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