Financial Freedom 101: How to Retire Early | Bill Hanna | Skillshare

Financial Freedom 101: How to Retire Early

Bill Hanna, CPA & Controller

Play Speed
  • 0.5x
  • 1x (Normal)
  • 1.25x
  • 1.5x
  • 2x
3 Lessons (10m)
    • 1. Intro

      2:01
    • 2. Plan for Early Retirement

      3:21
    • 3. Create a Budget & Start Saving

      5:00

About This Class

Let me first define it. Financial freedom is the status of having enough income to pay one's living expenses for the rest of one's life without having to be employed or dependent on others.

As much as we hate to admit, planning is everything when it comes to being financially free. If you started to plan for your retirement in your early 20s, chances are you are ready to retire by age 40 if you have enough discipline. 

I am not suggesting you live an unhappy life by being extremely frugal. All I am suggesting is that you before making that next big purchase, ask yourself, would you be happier owning this thing or toy, or would you be even more fulfilled to live a life of financial freedom?

If you are interested in quitting the rat race and reaching financial independence, then this class is for you.

Video credits:

Videvo.net, Kiril Dobrev

Videvo

Transcripts

1. Intro: If you're one of millions of Americans who work behind a desk all day but often find yourself thinking about being somewhere else, then this video is for you. We will go through a step by step, plan to calculate the nest egg that you need to reach financial freedom, as well as provide you with a free calculator that you can make a copy off and customized for your needs. What is financial freedom anyway? Financial freedom is the status of having enough income to pay for ones living expenses for the rest of one's life without having to be employed or dependent on others. As much as we hate to admit planning is everything when it comes to being financially free . If you started to plan for your retirement in your early twenties, chances are you are ready to retire by age 40. If you have enough discipline, How much does saving $100 a month for 20 years give you a simple mass will suggest that you have saved $24,000 but if you factor in the time value of money at about 7% rate of return , you will have saved $52,000. Think about that. The next time you want to buy or lease a brand new car, I'm not suggesting you live on unhappy life by being extremely frugal. All I'm suggesting is before you make that next big purchase as yourself, would you be happier owning this thing or toy? Or would you be even more fulfilled to live a life of financial freedom? If you're interested in quitting the rat race and reaching financial independence, then this classes for you. 2. Plan for Early Retirement: regardless of your age or the number of family members in your household, there are two basic questions that you need to answer in order for you to plan your retirement. One is the location. Where do you want to retire? And the answer will depend on multiple factors for instance, the climate, the activities that you can have at the new location and other factors that are important to you. The second question you need to answer is how much will you need on a monthly basis to sustain yourself and your family in retirement, you need to rent medical expenses, food, accessory, and then they just get a pen and paper and calculates. Now let's say you decided on Jacksonville, Florida The next thing to think about is going to be monthly expenses. So let's say you project your monthly expenses to be around $3000 but you also project that you are gonna have a side hustle that will provide you weighs about $1000 a month. Then your net expenses is going to be $2000 which translates into $24,000 a year. In order for you to generate $24,000 in retirement at a safe rate of return off 4%. You'll need a nest egg off $600,000 which is great because now you know exactly how much you need to reach your financial freedom. Now that we know that our target is to reach $600,000 in savings in order to reach financial independence, let's look at what we have today versus what do we need to save up. So let's say that the 41 K balance is $200,000 in euros. IRA, you have 60,000 and your savings has $20,000. This gives you a grand total off $280,000. This means that you need to save an additional $320,000. It's important to note that the retirement age in the United States is 59 a half years old , which is the age where you can safely access your retirement funds without paying any penalties. I'm going to include a link in the description of this video toe on article that describes how you can safely access your retirement funds before 59 a half years old. I am also going to include a link in the description toe calculator that you can copy and customize for your 3. Create a Budget & Start Saving: this is next. He's a graphic designer who earned pretty solid income. He came to me one day and he said, How come? Even though I earn pretty good money, I'm never able to get ahead? Well, I asked him, Do you have a budget? And he said No. So in this video, I'd like to cover how to create a budget and why everyone needs to have. Let's talk about why you need to budget. You know, most Americans live paycheck to paycheck, and the idea here is that you need to create wealth. The reason why you might want to create wealth is to, for example, reach financial independence. Or, if you want to save money to put a down payment on a home, or if you want to save money, say, toe by a fancy car. Of course, I don't think it's a good idea to spend your savings buying a fancy car. As far as the tool that you use for your budget, you can really use an Excel file or Google sheets are highly recommend Google sheets because they allow you to collaborate with others. Now if you would just want to use a pen and paper. That's fine to what's important here is that you begin the process. I'm gonna go ahead and include a an example template in the description of this video, which you can copy and then customize for your own need. Now, what kind of information will you need for your budgets? First, you need your take home pay, which is the net amount you earn on a mostly basis after taxes and other deductions. Two. You need a list off all of your expenses, and the best way to do this is to examine two things your credit card statement and your bank account. And make a list of everything you pay on a monthly basis, which is gonna be rent groceries, car payments, entertainment, really everything that you spend. Now let's go back to Max. His budget goes like this. His take home pay is $5000. His expenses, which ranged from rent at $1800 groceries and take out car payments, car repairs and utilities, entertainment and miscellaneous expenses, all add up to $3800 which leaves him at the end of the month with $1200 in savings. Now that Max has a budget. He knows exactly how much money he earns and how much money he spends. Every bonds he knows he can save $1200. The next step is to look at the budget and find areas off optimization. He looks, for example, a take out and decides that instead of spending $200 a month and take out, he could just cook home or and save $200 taking this bucket down from 800 to $600. He looks at other areas like entertainment, and decides that instead of having four or five different streaming services may be, cut it down to Netflix and save, say, $50. Now, savings go from 12 hundreds to about 14 50 per month. Why is it important that you maximize your monthly savings? Well, this has to do with the concept of time value of money. So the monthly savings of Max usedto have $1200 in 20 year period. Using a 6% interest rate will result in a $554,000 while the mostly savings that he's able now toe have at 14 50 in the same timeframe. Using the same interest rate will result in $670,000 in savings. Uh,