258 | Back to Basics Part 2: The Income Side of the Equation

<ul> <li>Brad has been taking part in a mastermind group and teaching its members about financial independence. While they understood the “Why of FI”, how to get started wasn't as clear. The Back to Basics series of episodes covers just that, how to get started on the path to FI.</li> <li>The journey to financial independence is not about deprivation. It is about a life of personal choice and abundance. Its starts with understanding your “why” and then setting goals for the next 5, 10, or 15 years.</li> <li>There's a difference between the money you need to pay bills and meet basic needs and discretionary spending. Understanding how much your lifestyle costs is the first step.</li> <li>It can be psychologically difficult to do this first step. It may reveal mistakes, but it's important to be honest with yourself and not beat yourself up over them. We all make mistakes.</li> <li>After knowing what your life costs, what comes next? To calculate your FI number based on your current lifestyle, multiply your monthly expenses by 12 to get your annual expenses. This is how much money you will need each and every year in retirement to cover your expenses.</li> <li>The 4% Rule of Thumb suggests that you can withdraw 4% from your total assets each year to live on and reasonably expect the money to last for the remainder of your life. For example, if you have $1 million in assets, 4% of it is $40,000 that you could withdraw each year. The 4% withdraw rate is adjusted for inflation.</li> <li>To get to your FI number, multiply your annual expenses by 25. $40,000 multiplied by 25 is $1 million. $80,000 in annual expenses, multiplied by 25, results in a FI number of $2 million.</li> <li>Whether starting with a net worth of zero or with some assets, the next step would be determining your current path to your FI number.</li> <li>The point of saving money is not for it to be finally used for a retirement far off in the future. Save to reclaim decades of your life when you can spend time as you see fit. Reframing the goal of savin