Can Anyone Reach Financial Independence?

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This blog aims to share our experience of planning for early retirement at the age of 35. That means retiring 30 years earlier than most people and achieving financial independence after only 10 years of salaried work.

Many people ask us how this is possible. We have done a lot of different things to enable this early retirement through financial independence. Critically, it is as much a mindset as it is a prudent financial approach. One of the most common response we get from people reading this blog is whether it is true that everyone can retire early. Well, let’s see!

The Myth of Easy Money

Many people will think there is something that sets us apart from ‘regular people’ and allows us to retire early. Some people think we come from rich families with trust funds or inheritances. Not true!

Others think that we have some complex investment strategies that consistently generate a large amount of cash or some other ‘secret’ that we are not sharing with you. Unfortunately, also not true!

In fact, I don’t think there is such a thing as ‘easy money’. That’s just not how it happens for most people. The way we – and by we, I mean all of us – can do well financially is by engaging in smart money management. Everyone can do that.

You will probably have come across ample websites selling e-books about making easy money from home, with no risk, no invest, and little to learn! Sounds too good to be true? Well, it is. Those websites will not make you rich, they will make their owners rich.

That’s not our ploy. Our plan is not to get rich from you – Our plan is only to share our knowledge with you so that you might also apply some of our financial common sense guidelines to your budget. That way, we hope that salaried work will one day no longer be what your life revolves around.

Fact is: From an investment perspective, you cannot make a lot of money without taking a lot of risk. Having a savings account that pays around 5% per year with absolutely no risk is as good as it gets. Make sure you check out my post on the highest-paying savings accounts in Australia.

If you are looking for a higher rate of return on your investment, you will need to bear the risk of losing money. Any such investment is risky, would require active monitoring and will produce higher level of stress. Think about all of those pensioners that lost their investments because the stock market tanked.

So do yourself a favour and drop the idea of easy money. Earning more money will involve more work, one way or another. There is no easy solution and if you’re looking for one, this blog isn’t for you. This blog is for hard-working people who want to do right by themselves.

Work Hard and Save Hard

Well, since we can’t rely on those grand schemes promising us free money without any effort, we need to come up with another solution. Generally speaking, this means finding a job and – preferably – a salaried job because it produces a more reliable income.

Once you have an income, the goal becomes saving money and seeing how you can get these savings to generate further passive income. Do not underestimate the power of compound interest! Unless you are lucky enough to already have a lot of savings, you will have to work and earn a salary before you can reach financial independence.

The amount of time you actually need to work will depend on your level of income, the amount you are able to save and your lifestyle. It may be 5 or 10 years if you are really focused and have a high level of income, but it could also be 25 or 30 years if you have expenses you cannot cut down and/or are a low-income earner.

However, regardless of your current lifestyle and employment, earlier retirement and financial independence are still possible. You might just have to wait a little while longer. Remember that any time gained is still valuable within the context of our finite lifetime.

Imagine if someone gave you a whole year off – And you wouldn’t have to worry about money. Well, that’s what I’m about to do! And – with any luck – it might be a few more.

The key idea about Monkeyism is not to get out of the system as quickly as possible and then end up living in poverty for the rest of your life. It is about finding the right level of financial comfort for the lifestyle you plan to lead.

Monkeyism thus teaches people to learn to be happy with their situation, not to feel deprived, frustrated or jealous, but to be able to gain control over their life. That means knowing when you have enough money and when you can free yourself from the shackles of work.

However, before you can enjoy early retirement, you will have to work hard to become financially independent! There is no shortcut.

Everyone Can Achieve Financial Independence

Everyone can reach financial independence through their regular job. You don’t need to be a millionaire to retire early. In fact, I previously wrote a post on how to find out how many years you have left to work before you can reach financial independence. In the example, I used sample values but we can also run the scenario with the average Australian incomes and expenses:

Income$64,168 per year2011 Australian CensusMedian annual household income.
Income Tax$12,402 per yearAustralian Taxation OfficeIn 2013, this income bracket would pay $3,572 tax plus 32.5c for each $1 over $37,000.
Rent$285 per week2011 Australian CensusTo keep things simple, we will assume our couple keeps renting after retirement. The amount is adjusted to inflation over time.
Expenses$1000 per monthThis amount covers food and bills.
Savings Rate4.76% per yearRAMSCurrent savings rate available at RAMS as of the time of this post.
Inflation Rate2.5% per yearReserve Bank of AustraliaCurrent inflation rate in 2013.

Using this financial independence planning spreadsheet, you can follow the calculation to estimate the amount of money to save and the required capital needed to achieve financial independence. In the case above, we are looking at an average earning couple.

They are planning for early retirement from age 23 and expect to live until 100 (reasonable safety net). To keep things simple, we won’t consider any future children. But this could be accounted for in the expenses cell. All values are adjusted with inflation over time and we assume public healthcare will cover any unexpected medical bills.

With those assumptions, our couple can retire at 48, having saved enough through work salary to live off their savings account until 100 years old. Depending on your income level, you may be able to reach financial independence earlier or later.

You may also want to have a larger safety net or put aside some inheritance for your children. This will have an impact on your early retirement age, but the main point is that you can become financially independent if you want to. Everyone can do it! It is a matter of planning and focus. The choice is yours!

Free Download – Financial Independence Planning Spreadsheet

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Monkey Master

My wife and I are currently living in Sydney, Australia. We plan on becoming financially self-sufficient in 2015 so we can retire at 35. We are regular working people, trying to be smart about saving money and generating passive income. I want to share with you how we reached that decision and how we are planning towards financial independence. Continue Reading.

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