these
levels even further then I have today this is obviously just the list that I used and
what worked for me, but you could take it even further.

For example, Debt Freedom could be broken
down into three separate stages: One where you are free from all high-interest debt,
a second where you are free from all debts except for the house (if you have one), and
a third where you are totally debt-free. You could tackle the coasting Financial Independence
level in a similar way breaking it down into two stages: One where are you have invested
enough to survive in retirement and a second where you have invested enough in order to
maintain your current lifestyle, adjusting for inflation of course, in retirement.

And the financial independence level could
also be broken down into three stages: Stage one would be where you are at a survivable
level of financial Independence, stage 2 would be where you have achieved leanfire status,
and stage 3 would be where you have achieved full Financial Independence on your current
lifestyle assuming that it is above the leanfire level. So what do you guys think of this 10 levels
system of tracking our progress to financial Independence? Do any of you use a similar system to track
your progress? If so, what is it and what level, step, or
stage are you guys currently on? Let me know in the comments section below.

But that'll do it for me today once again
if you enjoyed this video be sure to subscribe and hit that Bell next to my name so that
you'll be notified of all my future uploads. I generally upload every single Monday, and
if you have a friend that would be interested in this kind of content be sure to share it
with them and let's really get this information out there and start our own Financial revolution.

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7 Biggest Retirement Planning Mistakes People Regret

we all look forward to retirement it's the time to sit back relax and enjoy the fruits of our labor unfortunately whatever aspirations we may have for our golden years can quickly turn into a nightmare if we make certain mistakes when planning for this phase of life these mistakes are surprisingly common and tend to lead to financial stress and regret with a big impact on quality of life some of these mistakes are 1. not planning for retirement two retiring too soon three relying too heavily on Social Security 4. underestimating health care costs 5. failing to save enough for retirement six taking on too much debt seven not maintaining strong relationships if you want to learn more about these mistakes and how to avoid them subscribe to the channel a new video is coming soon and you won't want to miss it.

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Why Millennials Need to Rethink Retirement

so much has changed economically for Millennials and gen Z compared to their Gen X and Boomer predecessors should retirement planning still be approached in the same way or should the work in whatever capacity you can get for 30 years so you can save enough to never work again strategy be amended what if there's a better way [Music] for as long as Retirement has been a thing it's required a ridiculous amount of financial forethought Logistics and frankly hope it is the definition of the long game because it's almost impossible to put it off until the last minute but the retirement landscape has changed significantly over the last century and retirement as a concept is actually fairly new for most of human history people just worked until they died fun the origins of retirement are traced back to Otto von Bismarck in the 1800s when he suggested government-run financial support for older members of society Social Security was passed in America fewer than 100 years ago in 1935 and then corporations decided they would also help foot the bill and pension plans also known as defined benefit plans came into Vogue but 1978 legislation introduced a new way to save in section 401K of the tax code that quietly shifted the burden from the employee clear to the employee in this new legislation creating a defined contribution plan paved the way for the pensions which were expensive for employers to maintain to slowly fall out of favor especially as people began living longer so it's kind of no surprise that today's American workers are under saving since funding your own retirement now mostly without a pension is a relatively new hurdle the risk shift from institutions responsible for funding retirement to individuals being responsible for funding their retirements via 401ks and IRAs has placed the onus almost squarely on the shoulders of workers to figure this thing out buffered by the average social security check worth checks notes fifteen hundred fifty dollars per month that has big implications for young people today because it highlights something crucial retirement is an evolving concept almost necessarily it looks different for every gen generation so Millennials and gen Z have to play this long game differently than those who came before us not just in how we plan financially but also in how we structure Our Lives here's the good news though that means we are given the opportunity to Define for ourselves what type of life we want to build more broadly so knowing it's the long game how do you build a life you don't need a break from rather than bisecting your life into two halves your working half and your retired half like a budget production of the Apple TV plus hit Severance and going ham at each foreign mixing the two together can make the result even more enjoyable and fulfilling overall than saving all of your RNR for the back half of your life it makes sense to devote some time energy and effort to constructing a lifestyle for yourself that you are not itching to escape from every chance you get or counting down the years until retirement and probably making a lot of sacrifices in order to speed up that process in fact that may mean more midday breaks to watch TV or take bike rides or nap on a Wednesday afternoon the paradoxes if you can build a life you don't need a break from then planning for retirement will unfold more organically and take the pressure off but here's the rub it might take a little bit of effort and time to get to a place where your life your routines your workflows your savings cushion can be molded into a form that fits your ideal schedule you may have young children right now who dictate your day you may work in a time-sucking job you may be too low on the corporate food chain to call these types of shots for yourself especially if your work is location dependent or closely tied to another person's schedule you may be juggling all three of these things simultaneously but it's helpful and productive even to dream about what an ideal week in the life would look like it's about creating routines and working styles that generate the most positive outcomes for you it might not be worthwhile to grind it out in a job you hate for 30 years solely for the money before you allow yourself to explore something you're actually interested in that may not pay as well an ideal second act may be less about having unlimited free time to lounge around and more about having meaningful activities to fill your time and for most people that will include work and hobbies you find invigorating so here are a few prompts that I like to ask to help conceptualize what this would look like for you number one in what ways do I deplete myself or run myself into the ground number two what does a life of meaning mean to me number three if I were only allowed to work for two hours per week what parts of my job would I want to keep and what would I want to ditch I'm using an absurdly low amount of time just to force Focus here so only the best stuff can stay number four which rituals or practices make me feel most like myself and what's stopping me right now from doing more of them so now that we've got some of our conceptual boxes checked let's switch gears a little bit and talk about the financial side of this picture calculating your retirement needs based on your age we can leverage some hashtag math to understand how much we need to save whether your retirement income is going to support a traditional retirement at traditional retirement age 65 Plus or it's going to be your supplemental income starting in your 40s if you begin working part-time on a passion project the generally agreed upon replacement rate for income in retirement is about 75 percent in the financial planning world and replacement rate basically just means in order for you to replace your income how much does your portfolio need to be able to pay you this advice is given under the assumption that you'll pay less in taxes as a retiree you'll stop saving and you'll benefit from other Cost Cuts but the problem in my mind is that almost nobody makes the same amount of money throughout their entire career and wild swings and income can make identifying one pre-retirement income pretty difficult here's why this matters though 56 percent of people say that they expect to have less than five hundred thousand dollars by the time they retire providing an annual income of twenty thousand dollars per year according to the four percent rule so supplement that with the average social security check and that's about thirty two hundred dollars per month to live on depending on your needs and your timing that might be enough but it might not be as the same study found that only three percent of retirees deemed they were living the dream while around 37 percent said they were comfortable but I want all of Rich Girl Nation to live dream so let's unpack the math that can show us how to get there first we need to identify our general goal bearing in mind that this is a ballpark and to State the obvious the earlier you start the easier this will be there's really no getting around that so what Grand number in the bank should we shoot for I recommend using your monthly spending plus buffer as a guidepost for how much to invest as opposed to the aforementioned 75 income replacement rate the challenging part about focusing on your monthly spending is that it too fluctuates through different life stages and it'll be impacted by factors like where you live and how many dependents you have and your medical needs but a monthly spending range is usually useful enough to provide a ballpark for example I know that when I was single I lived on about three thousand dollars per month then when I got married my half of our monthly spending jumped up to about four thousand dollars per month when we have kids it might go up to six thousand dollars for my half for consistency's sake so this means our dual income needs to to range anywhere from six to twelve thousand dollars per month and if I can multiply by twelve I can get our annual spending somewhere between 72k and 144k per year depending on the stage of life in today's dollars and If I multiply those numbers by 25 I get our portfolio targets that'll allow for a safe withdrawal rate of roughly four percent that means my ballpark goal is anywhere between 1.8 and 3.6 million dollars so I can take the upper bound to the 3.6 and know that it would likely suffice as my sole source of income in retirement if my ideal life involved no work at all or work of some kind that wasn't paid like caring for family this would be the number necessary for a traditional retirement I can take the lower bound of 1.8 million and know that it would likely suffice as a less traditional retirement buffer for my costs providing the majority of my monthly expenses if enjoyable part-time work could provide the rest this would be the number more appropriate it for the evolved retirement blended with your working life model that we're discussing today unless you think but Katie I do not dream of Labor of any kind why would you suggest that we sandbag the OG retirement Vision with something as silly as part-time work consider this in a recent study from American advisors group they found roughly half of the 1500 people aged 60 to 75 surveyed said they plan to work part-time in retirement 12 percent said they never planned to stop working which is actually an increase from six percent in 2019.

So this is already reality for many retirees but it's hard to say whether it's by choice or out of necessity but work sure feels different when you are choosing it which makes saving and investing for the future a good idea no matter what your plans are and by making intentional shifts toward fulfilling work earlier you are less likely to hit traditional retirement age and feel disappointed if you slogged it out for 30 years doing something you didn't even like and still don't have enough to live a comfortable retirement and with regards to those example ranges the good news is that this is all proportional for example if you spend four thousand per month your gold number would be around 1.2 million which is still a lot but surprisingly achievable with consistent effort and compounding so let's figure out how close you already are to your long-term goal the concept of compounding can help us understand how close we already are to reaching our goal amount and for the sake of Simplicity we'll use a lower average rate of return that takes inflation into account for example maybe you're 30 years old today you've got 100K invested by the time you're 50 that 100K will be worth three hundred twenty thousand dollars assuming a six percent real rate of return even if you didn't invest anything else to reiterate I like to use six percent as a post-inflation rate of return because it helps accurately represent what the money will actually be worth in today's terms simply plug your existing invested assets into a compound interest calculator we'll link a good one in the description use a six percent rate of return and then plug in a realistic number of years between now and when you expect to make this type of transition if you want to be more conservative so think higher inflation lower nominal returns you can use five or even four percent you'll see that depending on how much you have already you may be closer than you think some of you may realize you are already in a position where you can safely downshift and make life adjustments without meaningfully threatening your future security to put a finer point on this you may already have enough saved and invested for future use needs that any stress you're currently experiencing about sticking around in a highly paid field that just is not right for you might be unfounded because we don't know what the individually funded and personally responsible retirement is going to look like for a generation it's worth interrogating whether or not the traditional model for retirement still makes sense for us instead you can determine what a life you don't need a break from looks like and set your financial goals accordingly with a range based on your spending depending on your age and how much you already have saved and invested you may be way closer to safety than you think and if you want to hear the full episode of this week's money with Katie show click the video that just popped up on the screen and in the description of this video our show is a production of morning brew and is produced by henna Velez and me Katie Gotti tossan Devin Emery is our chief content officer our video editors are Christy Muldoon Sebastian Vega and Nicole Friedman additional fact checking comes from Kate Brandt foreign [Music]

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Why Millennials Need to Rethink Retirement

so much has changed economically for Millennials and gen Z compared to their Gen X and Boomer predecessors should retirement planning still be approached in the same way or should the work in whatever capacity you can get for 30 years so you can save enough to never work again strategy be amended what if there's a better way [Music] for as long as Retirement has been a thing it's required a ridiculous amount of financial forethought Logistics and frankly hope it is the definition of the long game because it's almost impossible to put it off until the last minute but the retirement landscape has changed significantly over the last century and retirement as a concept is actually fairly new for most of human history people just worked until they died fun the origins of retirement are traced back to Otto von Bismarck in the 1800s when he suggested government-run financial support for older members of society Social Security was passed in America fewer than 100 years ago in 1935 and then corporations decided they would also help foot the bill and pension plans also known as defined benefit plans came into Vogue but 1978 legislation introduced a new way to save in section 401K of the tax code that quietly shifted the burden from the employee clear to the employee in this new legislation creating a defined contribution plan paved the way for the pensions which were expensive for employers to maintain to slowly fall out of favor especially as people began living longer so it's kind of no surprise that today's American workers are under saving since funding your own retirement now mostly without a pension is a relatively new hurdle the risk shift from institutions responsible for funding retirement to individuals being responsible for funding their retirements via 401ks and IRAs has placed the onus almost squarely on the shoulders of workers to figure this thing out buffered by the average social security check worth checks notes fifteen hundred fifty dollars per month that has big implications for young people today because it highlights something crucial retirement is an evolving concept almost necessarily it looks different for every gen generation so Millennials and gen Z have to play this long game differently than those who came before us not just in how we plan financially but also in how we structure Our Lives here's the good news though that means we are given the opportunity to Define for ourselves what type of life we want to build more broadly so knowing it's the long game how do you build a life you don't need a break from rather than bisecting your life into two halves your working half and your retired half like a budget production of the Apple TV plus hit Severance and going ham at each foreign mixing the two together can make the result even more enjoyable and fulfilling overall than saving all of your RNR for the back half of your life it makes sense to devote some time energy and effort to constructing a lifestyle for yourself that you are not itching to escape from every chance you get or counting down the years until retirement and probably making a lot of sacrifices in order to speed up that process in fact that may mean more midday breaks to watch TV or take bike rides or nap on a Wednesday afternoon the paradoxes if you can build a life you don't need a break from then planning for retirement will unfold more organically and take the pressure off but here's the rub it might take a little bit of effort and time to get to a place where your life your routines your workflows your savings cushion can be molded into a form that fits your ideal schedule you may have young children right now who dictate your day you may work in a time-sucking job you may be too low on the corporate food chain to call these types of shots for yourself especially if your work is location dependent or closely tied to another person's schedule you may be juggling all three of these things simultaneously but it's helpful and productive even to dream about what an ideal week in the life would look like it's about creating routines and working styles that generate the most positive outcomes for you it might not be worthwhile to grind it out in a job you hate for 30 years solely for the money before you allow yourself to explore something you're actually interested in that may not pay as well an ideal second act may be less about having unlimited free time to lounge around and more about having meaningful activities to fill your time and for most people that will include work and hobbies you find invigorating so here are a few prompts that I like to ask to help conceptualize what this would look like for you number one in what ways do I deplete myself or run myself into the ground number two what does a life of meaning mean to me number three if I were only allowed to work for two hours per week what parts of my job would I want to keep and what would I want to ditch I'm using an absurdly low amount of time just to force Focus here so only the best stuff can stay number four which rituals or practices make me feel most like myself and what's stopping me right now from doing more of them so now that we've got some of our conceptual boxes checked let's switch gears a little bit and talk about the financial side of this picture calculating your retirement needs based on your age we can leverage some hashtag math to understand how much we need to save whether your retirement income is going to support a traditional retirement at traditional retirement age 65 Plus or it's going to be your supplemental income starting in your 40s if you begin working part-time on a passion project the generally agreed upon replacement rate for income in retirement is about 75 percent in the financial planning world and replacement rate basically just means in order for you to replace your income how much does your portfolio need to be able to pay you this advice is given under the assumption that you'll pay less in taxes as a retiree you'll stop saving and you'll benefit from other Cost Cuts but the problem in my mind is that almost nobody makes the same amount of money throughout their entire career and wild swings and income can make identifying one pre-retirement income pretty difficult here's why this matters though 56 percent of people say that they expect to have less than five hundred thousand dollars by the time they retire providing an annual income of twenty thousand dollars per year according to the four percent rule so supplement that with the average social security check and that's about thirty two hundred dollars per month to live on depending on your needs and your timing that might be enough but it might not be as the same study found that only three percent of retirees deemed they were living the dream while around 37 percent said they were comfortable but I want all of Rich Girl Nation to live dream so let's unpack the math that can show us how to get there first we need to identify our general goal bearing in mind that this is a ballpark and to State the obvious the earlier you start the easier this will be there's really no getting around that so what Grand number in the bank should we shoot for I recommend using your monthly spending plus buffer as a guidepost for how much to invest as opposed to the aforementioned 75 income replacement rate the challenging part about focusing on your monthly spending is that it too fluctuates through different life stages and it'll be impacted by factors like where you live and how many dependents you have and your medical needs but a monthly spending range is usually useful enough to provide a ballpark for example I know that when I was single I lived on about three thousand dollars per month then when I got married my half of our monthly spending jumped up to about four thousand dollars per month when we have kids it might go up to six thousand dollars for my half for consistency's sake so this means our dual income needs to to range anywhere from six to twelve thousand dollars per month and if I can multiply by twelve I can get our annual spending somewhere between 72k and 144k per year depending on the stage of life in today's dollars and If I multiply those numbers by 25 I get our portfolio targets that'll allow for a safe withdrawal rate of roughly four percent that means my ballpark goal is anywhere between 1.8 and 3.6 million dollars so I can take the upper bound to the 3.6 and know that it would likely suffice as my sole source of income in retirement if my ideal life involved no work at all or work of some kind that wasn't paid like caring for family this would be the number necessary for a traditional retirement I can take the lower bound of 1.8 million and know that it would likely suffice as a less traditional retirement buffer for my costs providing the majority of my monthly expenses if enjoyable part-time work could provide the rest this would be the number more appropriate it for the evolved retirement blended with your working life model that we're discussing today unless you think but Katie I do not dream of Labor of any kind why would you suggest that we sandbag the OG retirement Vision with something as silly as part-time work consider this in a recent study from American advisors group they found roughly half of the 1500 people aged 60 to 75 surveyed said they plan to work part-time in retirement 12 percent said they never planned to stop working which is actually an increase from six percent in 2019.

So this is already reality for many retirees but it's hard to say whether it's by choice or out of necessity but work sure feels different when you are choosing it which makes saving and investing for the future a good idea no matter what your plans are and by making intentional shifts toward fulfilling work earlier you are less likely to hit traditional retirement age and feel disappointed if you slogged it out for 30 years doing something you didn't even like and still don't have enough to live a comfortable retirement and with regards to those example ranges the good news is that this is all proportional for example if you spend four thousand per month your gold number would be around 1.2 million which is still a lot but surprisingly achievable with consistent effort and compounding so let's figure out how close you already are to your long-term goal the concept of compounding can help us understand how close we already are to reaching our goal amount and for the sake of Simplicity we'll use a lower average rate of return that takes inflation into account for example maybe you're 30 years old today you've got 100K invested by the time you're 50 that 100K will be worth three hundred twenty thousand dollars assuming a six percent real rate of return even if you didn't invest anything else to reiterate I like to use six percent as a post-inflation rate of return because it helps accurately represent what the money will actually be worth in today's terms simply plug your existing invested assets into a compound interest calculator we'll link a good one in the description use a six percent rate of return and then plug in a realistic number of years between now and when you expect to make this type of transition if you want to be more conservative so think higher inflation lower nominal returns you can use five or even four percent you'll see that depending on how much you have already you may be closer than you think some of you may realize you are already in a position where you can safely downshift and make life adjustments without meaningfully threatening your future security to put a finer point on this you may already have enough saved and invested for future use needs that any stress you're currently experiencing about sticking around in a highly paid field that just is not right for you might be unfounded because we don't know what the individually funded and personally responsible retirement is going to look like for a generation it's worth interrogating whether or not the traditional model for retirement still makes sense for us instead you can determine what a life you don't need a break from looks like and set your financial goals accordingly with a range based on your spending depending on your age and how much you already have saved and invested you may be way closer to safety than you think and if you want to hear the full episode of this week's money with Katie show click the video that just popped up on the screen and in the description of this video our show is a production of morning brew and is produced by henna Velez and me Katie Gotti tossan Devin Emery is our chief content officer our video editors are Christy Muldoon Sebastian Vega and Nicole Friedman additional fact checking comes from Kate Brandt foreign [Music]

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How To Retire Before 99% of People (Starting With $0)

simple if you want to retire before everyone else then you need to follow these three steps firstly calculate the real numbers secondly manage the variables and thirdly execute your plan successfully it's really that straightforward but most people don't even get past step one to be honest thirty percent of people have probably clicked off this video probably because retirement sounds too old school for them however you might not actually want to retire early I'll explain why towards the end well that's for the few of you that make it that far step one calculate the real numbers how much do I need to retire this is one of the most searched questions on the internet and no one seems to be able to give the real answer it's no surprise that lots of people are turning to the internet as the school system has left us in the dark they're only interested in pushing us into the workforce so that Society can exploit us for our time and labor if most people actually knew the answer to how much they need to retire then they'd probably an uproar that's because Millennials and gen z's are reportedly going to have to work longer than any other generation the sad truth is many people are deluded some think they'll enjoy round the world cruises on the back of saving fifty dollars a month others believe they'll need so much money that quitting work is an unrealistic fantasy most people are hurtling towards a harsh reality check without even knowing it it's not their fault as they've been set up to fail retirement was much more achievable in my day however that's why it's so important to calculate the real numbers now so you're at an advantage this is kind of like the first step of any road trip setting the destination on your navigation system without air how are you going to head in the right direction right I'm going to cut through all the confusion online you just need to focus on the role of 300.

This rule is so powerful that it allows you to jump forward in time and calculate how much money future you will need to quit your job and still pay the bills it's simple all you have to do is add up your monthly expenses and multiply them by 300. this means if you currently spend one thousand dollars per month then you'll need three hundred thousand dollars saved if you spend fifteen hundred dollars a month this will mean you need four hundred and fifty thousand dollars in your account if you spend three thousand dollars a month you'll require nine hundred thousand dollars and so on you get the idea now I know what you're thinking how much but let's say you do need nine hundred thousand dollars you don't have to save all of that I'll reveal later how you can use the power of compound interest and only have to save around a hundred and ten thousand the rule of three hundred is based on the ability to safely withdraw four percent per year from your savings the idea is that if you put your money in the correct places then it will grow by more than four percent per year allowing you to take from your pot without it running out it's a bit like Hermione's Magic Bag in Harry Potter I know this sounds great but it's very important this is just a rule of thumb and not scientific law like gravity I mean it's pretty impossible to accurately predict the future because there are so many different factors that we can't take into account if anyone tells you otherwise then they're trying to sell you something so yes stock market conditions and inflation could have an impact on your final Freedom figure however still think it's a good idea to use a ruler 300 as a guide and adapt it as you go now you've figured out your destination you can start increasing your odds and get in there which brings me on to step two manage the variables just as you need to use the steering wheel brakes and accelerator in a car to navigate the roads you need to use these five variables to achieve your retirement goal variable one is of course income I highly suggest that you increase your income as soon as possible this is your accelerator and if you're making more than the average you'll be able to retire before most people in my late teens I had an income problem after leaving school at 16 I just wasn't making enough money to pay my rent and go out with my friends let alone save for retirement so I devised a plan to get a pay rise you see I was working part-time in a radio control model shop earning next to nothing I thought to myself how can I get the owner to pay me more for the same work for the next couple of weeks I work my socks off and I kept track of all the sales I made I remember writing down every detail in a little notepad when I got a chance I sat down and I looked at all my notes and compared them with what the shop had sold in that period one thing became very obvious I was making all the radio controlled helicopter cells because of my expertise in flying them that's when it hit me I was valuable to my boss because without me he couldn't sell any helicopters now I had this information I felt confident I could approach him and ask for a raise I clearly explained my value to the business and asked for the increase in Pay I wanted I remember him staring at me blankly for a couple of seconds I thought I'd offended him until he let out a little Grunt and a nod of his head agreeing to pay me exactly what I'd asked for although this was a long time ago the principle Remains the Same now if you want to increase your income then you need some kind of Leverage to have this you need to become valuable maybe you could learn some high income skills such as sales and marketing or alternatively start some kind of side hustle however it actually doesn't matter how much you earn it's all about how much you save and that brings me on to variable two expenses even if you were accelerating at full speed in a Formula One car if you had a massive parachute attached to your rear wing then you aren't going anywhere fast this is exactly what it's like having a good income with too many expenses look I'm not one of those online people that's going to tell you to stop buying Starbucks and enjoying life I think that's a pretty sad way to live if you like those things this variable is more about cutting out the things you couldn't care less for this is actually the perfect time to come back to the rule of 300.

Let's say you spend fifteen dollars per month on Netflix if we multiply that by 300 you'll see that you actually need four thousand five hundred dollars saved in your retirement pot to keep watching indefinitely well this is assuming the price doesn't go up which it most certainly will most people have little monthly expenses so they don't really care about us they seem so small but if you apply them to the rule of 300 they're no small expenses actually add up very quickly as well as cutting out little expenses I also highly suggest being smart about the larger ones I'm talking about rent mortgages and car payments these are the biggest silent wealth Killers as they're a huge drain on your finances every single month but there are a few ways to get around them the first is known as house hacking this is when you buy a house and rent out part of it to a roommate in order to cover the mortgage in America you can also buy something called a duplex which is two separate living accommodations in one house allowing you to live in one side of the house and rent out the other the next is rent hacking this is simply renting out a house and then subletting individual rooms to different people to cover all of your costs but before you start doing this make sure to clear it with your landlord the third is car hacking this is when you buy a car that has lost most of its value already drive it around for a couple of years then sell it for almost what you paid for it and repeat the process if you successfully managed to drive down your expenses and still live a great life then you can start thinking about variable three debt a lot of people aren't going to like this one but you need to master debt some people are totally against It While others are way too Reckless I've always been somewhere in between the two extremes it's kind of like the fuel in your car it can be very useful but it can also explode if you're not careful managing debt is crucial for a retirement planning because carrying too much bad debt can eat away at your savings make it difficult to achieve your retirement goals on the other hand using good debt strategically can help you build wealth and increase your income which can lead to an earlier retirement it's important to understand the difference between the two and make smart decisions about when and how to use debt put Simply Good debt is when you borrow money to buy things or make more money in the future like buying a house and renting it out bad debt is when you borrow money to buy things you don't make any money on like using a credit card to buy clothes expensive holidays or a car that you don't need but here's the real kicker in order to get good debt you need to have a good credit score and the best way to do this is to actually own a credit card you can put little expenses on it and pay it off in full at the end of each month this will mean you never pay any interest and build a good score for the future but like I said the only reason to have good debt is to buy assets which brings me on to variable 4 investing investing is important for retirement because it can allow your money to grow faster than it would if you simply just saved it it's kind of like the Boost pad you go over when playing Mario Karts with the right Investments your money can grow at more than four percent per year which is the amount you can safely withdraw from your savings if you're using the rule of 300 not a financial advisor however I've always invested consistently into the S P 500 which is an index fund that includes the top publicity traded companies in the USA which is historically averaged a return of eight percent per year I mean if you were to invest 200 per month for 45 years which equates to a hundred and eight thousand dollars an average return of eight percent per year then you would have a total of one million fifty four thousand nine hundred and seven dollars that's the power of compound interest but where can you start investing well it's a lot easier than it was back in my day as you can do it all from your phone there are various different apps I'll leave some of the links down below one of my favorites is light year and they are also kindly sponsoring today's video light year is looking to give every European low cost and convenient access to the world stock markets and they're really great at what they do the app is super user friendly making it perfect for both Advanced and novice investors light year is available on mobile and web platforms allowing for a smooth investment process and research the platform has 3 000 stocks and ETFs from the UK us and across Europe including ones that track the S P 500 which I mentioned earlier and there's more on light year you can also earn interest on your uninvested money in three currencies the euro dollar and pound if you're watching this from the UK the Eurozone or Hungary you can download and start using light year today use my code tillbreed and receive a 10 fractional share after making your first investment but let me remind you investing always carries a risk and the value of any investment can decrease as well as increase variable 5 tax the more money you earn the more money the government will try to take off you this is why you really need to use the tax loopholes to your advantage this is kind of like your fuel tank leaking if you don't plug the holes then you'll have nothing left by using tax advantage accounts such as Roth IRAs and 401ks in the USA and Isis in the UK you can reduce the amount taxes you owe on your income and Investments these accounts allow you to invest and avoid paying tax on the money you make but the amount you can put into these accounts is limited every year so I strongly suggest that you fill these up as soon as possible and now you're ready for step three execute your plan just like you need to address your driving style based on the road conditions and traffic you need to adjust your approach to managing the variables in order to execute your plan successfully put simply the following techniques will help you become a better driver firstly develop an Roi Obsession when I was growing my wealth I was hyper focused on making sure that everything I bought at least made me back the money I spent on it a good example of this nowadays is the MacBook Pro it's a great tool that can allow you to make far more money back than you spend on it however if you just play games on it then you'll have to save all that money up again the hard way think about how you can use everything to make you more money that way you'll never have to start from zero more than once secondly measure your progress make a habit of setting clear money targets every month I remember not only doing this but also sharing them with one of my friends I did this because I wanted him to keep me accountable if I missed a Target it's actually been revealed that this improves your chances of achieving a goal by 65 thirdly stay cash poor a lot of people might not agree with me on this one but I think if you save too much money in a simple bank account then you get too comfortable I know I perform best when I'm on the ropes and have a lot of pressure to succeed by keeping myself cash poor and investing all of my money back into my index funds and businesses I was able to motivate myself to earn more and remain flexible not stuck in my old Comfort Zone in the old ways this concept is also known as paying yourself first as you prioritize your Investments and then pay your expenses which is money going into other people's pockets put simply invest first then full yourself to find the other money you need now for the people that have made it this far here's why you might not want to retire traditional retirement was created to help encourage older people to leave the workforce and make room for younger people however retirement can lead to a loss of purpose and drive and many people find themselves getting ill or losing motivation I discovered this first hand as I had enough money to retire in my late 20s I took a couple of weeks off and was tired to lose the will to live I lost purpose and that's when I started looking into two different options the first I'm calling micro retirement this is a concept where you take a break from work for a short period of time to pursue personal interests and travel with the intention of returning to work afterwards it's different from traditional retirement as it's not a permanent state of not working but rather a way of taking a break from work and returning to it later the idea is to break up the years of work with periods of leisure and Adventure allowing for a more fill in life overall now even though this sounded better it still wasn't for me I feel like wasting my time doing something I didn't want to do that's when I came across the second alternative option lifelong retirement for me retirement means freedom so I don't have to do anything unless I absolutely want to that's why I built business around doing what I like to do day to day if I don't like doing something then I just hire someone else to do it I'm sure some people have already commented if he's actually retired why is he making his YouTube videos the answer is that I genuinely enjoy doing it who wouldn't like filming videos and helping people out whoever said money doesn't make you happy hasn't given enough of it away and I think that's even more true for giving away knowledge if you'd like to know seven passive income ideas you can start right now then watch his next video but don't click on it just yet make sure to subscribe if you want to grow your wealth okay I'll see you over there

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How To Retire In 15 Years (Starting With 0$)

in a world that often ties success to climbing the corporate ladder and retiring at a standard age the fire movement stands out as a revolutionary approach offering a pathway to financial Independence and early retirement if you're intrigued by the idea of Breaking Free from the traditional work to retirement model let's explore the three fundamental questions that will guide you on your journey to fire so if you're wondering what exactly you need to do to retire earlier and how much money you actually need you come to the right place we're also going to talk about something of particular importance at the end and it's how you can be prepared if things don't go as planned in the end we're going to answer all these questions in this video today so stay tuned but before we get to the main topic of the video first of all welcome back and if you're new on our Channel we are the finance nerds and we try to help you to fix your finances and spread our knowledge in saving money budgeting and investing and if you like the video and want to support us hit the like button on this video number one what do you have to do to follow the fire movement the first step on your fire journey is embracing the core principles that Define this movement at its Essence fire is about taking control of your finances living intentionally and making strategic decisions to build a future of Financial Freedom mastering the art of frugality to follow the fire movements you must become best friends with frugality start by scrutinizing your spending habits create a detailed budget outlining your monthly income and expenses identify areas where you can cut back without sacrificing your quality of life and opt for needs over ones cook at home and resist the urge to keep up with extravagant Lifestyles establishing your savings rate goals fire success hinges on your ability to save a significant portion of your income set clear savings rate goals aiming for at least 25 to 50% of your earnings the higher your savings rate the faster you accumulate the funds needed for financial Independence regularly revisit your budget and savings goals to stay on track investing wisely for growth saving alone won't get you to fire you need the power of investing develop a well-balanced Investment Portfolio that aligns with your risk tolerance and financial goals diversify your Investments across stocks bonds and real EST state to maximize growth potential understand the basics of compounding interest and let your money work for you calculating your financial Independence fi number the Cornerstone of the fire movement is your fi number calculate this by determining your annual expenses and multiplying them by 25 this number represents the amount of money you need to have invested to cover your living expenses indefinitely knowing your fi number gives you a tangible goal and a clear end point for your journey and embracing a minimalist lifestyle simplify your life to amplify your journey to financial Independence Embrace a minimalist Lifestyle by decluttering your living space and cutting down on unnecessary expenses the less you need the easier it is to reach your fi goals re-evaluate your possessions and ask yourself does this bring me joy or is it a financial burden number two how much money do I actually need understanding the financial aspect of the fire movement is crucial to setting realistic goals and expectations the answer to this question lies in your lifestyle expenses and the vision you have for your postretirement life creating a detailed budget to determine how much money you need for fire start with a comprehensive budget categorize your expenses into fixed and variable essential and non-essential include everything from housing and utilities to entertainment and dining out the more detailed your budget the more accurate your estimate of postretirement needs will be estimating your annual expenses your fi number is directly linked to your annual expenses calculate how much money you spend in a typical year including all necessities and discretionary spending be honest and realistic about your lifestyle choices remember fire isn't about deprivation it's about optimizing your spending to align with your values multiplying by 25x rule once you have your annual expenses multiply them by 25 this multiplication factor is derived from the 4% rule a principle suggesting that you can safely withdraw 4% of your Investment Portfolio annually without depleting it your fi number is essentially 25 times your annual expenses representing the amount needed to sustain your lifestyle without a traditional job adjusting for inflation inflation is a silent wealth eroder factor in a conservative estimate for inflation when calculating your fi number this ensures that your money maintains its purchasing power throughout your retirement consider historical inflation rates and consult with financial experts to make informed adjustments evaluating health care costs don't overlook Healthcare expenses in your fire calculations research Health Insurance options and account for potential increases in medical costs as you age understanding and planning for healthcare expenses ensures that your fire plan remains robust even in the face of unexpected health chck Alles number three what kind of backup plan can I create if things don't work out as planned while the fire movement provides a road map for Financial Freedom it's crucial to acknowledge that life is unpredictable creating a solid backup plan ensures that you're prepared for unforeseen circumstances building an emergency fund an emergency fund is your financial safety net before aggressively pursuing fire ensure you have a robust emergency fund that covers 3 to 6 months worth of living expenses this fund provides a cushion in case of unexpected job loss medical emergencies or other unforeseen events diversifying income streams relying solely on your Investment Portfolio for income can be risky consider diversifying your income streams by exploring sight hustles freelancing or part-time work these additional streams not only boost your savings rate but also act as a buffer if your Investments face temporary setbacks continuously up updating your plan flexibility is key in the fire Journey regularly review and update your financial plan to accommodate changes in income expenses and market conditions a dynamic plan allows you to adapt to unforeseen circumstances and make informed decisions to safeguard your financial future staying agile in the job market if early retirement doesn't unfold as planned staying agile in the job market is a valuable backup strategy keep your skills relevant maintain professional Networks and be open to opportunities that align with your goals a temporary return to Workforce can provide a financial boost if needed exploring alternative living arrangements consider the role of housing in your fir plan downsizing or exploring alternative living arrangements such as house hacking or co- living can significantly reduce expenses being open to adjusting your living situation adds another layer of flexibility to your backup plan continue learning and adaptation the fire journey is an ongoing process of learning and adaptation stay informed about financial Trends investment strategies and lifestyle adjustments that may enhance your plan the ability to adopt to changing circumstances is a Hallmark of successful fire practitioners embarking on the fire journey is a bold and empowering Choice by adhering to the principles of frugality strategic savings and intentional investing you can unlock the door to financial Independence remember the fire movement isn't a riged set of rules it's a customizable framework that empowers you to shape a future where financial decisions align with your values and aspirations and if you think living below your means is H wait until you know these five Frugal Living ways from one of our most popular videos on the right if you enjoyed this video give it a thumbs up and don't forget to subscribe to our channel for more empowering content like this we hope to see you on the next video

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How to Retire in 7 Years Starting with $0

hi guys it's mark i believe the biggest reason most people don't achieve early retirement is that they were never given a step-by-step guide the only path that seems to be pushed in schools is to get a 9 to 5 job save your money work until you're 65 and finally retire when you're too old to enjoy it luckily one of the businessmen i looked up to explained it in a slightly different way he said the word retirement should be replaced with the word freedom because once you reach a tipping point when you have enough money to stop working you have true freedom every day you can do exactly what you want no questions asked maybe that's relaxing on a beach sipping a pina colada or building businesses that change the world like elon musk when you have the ability to retire it's entirely up to you how you spend your time so on that note today we're going to discuss the plan i use to reach my retirement goal in my late 20s starting from zero dollars this may be a little extreme for some people but that's just me i'm either 100 in or i'm not in at all obviously you can take this plan at your own pace and who knows maybe you'll even beat me we'll get into all of this right after you hit that like button for the l2 buga rhythm as it really helps push this video to more people also make sure to subscribe if you want to grow your wealth phase one is all about your freedom figure this is the target you have to reach in order to have full control of your life this is something you should know even if you've got zero dollars in the bank if you don't know your freedom figure then it's a bit like being blindfolded in a running race you can't see where you're going so you may end up putting all your efforts in going in the wrong direction or even tripping up and falling flat on your face the reality is there are three types of people in this world there are doers dreamers and drifters otherwise known as the 3ds actually thinking about it when i was at school they gave me a cap with d on it they must have known i was a doer so let's start off with drifters they go through life living paycheck to paycheck without any financial aims they don't really see the point of saving or investing money as retirement feels like it's not something a young person needs to be thinking about dreamers do have financial goals but they don't have any plans in place to actually achieve them so they will forever just stay dreams and finally doers they have financial goals but most importantly have a plan to reach them and that's where your freedom figure comes in this is a very individual thing and it all depends on how much you want to pay yourself each year when you retire it's actually a great way to figure this out and it's called the times 25 rule so let's firstly assume you want to make fifty thousand dollars per year without working secondly we would need to multiply 50 000 by 25 which gives us 1.25 million dollars the idea is that you're able to withdraw four percent of this per year without ever running out of money and you guessed it four percent of 1.25 million dollars is 50 000 1.25 million dollars how am i ever going to get that in seven years this video's a lie i know this may sound tough especially if you're starting from zero dollars but it is possible no one said it's going to be easy but with the right approach it can be done i mean if i can do it then so can you in the early stages of your retirement plan the way you think about money is crucial it's all about getting the right mindset in place the key is to prioritize building wealth over cash flow this is because building wealth is about locking your money away in assets that increase in value whereas cash flow gives you more money flowing into your pocket now this may sound great but it can lead to a variety of problems such as lifestyle inflation and sky high taxes cash flow is extremely important but more so later in life once you start to unwind this is why whenever i made some extra cash when i was younger i made sure to reinvest the majority of it of course i get it sometimes it can feel really nice to secure some profit and lock it away in your bank account it can give you a full sense of security knowing you've got all your money sat in your account for whenever you need it but the reality is you often don't need as much money as you think forming a habit of reinvesting your cash flow is absolutely essential when it comes to building wealth as fast as possible and hitting your freedom figure phase two is laying the foundations this is kind of like building a house you need to lay a solid foundation to ensure your house doesn't crumble the first sign of an earthquake unfortunately seventy percent of millennials now live paycheck to paycheck which means they're building their lives on an unstable base just like building a house on quicksand if you find that unbelievable then this is even more shocking forty percent of americans with an income greater than a hundred thousand dollars a year are still living paycheck to paycheck this just goes to show how important laying the foundations are and even though it may seem simple many people are failing at this phase there are four stages i considered when i was in this phase during my early 20s the first stage is paying off high interest debt it's crucial to pay this off before you even consider investing your money as high interest debt is holding you back but saying this it is very important to understand the difference between good debt and bad debt good debt is anything low interest that makes you money for example the mortgage on a rental property or low interest finance on a laptop to build an online business bad debt is high interest debt that doesn't make you any money for example shopping for clothes on buy it now pay later credit card debt or even a typical bank loan all of this debt needs paying off as soon as possible i was in quite a lot of debt when i was 18 and in order to get out of it i used the debt avalanche method which involved making the minimum payments on all my high interest debt then i used any extra money to pay off the debt with the highest interest rate first which was my store credit card at 32 crazy i know signing up for that was a huge mistake which i've talked about in some of my past videos i then worked my way through the bad debt with the lowest interest rate which was my car loan at around 15 of the time within a year i'd managed to get everything paid off the big lesson here is you can't invest to build wealth when being weighed down by bad debt stage two is putting aside an emergency fund this is essential for your foundations as if you start investing without an emergency fund you might find a few months down the line you get into a spot of bother with an unexpected expense and no cash to pay for it you will then have to pull your investments out to cover the expense and then you'll miss out on the potential profits stage three is building a great credit score a credit score is a bit like your resume it follows you around in life is regularly updated and it helps lenders decide whether you're a worthy borrower having a good credit score is especially important if you ever want to get a loan in the future for example to buy your dream house you just never know when you're going to need it i should have actually started building my credit score a lot sooner than i did because it's so easy to get started all you need to do as soon as you turn 18 is get yourself a credit card start putting a few little expenses on it like gas and pay that baby off in full at the end of each and every month this way you pay no interest and prove to the lenders that you're a reliable borrower stage four is reducing your tax liability every dollar you earn has hidden costs of all the expenses however taxes can sting the most and take the biggest bite out of your money noah likes the tax man the good news is that tax efficient accounts can minimize how much tax you have to pay and maximize your savings in my early twenties my income was really starting to get eaten up by taxes so i started looking for the best ways to save as much as possible i then discovered if i opened up a retirement account then i could save money i hadn't paid tax on this is known as a 401k in the usa and a sip in the uk of course i will eventually have to pay tax on this but as i'll be older i'll be in a much lower tax bracket because i'll be earning less so hence i should save quite a lot of money but i didn't stop there i opened another account that allowed me to save money that i'd paid tax on but in the future i wouldn't have to pay tax on my capital gains or in other words all the money that the money generated this is called a roth ira in the usa and an isa in the uk i firmly believe that everyone should set up both of these accounts as soon as possible as i know it really reduced my tax burden so once you've built up these solid foundations it's time to start expanding phase three is building multiple income streams i like to think about it like this imagine spider-man is you the platform is your life and the skittle is your everyday job if you get fired guess what's happening now imagine this spider-man is you the platform's your life but now you have multiple income streams the stock market could crash you could lose your job or your side hustle could fail but your life is supported by your other income streams this makes it very hard for someone or something to come along and strike you out a secure job is nowhere near as common as it once was with the average person now working 12 jobs in a lifetime there isn't one perfect solution for everyone but something that has worked for me over the years is to pick side hustles that take advantage of my existing skills as i don't have to learn something completely new this will often end up being something you're passionate about as you develop the skills without even knowing it sometimes we can lean towards what will pay the most but when looking to build long-term wealth sustainability is important so when waking up every morning being passionate about your line of work is a great idea as richard branson once told me over lunch there is no greater thing you can do with your life and your work than follow your passions in a way that serves the world and you well that's actually one of his most famous quotes but he did say something along those lines it was about 20 years ago but one thing i do remember all the details about was the fantastic spaghetti bolognese he made for me there are many different side hustles you can start such as affiliate marketing e-commerce becoming an influencer drop shipping and even good old-fashioned window cleaning bin cleaning driveway cleaning photography the list goes on the main takeaway here is the higher perceived value you have according to society the more you will get paid if you do the bare minimum or your service doesn't really help people you'll be paid the bare minimum it's important to go above and beyond and provide value as best you can to maximize your profits which can then be invested to reach the end goal of your luxury retirement phase four is creating passive income once you have your side hustles and income in check it's time to start looking into passive income streams side hustle money doesn't last forever that's why you want passive income streams so your money can make more money while you sleep this is why the rich get richer this phase is all about multiplying your cash and not chasing high returns this is why i always talk about the importance of consistent long-term investing the end goal is to be on the beach sipping a nice drink not worrying about anything money related now i do always say that no income is truly passive everything requires a bit of work here and there but the idea is to get your money working for you instead of selling your time there is only so many jobs you can fit into one week and that's why trading time for money has its limits i was working a nine to five job plus all the overtime flipping cars on the weekday evenings working in a shop on saturdays and tutoring people on sundays i actually had no more time to sell so that's when i started looking into ways to generate passive income through the markets i'm talking stocks real estate and cryptocurrencies well maybe not crypto back then it wasn't around but i'm certainly interested in it now the stock market is probably the easiest to get involved in especially nowadays maybe not when i was younger as you had to call up your broker on the phone and do all your trades that way now it's all done on investing apps these apps also have great sign up bonuses public.com are currently giving you a free stock worth all the way up to a thousand dollars if you live in the usa and free trade are giving away a free stock worth up to 200 pounds if you live in the uk i'll leave the links down below if you want to pick those up both these apps also offer fractional investing which means you can invest with as little as two dollars this has made it much easier for the everyday investor to get involved in the stock market it's always a good idea to max out your tax advantaged accounts before investing elsewhere i personally like to put the majority of my money into simple low-cost index funds which are essentially baskets of stocks and like i said earlier i like to minimize cash flow so i always turn on automatic dividend reinvesting cryptocurrency is the second error i would focus on as it also has quite a low barrier to entry with apps like coinbase making it easier than ever to purchase crypto coins however it's definitely riskier by the way coinbase are giving you ten dollars a free bitcoin i'll leave the link below if you're interested in that i personally only have five percent of my money in well-known crypto coins such as bitcoin ethereum and cardano i believe that these are the coins that will stand to test the time and i'm not prepared to take the risk of betting on a random coin that might hit it big like i said before my strategy is to get modest passive income from the markets and make fast money from my businesses real estate is the last on the list and this is honestly the holy grail of wealth building however it is a little harder to get into if you're able to save enough for a deposit on a rental property then you can really start unlocking the power of leverage this is because you can get a tenant to rent out the house which should cover the mortgage or while hopefully the house increases in value you're basically getting your house paid for by someone else obviously the earlier you can do this the sooner the debt will be paid and the house will be yours leverage is an amazing tactic used by lots of rich people but it can be very dangerous if not done correctly this is because you can become over leverage which means if things go bad and you can't meet payments your property could be repossessed most people won't tell you this but i'm going to be honest this step-by-step strategy will be hard to achieve if you don't take your own initiative and start a profit generating side hustle it's still possible with a nine-to-five job but maybe not in seven years unless you have an extremely highly paid job that is also secure a nine-to-five isn't at all bad it's just most people need a side hustle to kick-start that wealth building also just a warning for me this is not gonna be easy anyone that tells you otherwise is lying to you you're gonna have to knuckle down like i did and work hard for a few years to have a lifetime of freedom after all if it was easy then everyone will be doing it when you hit your first roadblock and i'm certain you will just think of it as a challenge to overcome and not as a complete disaster this plan will only work if you stay consistent and disciplined i'm confident that after you reach phase 4 you should be in a pretty good place to achieve financial independence and retire early so i'm going to leave the next video right up there but don't click on it just yet make sure to subscribe if you want to grow your wealth and don't forget to pick up your free stocks and bitcoin with the links below okay i'll see you over there

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You Will Never Retire, Here’s Why… – How Money Works

You pay attention at school, you study hard,
get a good job, work diligently throughout your career all so that one day you can kick
back and enjoy a nice pleasant retirement. That’s the story anyway. But it’s not one that always lives up to
reality. There are countless stories of people with
good jobs, and diligent savings patterns still needing to work well into their twilight years.

This is to say nothing of people that unfortunately
never have the privileges of higher education or a stable career. Recent reports have found that less than 30%
of American workers are on track to retire at all, and even fewer think they will have
a comfortable retirement and they might be right. I know you didn’t want to hear this, but
there are a few BIG factors at play in the world today that are going to act to keep
most younger generations in the workforce indefinitely. This is all before considering the major hiccup
that the covid 19 pandemic has been. A global event that has actually worked to
widen the gap between younger generations with fewer assets and more precarious employment,
versus older generations which tend to be more secure. Now you might think you are different, you
contribute to your 401k, save diligently, subscribe to How Money Works and even invest
regularly into the stock market. Well that’s all great, but I might still
have some bad news for you. There are lot’s of issues at play here… Housing, the stock market and a series of
broader economic conditions which might threaten the general assumptions we make about indefinite
growth.

So it’s time to learn how money work’s
to find out why we will all be on that grind until we are 120 years old. So the obvious first culprit is housing. Affording a home has become a major challenge
for most workers in the USA. I know this problem is nothing new, but there
ARE still a few very important factors that people don’t consider. Even very high-income earners that graduate
top universities and go into fields like banking or big tech tend to be moving to equally high
cost of living areas like New York, Chicago, or San Francisco. Pew research recently reported that a majority
of young adults between the ages of 18 and 30 are now living at home with their parents.

The median age of a first home buyer in 2019
was a 34 and experts agree it’s almost inevitable that figure will be pushed even higher by
the pandemic. What’s more is that young buyers tend to
be purchasing smaller dwellings like apartments and townhouses rather than traditional free
standing family homes. Not because they don’t want to, but because
they can’t afford it. This is a real issue because as most financially
secure people will tell you their house is their biggest asset. This doesn’t just mean it’s the asset
that they own that’s worth the most money either. Owning a house means that you don’t have
rental expenses and even if you are paying a mortgage those payments will at least partially
be building equity in the home itself.

What’s more is that once that mortgage is
paid off you have somewhere to live with very little ongoing costs. Retiring with a home, means that even modest
retirement savings or a pension can go a very long way when compared to someone who will
need to stretch those payments to cover rent. If a homeowner is running low on cash in retirement
it could be a simple as downsizing their family home, a luxury not possible for someone who
hasn’t fully paid off their home, or doesn’t own one at all. Now let’s be generous and take this median
age of 34 to buy a first home, stick a 30 year mortgage on top of it, and suddenly even
this generous assumption of a regular young worker is in their mid 60’s still paying
off a home loan. This is assuming that this person never upgrades
their home, or renovates, or does anything to increase their mortgage from the original
one they take out over thirty years.

The particularly morbid amongst you might
think, well the boomers have to die and leave us their homes eventually right? And… well… yeah I guess so as unpleasant
as that may be it is a reality. The problem is this will likely only exarcerbate
the issue. We saw this in our video on why family fortunes
disappear, inheritance’s that could actually fund a retirement tend to go to people that
are already pretty old and wealthy themselves. Now again the unaffordable housing issue is
a debate as old as modern capitalism, but maybe this isn’t an issue anyway, maybe
you are still unconcerned because you have plans to fun your retirement even without
a house to call you own, well ok, let’s put those plans to the test… The stock market is the other major vehicle
by witch people fund their retirment.

Even fixed income pension funds ultimately
rely on the growth of these markets to provide incomes to their members in retirement, but
this assumption of endless returns may be under threat. To understand why consider a simple example. 10 lumberjacks are working at a sawmill that
creates frames for residential homes. At the moment the lumberjacks are only using
basic hand tools, but if they all work hard and nobody slacks off they will meet their
quotas. One particularly astute lumberjack takes a
portion of his paycheque and over time uses it to fund research into motorized tool’s. His money was well spent because he eventually
invents the table saw. He then saves up a bit more of his money to
buy the materials needed to built 9 copies of his new contraption. He then gives these 9 table saws to his colleagues
who had previously been using those hand tools. This boosts their productivity enough that
they can still meet their quota even if the first lumberjack doesn’t show up to work
at all.

This is what we call capital investment, and
it’s how (at least in theory) we can sustainably fund peoples retirements. The same amount of frames are made, the other
9 lumberjacks don’t need to work longer and harder, and the first lumberjack has been
properly rewarded for his creation with a nice cushy retirement. Of course this is a very crude example but
in reality most people do the same thing just through the medium of the stock market. Companies raise money and then use that money
to purchase capital equipment which will allow their worker to effectively and efficiently
produce goods and services for the economy.

But lets go back to our oversimplified example. Problems start to arise when more of these
lumberjacks get the same bright idea. One might invest into a forklift to make the
work of nine men possible with just eight, and then another might do the same with nail
guns to make the work of the remaining 8 men possible with just seven and so and so on… But every time this happens it get’s a fair
bit harder to find that next thing. Eventually you are going to need an almost
fully automated production line and even then you are probably going to want at least one
worker there to oversea this operation. Every human you take out of the equation and
replace with a piece of capital becomes more and more expensive, especially when compared
to some other alternative investments. Let’s say lumberjack 5 will need to invest
Millions of dollars into a robotic arm in order to effectively retire while still ensuring
the quota of the lumbermill is met.

He might just say it, what I’ll do instead
is just buy the factory and require the remaining four workers to work an extra 10 hours a week
to pick up my slack while I go and retire. Now this guy sounds like an____, but just
think, how many hours a week are you working in your job just to cover your rent? This investment into non productive assets
(as in assets that don’t actually assist in adding value) is a major hurdle. Now the classic example of a non-productive
asset is something like gold, bitcoins, pokemon cards and of course real estate.

Now real estate is weird because unlike these
other non-productive assets it does produce income without needing to be sold. It does this through rent. Investing into real estate has been a particularly
attractive investment for a lot of people which does two things, it increases the price
of real estate, causing more of this issue we saw in the first part of this video, but
it takes away from investments into the types of productive assets that CAN sustainably
fund retirements. There is one other problem beyond this as
well… the overinflation of ALL asset markets. Let’s look at our original example of those
table saws. They were machines that made cut up pieces
of wood, lets say they can chop up 20 pieces each a day. Now let’s replace those table saws with
shares, these are effectively machines for making money in the form of dividends.

Lets say each share makes 20 dollars a day. In both examples the lumberjack would need
to own 9 of each to be able to fund their retirement, 180 pieces of wood would replace
their job at the lumber mill, and 180 dollars a day would replace their income, so either
works just fine. Now counterintuitively problems arise when
these assets become more expensive. Most people think stocks getting more expensive
is a good thing, and it is … for the people that already own them… Imagine each share was trading for $10,000… Saving up $90,000 is a pretty tall order for
a lumberjack on $180 per day but it is certainly possible over a working career.

Now imagine those same shares were trading
for $100,000 while still paying the same $20 daily dividend. If you already owned these shares you would
be feeling great because your on paper net worth has grown handsomely, but our lumberjack
now has to buy $900,000 worth of shares to fund his retirement, which is just no realistically
possible within his working career. Now this might sound like a farfetched example
but it isn’t! it’s exactly what is happening today. To see this let’s look at the price to earning’s
ratio of the s&p 500 (a collection of the 500 largest public companies in America). Historically it has hovered around a multiple
of 15, this means that on average it would take the earning on these shares 15 years
to pay for the share itself. Today, that multiple is sitting just under
50 years, which is the second highest it’s been in history, falling only behind late
2008, which as you all know was a time of widespread economic prosperity In plain English this means people are going
to either need to invest 3 times as much to fund their retirement’s ooorrrr rely on
the next biggest idiot to buy their shares off them in retirement for a 100 times multiple,
200 times multiple, 1,000 time multiple… which BTW certain investor are already doing
for some stocks.

Now you might say, oh well shares aren’t
like table saws with fixed outputs. These dividends can and likely will increase
in the future, right? And sure, that’s almost guaranteed, buuuuttt
it’s still unlikely we will ever see widespread PE ratio’s under 20 again for 2 reasons. 1. if a company DOES start paying out a consistently
high dividend relative to it’s market price, well then investors will buy it which will
push up the price, meaning that it won’t a great deal anymore.

Market forces are a bitch. The second reason is a bit more complicated,
but it’s one that has some leading economists genuinely concerned… Robert J Gordan is an American economist who
published this paper with the National Bureau of Economic Research. Is US Economic Growth Over? Faltering Innovation Confronts The Six Headwinds. It’s a fantastic paper that is surprisingly
readable even to people without a strong economic background. But spoiler alert, Gordon basically argues
that the past 200 years of innovation and economic growth were more or a exception rather
than the rule that we should continue to expect indefinitely into the future. Limitless growth in a finite world… you
do the maths. Gordon basically argues that this generation
is the 5th lumberjack, all the easy innovations that drastically improve productivity have
already been made, and even gradual improvements from here on out will either be very expensive,
or just rent seeking in nature. Working more to shift value around in new
and creative way’s more so than working to actually create any. If this rather bleak outlook wasn’t enough
Gordan argued that this would coincide with what he described as the 6 economic headwinds.

These are forces that will act to slow growth
in economies around the world for at least the next 100 years. These headwinds are, The loss of the demographic dividend – Basically
the economy saw a huge boost when women started to move into the workforce between the 1960’s
and the 1990’s. Now most women in developed countries work
a professional career similar to their male counterparts but that’s just the status
quo now.

We aren’t ever going to be able to double
the workforce again, unless well… you know… we make people work later and later in their
lives. The second headwind is the loss in educational
attainment particularly in the USA. Education is becoming more expensive, less
comprehensive and increasingly irrelevant to the requirements of the modern work force. A 3 year degree simply does not mean as much
as it did 50 years ago, not to an individual or to the economy as a whole. The third headwind is rising inequality, a
touchy subject at the best of times, but Gordan was surprisingly pragmatic about his approach
to the issue. The paper noted that incomes were on average
increasing by around 1.3 percent per year. But that growth was heavily focused in the
top 1%, the remaining 99 percent only actually saw income growth of around 0.75% year over
year. Not even enough to keep up with inflation. That means that if this trend continues it
will be inevitable that larger and larger pools of workers simply won’t have the financial
means to save for retirement.

However if you are in the top 1% congratulations,
you can say nananana your video title is wrong in the comments section. The fourth headwind is the impact of globalisation. Now in theory globalisation should make everybody
wealthier, and on “average” it does, but averages have outliers, and those outliers
in this case will be national workforces that have historically enjoyed high incomes relative
to the rest of the world, like say say probably YOU watching. The other side of this equation is that it
should equalise global wages, meaning it is great for people in countries that have typically
had low incomes compared to the global average, oh and of course the business owners that
can profit from the pool’s of cheap labor along the way. The fifth headwind is energy and the environment.

The growth of the past century was driven
by fossil fuels. A cheap, easily transportable incredibly efficient
source of energy that could power everything from automobiles to jetliners. But of course they are a finite resource that
have come at a cost. This cost will now be paid by younger generations
either in the form of environmental regulations that slow down industrial output, or from
complete environmental collapse that will also slow down production. The final headwind is debt. Household debt, government debt, corporate
debt, it’s all been growing steadily over the years and eventually this needs to be
paid back, this is ultimately going to result in the requirement for more income or less
spending. For the government producing more income is
easy, they just tax more, but for individuals and businesses the only option they might
have is spending less. If someone is already running on a tight budget
then those regular contributions to a retirement account might be what ends up getting sacrificed. Gordon did present a likely outcome to alleviate
this sixth issue for all parties, and you might be able to guess what it is.

Yup, push back retirement ages… Now if this has all been a bit bleak for you
and you still think you are going to make millions overnight then good on you, I will
have to work harder at crushing your spirit next time. But until then you should learn what to do
with your overnight fortune by watching our video on exactly what you should do if you
suddenly make a lot of money. Of course step one will always be to like
and subscribe to keep on learning how money works..

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7 Biggest Retirement Planning Mistakes People Regret

we all look forward to retirement it's the time to sit back relax and enjoy the fruits of our labor unfortunately whatever aspirations we may have for our golden years can quickly turn into a nightmare if we make certain mistakes when planning for this phase of life these mistakes are surprisingly common and tend to lead to financial stress and regret with a big impact on quality of life some of these mistakes are 1. not planning for retirement two retiring too soon three relying too heavily on Social Security 4. underestimating health care costs 5. failing to save enough for retirement six taking on too much debt seven not maintaining strong relationships if you want to learn more about these mistakes and how to avoid them subscribe to the channel a new video is coming soon and you won't want to miss it.

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How To Calculate WHEN You Can Retire

I challenge many of us face is we don't know how much money we need to retire and when we can reasonably expect to get there I've been a fee only financial advisor for over 20 years and in today's video I'm going to walk you through that process step by step and towards the end I'm going to share with you some key risk that you need to be aware of and at the very end of the video I'm going to share with you a free online calculator that makes the whole process a lot easier okay let's jump in let's go for a walk and talk about this you know the goal is to create a nest egg where you can live off of the money that it generates and have the nest egg be invested in a way that's comfortable and consistent with who you are and overall where the income it generates is something that gives you a lifestyle that that's comfortable for you that you're looking forward to okay so how do we actually do this and what we do is we start at the end and then work our way up right so I just mentioned three items so let's start with the third one a lifestyle that's comfortable and you're excited about right so the money from your portfolio is going to be designed to generate that income so so how do you do that well first we need to know what that lifestyle is right I mean I think all of us you know hey a million dollars a year would be nice but very few of us are in a situation where we can do that so how do you determine how much money is reasonable uh and will give you the lifestyle so let's start with the lifestyle question how do you determine um how much money that you need to maintain your lifestyle there's really two approaches one is to go from the bottom up and kind of list all the things that that you need and the first what you need and then you know higher priority wants and then some aspirational ones and really put them into those three categories so in the need category is going to be lodging and food and if you're below 65 if you're not Medicare eligible is going to be health care right how are we going to pay for that so list out your wants I'm sorry your needs and then list out your wants and add that up and then you know what are some of the aspirational wants you know uh traveling around the world and you know what is that cost and you know there's we're adaptable we're human so you know our budget may not allow us to to travel around the world every year or even every three years but you know what we can still have a really fun retirement so the first thing is figure out what the cash flows are so figure out what that's going to be now the next question this is really really important this is step two remember we're kind of going backwards through that list that I I shared at the beginning of the video the second one that I said was it's invested in a way that's comfortable for you and consistent with who you are and that's really important because you don't want a portfolio that's going to be too scary for you because if you have a portfolio that's going to be scary for you and you know what I mean by that is you know if you have a 100 stock portfolio for most people I'm not saying for everybody but for most of us that volatility is going to cause us to lose sleep at night I mean if you look at 2008 2009 you know could a correction like that happen again where the market was down over 50 percent 5-0 you know if you have a hundred percent of your retirement in a portfolio like that it's going to be hard to stay the course so usually people as as we get older you know we won't have a hundred percent stocks probably doesn't make sense for you to have a hundred percent bonds you know and and bonds can be stable or they can be fairly risky when I talk about Bonds in in my videos I mean stable bonds that that pay a reasonable rate uh high quality Bond short duration so what is the right mix of that to buffer out the volatility so if the Market's down 50 60 percent hopefully your bonds are you know they might be down a little bit for a short period of time but if you get bonds that are three years in duration two years in duration one year in duration and they're they're from very solid companies that have great credit scores those should be fairly stable now there's no guarantees in life and nothing I'm sharing with you here is financial advice for you I recommend that you work with a fee only financial advisor yourself or hire an accountant to help you go through this but high level generalities you want an Investment Portfolio that's consistent with who you are now at the end of the video I'm going to share a free online calculator and you can see how your asset allocation really has a huge impact on what kind of lifestyle that that you can maintain in retirement so you do want to be thoughtful about it um you don't want to have quote you know no risk in your portfolio you know having it in in CDs at the bank because it's likely not going to beat inflation and you want it you want your Investment Portfolio to at least keep up with inflation and hopefully beat inflation so you can have compounding uh working in your favor okay so that's that's the second point and then the first point that I I talked about is being able to live off of the income that it generates right and so think of think of your Investments as as uh the goose uh and Dave Ramsey uses this analogy I think it's pretty good you know your Investment Portfolio is the goose and then you're living off the golden eggs that it hatches so the more risk in your portfolio the more stock uh exposure likely there's no guarantees but likely uh those golden eggs are going to be a little bit bigger or use another analogy you're going gonna get more of those eggs but if it's too risky you know you might end up killing the goose and and you don't want to do that okay so that's that's how we look at the portfolio and and let me give you an example let's say that uh you want to live off of a hundred thousand dollars a year and let's say between your other sources of income you're you're let's say you have a rental property or Social Security whatever it is you've got half of that hundred thousand a year coming in from those sources so to use our analogy the Golden Goose only needs to provide fifty thousand dollars a year uh for your retirement now um fifty thousand dollars a year you know if you have five hundred thousand dollars saved up or that's what you're going to end up with before you retire you know fifty thousand a year it's probably not realistic you're probably gonna run out of money uh before you run out of life and and none of us want that so um at a million dollars uh can you afford to take fifty thousand dollars a year out maybe you're getting closer right you you there's the rule of four percent uh William bangans uh ruled a four percent that says you know you can take out four percent a year um and and have a high likelihood of not running out of money so that would be forty thousand so you're close you know could you pull out fifty thousand a year maybe I don't know it depends on what the returns are and it particularly depends on what the returns are in the early years but let's say you have 1.5 million dollars you know now you're solidly in the range that you you likely can and pull out fifty thousand dollars a year and not run out of money right so you have bangin's four percent rule the inverse of four percent is twenty five one divided by twenty five is that four percent so the easy math on this is you want fifty thousand dollars a year from your portfolio you multiply that by twenty five you get one point two five million and that gets you in the ballpark having a buffer is probably a good thing so you know 1.5 million I don't know your situation but you're in the ballpark it's it's reasonable okay um but what are the risks um that that you need to be aware of and I mentioned one of them earlier it's called sequence of return risk and it's the risk of you know what are your returns uh in the first couple years of retirement because that's when your balance is likely going to be the highest so you know looking at your sequence of return risk none of us have a crystal ball none of us know let's say I retire this year you know I don't know what my returns are going to be this year the next year the following year and and those are really important returns for me so you have to be adaptable you have to be able to to change as as Life Changes right so there and there's different techniques and you know I want to get back to that asset allocation and the fact that you have to be flexible I think this is one of the big reasons people should consider working with a fee only financial advisor is the asset allocation is going to have a big big impact on what kind of money that you can spend in retirement and I think you want to have a river guide right we all have our own lives that we live and I mentioned I've been a fee only financial advisor for over 20 years I have helped a lot of clients through this discussion and I've had the benefit of of seeing how things play out and you know over time not only do you have the knowledge but you have the wisdom that comes from working with many many families and and I I think most people would benefit from working with somebody that has that wisdom think of it as a river guy you know somebody to go through the Journey with you somebody that caution you for instance one of the questions I often give people is your views on risk are going to change as you retire you know if you're making good money now um and you've saved up a nest egg and the market goes up and down and you haven't reacted first off good for you for for for not blowing out of the market during scary times and in your lifetime in your investing career there's been some scary periods so if you've always stayed the course good for you that's hard to do um but risk is going to feel different for you when you feel retired and that's the kind of thing that somebody that's been through some Market cycles that has helped lots and lots of other people through this discussion and through this journey those are the types of things that uh the only financial advisors can help you with now all of these calculations you know I've gone through really high level but there are some great um online free online calculators to help you with this I I did a survey in my con Community polls asking people which custodian they use it was Fidelity Schwab Vanguard or other by far the the most common Odeon is Vanguard so in all three of the custodians are going to have free online calculators and you know vanguards is is is really really good and it's very approachable for for everybody so if you just do a quick internet search on Vanguard retirement calculator it'll walk you through the key um things that you need to think about and we'll give you an idea of how much that you're going to need in retirement and it also has a place for other sources of income which I like and then another question and this is where you can really see the impact of asset allocation if you Google Vanguard Nest Egg it will bring up a calculator that it has to help you think through how long your money will last based on how much you're spending your asset allocation and how much your beginning balance is I hope you found this video helpful if you did you're going to enjoy this video up here that talks about average income for retirees in America in this video down here that talks about five reasons to retire as soon as you can thanks for watching bye bye

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