Start Your F.I.R.E. (Financial Independence Retire Early): A Modern Guide to Early Retirement by Redling Dylin & Tom Allison

Author:Redling, Dylin & Tom, Allison [Redling, Dylin]
Language: eng
Format: epub
ISBN: 9781646113996
Publisher: Rockridge Press
Published: 2020-06-15T16:00:00+00:00

How to Make Your Savings Work for You

Now you know how to calculate your savings rate, and you have a good idea how much money to put away each year to get to FIRE. The next step is to look at what to do with those savings .

Consider your wealth accumulation phase as a three-part process.

1. You have to earn your money.

2. You need to save a portion of those earnings (hopefully 50 percent or more).

3. You have to invest that money wisely in order to grow it.

Remember the line graphs in chart 3.3 ? In order to have those lines move up to the right, you need to earn a return on that money, which will then compound over time. Our assumption is that your investment will increase by 5 percent annually .

You obviously won’t get that return if you put your money under your mattress or in a super-low interest savings account. But, where did that number come from? According to Investopedia, the average return for the S&P 500 from 1926 to 2018 is about 10 percent ; from 1957 to 2018, it’s about 8 percent . (Note: You should subtract about 3 percent to take inflation into account.) We have deliberately made our calculations on the conservative side to set you up for success.

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