How much money can I earn to be financially free?

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No one wants to be financially free. But ever wonder how much money it takes to be free?

The answer is that financial freedom has less to do with how much money you make than how much you spend .

Derek Sivers hasn’t worked for money since he was 22, even though he only had $12,000 in savings at the time. With those savings, he says, plus the monthly expenses he can make from making the music he loves, he’s free.

Whether you are rich or financially free depends on the difference between “how much” you have and how much you spend.

25x method

There is a simple criterion: if you save 25 times your annual expenses, you are financially free.

In other words, if your expenses are 4% of your total savings, then this 4% can be obtained through investment income. Your annual expenditure does not need to touch your principal, and you can live indefinitely on the income.

Here’s an even stronger corollary: If you can save 75% of your annual income, you only need to work for 7 years.

Source: The Shockingly Simple Math Behind Early Retirement

I won’t go into the details here, you can do your own research on how the 4% is obtained, such as here and here . Of course, if you think this number is not conservative enough, you can fine-tune it yourself.

intersection method

Your Money or Your Life provides another way to judge financial freedom.

Find a form and record:

  1. monthly income
  2. monthly expenses
  3. monthly investment income

The monthly investment income can be obtained by “annual income/12”. For example, through the calculation of long-term interest rates, Long-term US Treasury Bonds can be used in the United States:存款x 国债收益率/ 12 = 每月投资收益.

Drawing the data into a table, you can see how long it takes to achieve financial freedom, which is the intersection of “monthly expenses” and “monthly investment income”:

If financial freedom is your goal, don’t just make more money and then throw it away. How much you spend and how much you save is more important. Making money and saving money are two completely different games.

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