This formula was a success! Everyone was in.

The citizens followed all the steps. They got the grades, they got the jobs, and muuuuuch later they got the retirement.

However, the vast majority was still unhappy. Why?

Maybe because people didn’t enjoy spending 9 hours a day, 5 days a week, in an office for 40 years.

Maybe because no matter how much their incomes went up, people still had debt.

Maybe because some people had children. This means they had less time. They hired nannies to take care of their kids at home, teachers to take care of their kids at school, and extracurricular activity teachers when the school day was over. In the meantime, parents were too busy making money so they could afford all those people taking care of their kids for them.

And so on. But I don’t have to write all the reasons, you can find them all around you.

Do you know what went wrong?

The formula was flawed, but people stuck to it because everyone they knew was doing the same.

“Whenever you find yourself on the side of the majority, it is time to pause and reflect.” — Mark Twain

Soon, a small shift started happening. Somewhere in the distance, a small group of heroes emerged.

These heroes studied the formula and its results. They realized the crazy crowd’s behavior was wrong. They searched and searched for a better way to do things.

They searched for a better formula.

As it turns out, they found it.

Not only was this formula simpler, it worked!

Using the magic of the internet, our heroes spread the message to lots of people. Many of those people achieved the same results.

They were happier because they didn’t have to work for money anymore. Instead, they worked on what they enjoyed.

However, the story isn’t over. The vast majority of people hasn’t seen the new formula yet, but they will. Our heroes’ journey has only begun.

Onward.

Now you too know the formula.

I’m sure you have questions. Let’s answer them.

1. Why should I focus on net worth instead of salary?

If I gave you $1,000,000 what would you do with the money?

Most people would think about what they can buy with that money: a house, a car, some nice clothes, etc.

Did you?

The problem is, soon that money would be gone. Now what?

Instead, you should have added that money to your net worth.

Your salary is how much you make every year. Your net worth is how much you have in total.

Most people only rely on their salary and spend within their limits. If they make $50k a year they’ll spend $49k and save the crumbs.

This is wrong. Even if you make millions of dollars.

We’ve all seen actors, musicians, boxers, and other celebrities who once upon a time made millions but went bankrupt because they increased their spending as fast as their income.

Again. This is wrong.

“Most people have it all wrong about wealth in America. Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.” — Thomas J. Stanley

Remember those lottery winners who go broke a few years later? That’s it, now you know why.

YOUR GOAL IS TO SAVE AND MAKE AS MUCH MONEY AS YOU POSSIBLY CAN AND THEN INVEST IT IN A WAY THAT AUTOMATICALLY GENERATES MONEY EVERY YEAR.

Not only is this possible. Anyone can do it.

Note: By the way, I know I’m using the term ‘net worth’ loosely. It normally means the sum of all assets minus liabilities a person has. But I’m mostly referring to savings. This is because my letter is aimed at someone in their 20’s in or out of school who hopefully hasn’t leased a car or gotten a mortgage. Besides, ‘net worth’ sounds cooler.

2. How do I calculate how much my investments will make?

Using something called the 4% rule.

It goes as follows:

You put your savings into specific investments (we’ll discuss where later in this series).

Those investments pay you an average of 7% every year before inflation. Inflation eats 3% which leaves you with 4% every year on average . (We will talk about all the why’s in a later letter).

. (We will talk about all the why’s in a later letter). So, if you invest $10,000 you’ll get $400 every year without working. If you invest $100,000 you’ll get $4,000 every year without working. If you invest $1,000,000 you’ll get $40,000 every year without working. Now you’ve approached the average person’s early retirement. If you invest $5,000,000 you’ll get $200,000 every year without working. And so on.

Remember, this is as conservative and safe as it gets. You can receive more depending on where you invest. But it’s better to play it safe.

3. How can I find out how much I need to retire?

Easy.

Find out how much you spend every year and multiply that number by 25. If I gave you that amount tomorrow, you’d never have to work a day in your life again.

Let’s see an example. The average graduate in America makes $50k a year. Let’s say she doesn’t read this blog and only saves 5% of it; so she spends $47,500 a year.

This means that in order not to work again, she needs $1,187,500 in investments.

This is a big number by the way. A lot of early retirees live on much less than that (you’d be surprised how much less you spend when you own your own house and car).

For example, my favorite finance blogger, Mr. Money Mustache, lives an amazing life with his wife and 10-year-old son on only $24k a year. They have a lot of money, but they don’t need it and give amounts like $100k to charity.

In a few weeks, my saving money letters will teach you how to live a great life while spending much less than the average American.

This will accelerate your progress towards financial freedom.

Remember, the less you spend and the more you make, the faster you’ll retire.

4. How on earth can I save $1,187,500?

Let’s assume you make the average salary in America, $50k a year. That means you can spend about $4,000 a month (Minus taxes and I’m rounding the numbers for simplicity).

This is how society recommends you spend:

30% housing ($1,200)

15% food ($600)

10% utilities ($400)

10% transportation ($400)

10% debt repayment ($400)

10% savings ($400)

5% clothing ($200)

5% entertainment ($200)

5% car insurance + miscellaneous ($200)

This is what society recommends. This probably resembles the way you spend (before reading this letter, of course).

At the end of the year, you’d have $4,800 in savings. At the end of the decade, you’d have $48,000.

At this rate, you’d have to work 260 years before retiring.

The heroes of our story would do things differently.

They wouldn’t focus on spending a percentage of their earnings (because then no matter how much you make you’ll always spend more).

They’d tell you they focus on how much they can increase their net worth and then invest it.

Suppose you live at your parent’s house for a few more years; that’s free housing and free utilities. Therefore $1,600 every month that would go into your pocket. You get an extra $19,200 per year (an amount a normal person would take 4 years to achieve).

(an amount a normal person would take 4 years to achieve). Suppose you live close to work. You won’t have to drive crazy commutes in traffic every day to get there. That’s another $400 every month saved in transportation. You get an extra $4,800 per year (and hours upon hours of time to do more enjoyable things).

(and hours upon hours of time to do more enjoyable things). Suppose you put all that money into debt first and get rid of it, that’s $400 into your bank account every month for the rest of your life. You get an extra $4,800 per year (Ideally, you’ll do even better and completely stay away from debt).

Now, we approach real savings, 60% of the income. That’s $2,400 every month! Our hero would get $28,800 every year.

Giving our hero a net worth of $288,000 after 10 years!

Remember our hero started with the average salary of $50k. And after ten years she’s worth 1/3 of a million dollars.

Using the most basic saving principles only our hero would retire 6.5x faster than any member of the society.

Note: Notice I’m oversimplifying by ignoring things like taxes, inflation, compounding, and investments. This is on purpose since all those things will be addressed in later letters. Trust me, you can have more in less time.

The average amount of time someone saving 60% of their income would take to retire is 12.5 years (once you factor in other things like investing and the magical compound interest, we’ll talk about it all later).

I know I know, you don’t want to live with your parents and have no car for 10 years.

All these numbers assume our hero makes the average $50k a year forever and doesn’t invest any of it. Since you’re reading this letter, you’re already hungrier than the average.

Not only will you know how to save money, you’ll also know how to invest it and make more money by creating several streams of income.

Which brings us to -

4. How do I create several streams of income?

Following this series you’ll find other ways to make more money and increase your net worth.

We’ll learn how to find opportunities. We’ll look at a few case studies and interview people who are doing it today.

One guest made $650k in 2015 selling stuff online .

. These guys made $215k in 13 months selling potatoes online (then went on to raise $50k on Shark Tank).

This is also called entrepreneurship. And thanks to the internet, anyone can do it.

Not just that, there are much more ways to make money simply by doing things differently. You will probably find your own way.

“When I was young, I had a misconception that you get rich from making a nice salary. As I got older, I realized the way to get rich was by owning things that go up in value — i.e., equity.” — Sam Altman

That’s all for today. I hope you enjoyed it. Read this letter as many times as you need until you’ve absorbed the lessons.

Congratulations. You’ve shattered a common belief. You don’t focus on your salary anymore. No, you focus on your net worth, and know your salary is just one part of it.

See you next week (follow the series here to be notified).

Be well.

R