Stay single and choose not to get a dwelling
Assuming he is privileged to start off with a high salary relatively. He will funnel 80% of his initial disposable income of $5,000 with 2 month’s bonus to building wealth.
Subsequently 20% of his annual increment of 3% will go to building wealth.
Learn to build wealth wisely. He decides to quarterly invest in an active portfolio of stock and bond exchange traded fund, growing his wealth at 6%.
Start early. He decides to start building out of university and will have 15 years till age 40 to build wealth.
So we hear stories, of people who was able to retire in their 30s and are so envious of their situation.
They must have rich parents or high income earner. How close to the truth is that?
Perhaps some have overestimate what is required to retire, but financially independent is a correct phrase for them.
By that, it means that they have acquired wealth that sufficiently provides for their daily needs that they can take up choices in life that are otherwise not possible.
Some folks have worked hard in school, or managed to get into a profession with a high starting starting pay, would he or she be able to be financially independent at a young age?
In our simulation here, we have the following scenario
At the end of 15 years, he would have accumulate a portfolio wealth of $1.1 mil. Note that an assumption here is that he would have to build wealth rather wisely.
He funded nearly $45,000 of his first year $56,000 salary. At the end of the 15 years, his wealth funding only increase by $5,000 more.
At this point, with a safe withdrawal rate of 3% per year, he would have $32,654 per annum or $2,737 per month, which will be able to take care of the necessities in life.
3% looks conservative, but if you want the amount to conservatively last through a volatile stock market cycle, you would want a lower withdrawal rate.
Young enough to choose how life goes
What this means is that at 40, this guy is young enough to make a profession decision that will more likely satisfy him.
He could have choose to find love then.
He can choose to start a business with the knowledge he has accumulated up till then.
How can anyone live on $11,200 per year?
A common question readers will have is how can anyone survive on such a low amount per year?
This will work out to $933 per month in expenses.
How one decides to live is a matter of where their values and priorities lie.
Different people have different values and a person like that may be sacrificing much (you can’t earn back time), but that is his or her choice.
$933 is a sum that you can work with, you have to optimize your spending.
And at the end of the 15 years his allocation to spending actually increased to $34,000 per annum.
That is not the only way
No one lives the same kind of life. And this is just a case study to show that privileged is not due to luck but rather scientific.
Starting of $5,000 is entirely possible for a scholar or a top graduate.