The first step is understanding the goal. For me, that goal was financial freedom. But what exactly does that even mean?
The 25X rule
There’s a rule of thumb that says once you’ve saved 25 times your annual expenses—you are financially free. How does this work? Because, statistically, if you withdraw no more than 4% of your well-invested savings each year, it’s unlikely you’ll ever run out of money.
Say you want to stop working, and need $120,000 per year to cover your expenses. In this case you’d need to save $3 million to achieve financial freedom. If you could live on $40,000 per year, you’d only need $1 million.
The 25X rule gives us a concrete goal post for financial freedom.
It worked for me
At age 20, I began saving and investing a large portion of my earnings—income initially from a job at a grocery store, later from a job at a restaurant, and finally from my first job as an engineer.
Over the years, my investments earned an annualized return of 11%. By age 35, those investments had grown enough to provided the freedom I needed to quit my job and finance a new business—ultimately allowing me to live where I wanted, doing the work I love.
It all starts with saving
For most people, like myself, achieving financial freedom requires the consistent and disciplined saving of a large portion of their income, coupled with the growth that can be realized through investing.
You have to consistently save.
If you commit to saving, this book will teach you how to invest those savings, and take advantage of forces that can turn even modest savings into surprisingly large amounts of money.