Imagine one day you wake up and you don’t have to work any more.
Your investments are generating so much money that your money is actually producing more money than your salary.
In plain english, your money is making enough money to cover your expenses. This is also known as financial independence.
Can everyone get there? YUP!
You’re never too young to start, or too old to start.
First you need to know your rough FI number which is about 25x your annual expenses.
If you’re in my ‘Money, baby!’ program, you already know what your annual expenses look like.
So if your annual expenses are $40,000, 25x that is 1 million dollars.
That means you need 1 million invested in order for your investments to cover your basic needs.
Already investing? Great! You’re ahead of the game!
Want to have an idea of how long it will take?
Using the rule of 72 and an average annual return rate of 8%, your money will double every 9 years.
If you are starting with $100,000, in 9 years you’ll have roughly $200,000. In 18 years, $400,000, 27 years $800,000 and 36 years you’ll cross the million dollar threshold at $1.6million.
What if you don’t have 36 years to wait? Or do you want to get there sooner?
Here are a few ways you can:
Cut monthly expenses.
Make more money.
Combination of both.
This will shorten the amount of time it takes you to get to your crossover point, but remember, you also want to enjoy the life you have. The great thing about all this is its your life and you get to decide how you want it to go and what goals you’re working towards.
At bare minimum - I want to help you be able to retire successfully when you want to retire and make sure you have enough invested to do so.
Most people believe hitting some mythical number in their spreadsheet will ultimately = happiness. If you’re 100% clear on your values and what you’re working towards and also how you want to enjoy life today you’ll be all set!
We don't go around asking each other what our net worth is BUT it's one of the best financial tools you can keep in your tool box. And the earlier you start tracking it, the better it will serve you. Watch this video below or read about the 9 reasons why you want to be tracking your net worth:
A good indication of your overall financial health - the 30,000 foot view.
The amount of income you make is part of your overall picture but it’s not the end all be all.
It is a source of motivation as it tracks your progress
You have an easy place to track all of your investments.
It helps you ditch debt!
You'll make better use of your money.
It will help you start thinking about how your financial decisions impact your net worth.
It may help you get approved for a loan or other financial decisions.
It makes it easy to track progress over a period of time.
So there you have it. I like to track my net worth on personalcapital.com because it's easy to use and easy to set up.
Open an account? Sure, easy peasy.
Transfer money from bank account? Done.
Choose investments? BAIL, BAIL, BAIL! hahah Just Kidding.
I get it, the actual act of selecting what to put your money in can be intimidating but it doesn’t have to be!
Since I’m not a financial advisor and I don’t know your specific situation, I can’t tell you what you should invest in but here’s what you can look for when beginning:
1. Low cost index funds will save you money and allow you to diversify your funds all in one spot. They are an easy, hands-off way to invest in the stock market. This is what took the scary out of investing for me.
Index funds track various indexes and are made up of stocks that mirror the companies performance - like the S&P500.
For example, the average annual expense ratio for stock index funds in 2016 was .09% while the average annual expense ratio for actively managed stock funds was .86%. Now you might be thinking "that's not a huge difference", but over time this adds up and will take away from what you're able to earn on your investments.
The S&P although wildly popular, isn't the only index fund in town. You can select various index funds based on the categories of stocks the house. There are index funds based on size of companies, funds based on geographical area, the type of businesses they include, domestic versus foreign, and even by market opportunity.
Remember, not every index fund is low cost.
2. Look for funds that have low investment minimums or zero minimums. Sometimes the minimum required to invest can be a few thousand dollars to start.
3. Don’t pay someone to do this for you just because you’re a newbie. You can totally learn how to invest! And the great thing is, you can learn as you go and adjust accordingly.
4. Average return rates over time. For example, the VTSAX has returned an average of 8% since it’s inception. The VFIAX, 7.93%. But these are just examples and you can easily pull these statistics up on any investing platform or even by throwing it into a Google search.
5. Consider how much time you have. The younger you are, the more risk you can potentially take (but don’t have to). With that being said, this is even more of a reason just to start now. The earlier the better and the more time your investments have to grow, the more compounding interest works for you.
And remember, investing is a long game. There may be dips over time but historically you can track funds to see their overall growth. Don't get scared if you see a decrease in earnings, as long as you're not very close to retirement, you have time to ride it out. It will come back up.
Most importantly, pick one and start! You can learn more as you go and adjust as needed. You’ve got this and I believe in you.
For more details, grab my free guide “Investing for Beginners”