My good friend was young enough to understand the concept of financial independence and how much each of us requires to be financially secure, or financially independent.
He, however, notices a paradox. Things are not so simple.
Your opportunity costs becomes greater and greater the faster you can work towards either financially secure or independent.
How does that work out?
Suppose you earned $4000/mth and you can accumulate wealth at a rate of return of 6%/yr.
Based on my formula, the relationship between your savings rate, your wealth machine’s rate of return and how many years to reach the goal can be describe in the following table:
At $4000/mth you could probably at most put away 30% of your income to wealth building. It will take you 25.81 years to become financially independent.
Now suppose, you get a promotion and earned $9000/mth. You could now keep to your current ......