In this case fire is good: Financial Independence, Retire Early

A great article in this month’s Kiplinger’s magazine talks about the super savers…these are people who try to save 50% or more of their annual income over 10-15 years. The goal isn’t to stop working necessarily, but to not to have to work at a 9-5 job. They are focused on not spending money, and trying to maximize income opportunities. Some of it is extreme, like the timeframes,  giving up your highest income producing years and benefits such as health insurance which I don’t totally agree with. But I love the idea of really being a badass on saving.

Why? Because for the most part, you can control spending. You can’t control the markets, interest rates, stock prices, future bonuses and raises. So, while it might seem really hard, there is another argument for saving, especially if you are young. Time.

I’ve talked about this before, but it’s worth mentioning again….there was a great financial analyst Richard Russell who talked about this in an article called “Rich Man, Poor Man”. It focused on a study by Markit on compounding.

The net net?

Investor B puts $2000  for seven years , starting at 19, and stops.

Investor A puts $2000  starting at 26 every year until 65.

Investor B ends up with more money because of the power of compounding even though he/she stopped investing money after 7 years.

B: $930,641

A: $893,704

Year end is coming, and hopefully some of you have the advantage of getting an annual bonus. Think about what you want to do with it….paying down expensive debt? Great. Adding to your emergency fund? Fantastic. Buying new car, buying new phone, eating out more? Not so much.