How the Early Retirement Achievement System is the Best I’ve Ever Seen
Achieving financial independence is a dream that many people share. The idea of having enough savings to cover your expenses and being able to live life on your own terms is incredibly attractive. However, the road to financial independence can be long and daunting. It requires discipline, hard work, and a solid plan. But what if there was a tool that could make the process a bit easier and more motivating? Enter the “Early Retirement Achievement System” spreadsheet.
The Early Retirement Achievement System is a simple grid that illustrates how long it would take for someone to achieve financial independence based on their savings rate. The grid assumes that you start from scratch, your investments bring 5% return, and each year you save 4% of your money. The grid shows that the most important factor in achieving financial independence is your savings rate. If you can maintain a large gap between your income and spending, you will be financially independent much sooner.
What’s great about the Early Retirement Achievement Chart is that it provides visual proof that a modest but not extreme lifestyle can still have a big impact on how long you have to work. The best places of the table are in the line of light yellow and green squares that cross the middle. Each of these squares ranges from 16 to 28 years. They represent how many years you would need to work if you saved 30% to 50% of your after-tax income. For many people, saving is not an easy but realistic goal.
Even if you love your job, financial independence is freedom, and it is best to achieve it as early as possible. The Early Retirement Achievement System spreadsheet provides the motivation and inspiration to work towards that goal. It illustrates the dramatic power of spending less and saving more, the dangers of lifestyle inflation, the importance of taxes, and just about everything you can think of in relation to personal finance.
For example, imagine three different people: Kim, Sam, and Jessie. Kim takes home $80,000 per year after taxes; Sam, $60,000; and Jessie, $40,000.
Let’s say they’re all diligent savers and they put away exactly half of their after-tax income, for a 50% savings rate. Who will attain financial independence first?
Amazingly, it’s a tie. The grid shows that each of them would only need to work 16.6 years to fund their retirement at their current spending levels.
Jessie earns $40,000 less than Kim, yet their retirement timelines are the exact same. One reason is that, the more of your income you save, the less you’re accustomed to living on — which means you’ll need less money in retirement to maintain your existing lifestyle. Meanwhile, someone taking home $100,000 a year after taxes would have to keep working almost 66 years if they spent most of that money each year. This clearly shows that keeping a high savings rate is the biggest lever you can pull in terms of maximizing your financial success.
It also demonstrates the power of resisting lifestyle inflation. If Sam takes home $60,000 and spends $40,000 of it, he’s on pace to work a fairly typical 40-year career. But if he’s able to increase his take-home pay by $10,000, whether through a promotion at work or a side hustle, and he keeps his spending at the same $40,000 a year, he can shave more than 11 years off his work career.
One of the most interesting aspects of the grid is that it is not capped at $20,000 per year. It makes you think about how many years you could save if you spent $15,000 a year? Or $10,000? You may think that it is impossible to live like this, but there are many examples of people spending even less.
The Early Retirement Achievement System spreadsheet demonstrates the power of lifestyle inflation resistance. If you can increase your salary and keep your spending the same, you could cut years off work. It takes effort to achieve this flexibility, but it doesn’t have to be extreme. You don’t have to break your back trying to achieve an 80% savings rate to be successful. Remember that the best is the enemy of the good.
In summary, the Early Retirement Achievement System spreadsheet is a simple yet powerful tool that can help you achieve financial freedom. It illustrates the importance of your savings rate, the dangers of lifestyle inflation, and the power of a modest but not extreme lifestyle. It provides motivation and inspiration to work towards your financial goals and helps you understand the dramatic impact that small changes in your spending and savings can have on your financial future.
Reference:
The Most Motivating Financial Chart I’ve Ever Seen