![]() If the answer if a negative, then you still need to work to cover the shortfall. If the answer is a positive number, then you’re FI. So the formula is basically saying if you can generate enough passive income to cover your expenses, then you’ve reached FI. Income is passive monthly income (or near passive as possible), such as a pension, selling off shares, income from dividends, rent from a property portfolio or online business with minimal day to day involvement needed.Įxpenses are how much money you need for a month to live the lifestyle you want. One of the ways to treat your home as an asset is if you sell it and invest the money in something that will give you a monthly cash flow boost. It’s fine if it is a conscious decision that is made, but I doubt most people realise the consequences of wanting that bigger house. This notion of having a bigger house (more than you need) results in a large proportion of the population working decades longer. In fact, our fascination in the UK with ‘climbing the property ladder’ is the biggest obstacle to achieving FI early. I tend to treat a home as a liability due to the costs involved to keep it. One way to generate an income from your home is to take in lodgers or house mates like I did to make £100k. There is also no point treating your home as an asset to calculate when you can reach FI if your home does not generate an income. However, Cashflow Cop likes to keep things simple.įor FI, these assets need be something which generates an income (ideally passive) and liabilities are treated as things which cost you money (expenses).Ī passive income is one which requires minimal effort, so you cannot include your monthly salary from your job. I know there are technical accountancy definitions for what is treated as an asset and what is a liability. You would have reached financial independence when your assets cover your liabilities indefinitely (or for as long as you intend to live). However, the fundamentals of budgeting and spending less than you earn is solid advice regardless of income levels. ![]() It by no means guarantees you success and it may be impossible for some to achieve if you are just scraping by as it is. It is based on basic maths and the numbers do not lie.īefore we start, I just want to point out that the maths itself has a number of assumptions which I touch on. ![]() You can replace the words ‘early retirement’ with ‘living freely’ or any other combination of words to mean you no longer need to work for money. Its simplicity makes it even more unbelievable.Ī very popular and influential FI blogger called it “ The Shockingly Simple Math Behind Early Retirement“. I think the term works well with Financial Independence (FI).īy following some simple steps, you could really reach financial independence much quicker than you think. Here are some awesome ways to say in touch, and always have these ideas and strategies at your fingertips.The term “on blues” is used by emergency services personnel, particularly the Police to indicate the use of the emergency blue lights to get to a job at speed. Thank you so much for joining us for the first episode. We will need some group participation, but this will be well worth your time for the gift at the end! And we are so excited to share this with you! Just a few years ago TJ was unemployed and in debt, now he and his wife are well on their way to financial independence.Ĭody has a superpower he shares with us on the podcast. Everyone’s journey will look completely different, but we can all implement these simple strategies and change our lives! “We’re on the same path but didn’t come from the same point” – This is such a powerful idea. This is a choice Cody made to escape the hamster wheel!Ĭody also talked about building side hustles that can cover his monthly expenses, like starting a blog, podcast and a disc golf company. Cody mentioned working in a W2 banking job, yet ONLY spending $12K a year. This is depressing, yet this is the path most choose!īeing intentional with money. 40 years in an unfulfilling job, doing something you completely hate. This is the path that awaits most Americans. It just depends on how quickly you can build up those assets. If you can build up a nest egg with 25 times your annual expenses (inverse of 4%), you could essentially retire early. Which brings in the RE portion (retire early). Financial independence is based on the 4% rule which was formulated from the Trinity study, the idea is that if you can survive comfortably at a 4% withdrawal rate from your nest egg (invested assets), provided that the assets were invested in low-cost index funds, you essentially never had to work for money ever again.
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