The one formula you need to know to financial freedom.

The one thing that is not talked about enough in the financial world or the investing world is your ability to save.

Wherever you are in life in general and financially right now is an accumulation of all the decisions you have made up until this point. If you don’t like where you are, you and only you, can change that whenever you want.

So why isn’t savings rate talked about enough in the investing world?

I personally think it is because it isn’t sexy and it doesn’t get attention like all of things that can be said in the financial space and definitely the real estate space. And quite frankly nobody wants to be told that they need to save before they can invest, but there is no way around it.

I think it goes without saying, but you can’t start saving very much money if you have a bunch of debt and are living paycheck to paycheck. I won’t be a dead horse here, but you have to do whatever it takes to get rid of all of the debt in your life. This includes car payments, student loan payments, credit card debts, and any other consumer debt you might have.

Can you save money and still have debt?

Well, maybe.

Savings Rate:  Take your total income and subtract your expenses. What you have left is your savings. Then divide that total savings dollar amount by your total income and this will be a percentage and is your savings rate.

You can make it more complex than that if you wish, but I wouldn’t. Don’t get caught up in too many details here. If you have a 401K hat you are contributing to, that is part of your monthly expenses. We are looking for extra cash flow at the end of the month.

At the end of the month after you do all that you do. What do you have left? And secondly, what are you doing with that money you have left.

My advice is to save it up until you have enough of a down payment to invest in some kind of real estate, business, your own business, or something that can provide you a return. This is the only way to financial freedom. Your 401K plan is nice to have out there in the future. But what I am talking about is financial freedom as quickly as possible.

If you spend 100% of your income on your lifestyle then you can safely assume that you will never be able to retire.

You have to be able to get enough of your income going into some kind of investment that is giving you a return.

So let’s make some assumptions here.

I don’t know what you are currently making, that part doesn’t matter. You have to figure out how much it takes you to live. The key is your savings rate.


Let’s say you make the average salary in America. Which is $54,000 roughly.

So after federal taxes you would take home $42,200 by adding in state and local taxes you can safely say 30% of your $54,000 will be taxed. Which is $16,200 in taxes. So you now have $37,800 left after taxes.

The average mortgage payment in America is roughly $1275.

So now subtract your mortgage payments from your $37,800 take home pay.

This leaves you with $22,500 in free cash flow.

Now lets say you spend $1000 a month on food for you and your family.

You are now left with $10,500 a year.

Again, I made a lot of assumptions here, but go with me and apply this to your situation.

Now you have $10,500 to invest or save.

So your savings rate is a percentage of your total income minus expenses. $10,500/$54,000 equals 19.4 percent.

Here are some assumptions:

You can make a 5% return on your money after inflation during saving years.
You’ll live off a 4% withdrawal rate in your retirement years.
You want the money you invested to never be touched and only live off of the gains this money makes.

If you start with nothing. This is how long it will take you to retire depending on your savings rate.

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So in the example I have been using with a 19.4 percent savings rate. It will take you roughly 37 years to retire.

Does that sound like it sucks? If it doesn’t it should.

So what do you need to do to fix it?

Look, getting out of debt is really important. But more importantly is figuring out how to earn more money. This is easier in most cases. Figure out whatever you can do to use your talents and abilities to work as much as you can and earn all you can.

I hope you read this and it provides you some clarity and motivation to start saving and investing. Remember nobody is coming to save you. It is up to you.

To your success and your future.


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