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Why Fall is the Most Important Season for Your Personal Finances

Leaves are falling, sweaters are out, and pumpkin spice – beloved or bemoaned – has made its seasonal appearance. And while the best parts of summer have become little more than memories, many Americans are still feeling the financial effects of the warmer months. According to a LendEDU seasonal spending survey, summer, as it turns …

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9 Transformations On The Road To Financial Independence

While taking our personal finance onto another level, a few small changes led to larger transformations that both simplified and elevated our lives. Transformation #1: The Personal Finance Ninja I’d like to credit this term to Stephanie, from Becoming a personal finance ninja is exactly how I would describe our transformation. We became more …

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5 Ways To Invest In Yourself

When I talk to my co-workers, friends, and family about investing, we usually talk about where we can place our money to maximize growth that aligns with our financial goals and risk tolerance. But today, let’s talk about investing in the most important asset you own, YOURSELF! 1. Take time off work One of the …

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June 2019 Update: 26% to Financial Independence

I started this series to reflect on our goals and share some things I learned each month. For now, I’ll primarily be tracking our progress to financial independence. I hope you get some value from this and if you haven’t already, join the Flexcents community as it continues to grow! Our Progress to Financial Independence …

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How to Calculate Your Effective Savings Rate

The majority of people aren’t born as mathematicians. Luckily, it doesn’t take a genius to understand how important it is to save your money and calculating your savings rate can be just as easy.

Why should you know your savings rate?

If you’re reading this article, you already know the answer to this question, but for the folks who may have been forced onto this page by some unknown power, I will explain it simply.

The more you save, the earlier you can retire.

Duh. Pretty obvious right? 

However, financial advisors and big firms these days recommend saving at least 15% of your earnings towards your retirement fund starting in your 20’s.

The idea is that with each pay raise, you should adjust your savings to maintain that 15% contribution rate.

The problem with a 15% savings rate is that it puts you on track for retiring in 35.3 years. 

You heard me right, 35.3 YEARS!

That is assuming you invested your savings in a retirement fund that you anticipate will provide a 7% average annualized return and plan to go with a 4% withdrawal rate while in retirement.

If you only save 15% of your income toward retirement and spend the rest, you will either retire broke or work until you’re an old wrinkle sack of bones.

Some rare species of people don’t mind decades of mandatory work, but many others would rather cut down or start a business of their own.

Now, what happens if you can increase your savings rate from 15% to 25%?

You will be able to retire in 27.1 years with the same assumptions as above.

Want more numbers?

  • Save 50%, retire 15.0 years
  • Save 75%, retire 6.8 years

Want to play around with your own values? Check out this early retirement calculator at Networthify.

Related: How we saved 72% of our income in 2018

Time For Some Math

Effective Savings Rate = (Net Income + Tax-Deferred Contributions) – Expenses / Gross Income)

Net income: What you take home from each paycheck

Tax-deferred Contributions: These are typically your traditional 401k, 403b, 457s, Thrift-savings plan, Traditional IRAs and Health Savings Plan. 

Expenses: All the cash and credit that comes out of your pocket

Everything can be found on your paystubs except for expenses.

The easiest way to track your expenses is through an app. 

I use personal capital which does everything for you. It is also a tool for budgeting, tracking your asset allocation, net worth, and so much more. 

If you sign up through this link will give both me and you $20. 

Step 1: Sign-up
Step 2: Link your investment/bank accounts with a balance of $1000 or more (No worries, they use the same security as your bank)
Step 3: Wait up to 6 weeks for a $20 Amazon gift-card to arrive in your email inbox.

Even if you are not actively managing your finances, using personal capital will give you a greater understanding of your finances. So give it a whirl. Take control of your finances today!

March 2019 Update: 24% to FI, Recurring Costs Cut By $27

I started this series to reflect on our goals, summarize blog developments and share some things I learned this month. I hope you get some value and enjoy following our journey. If you haven’t already, join the Flexcents community as it continues to grow! Financial Goals We discovered the financial independence retire early (FIRE) movement …

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3 Important Doctors To Visit Regularly

For places like the U. S. where healthcare is super expensive, it is understandable for people to opt-out of seeking preventative healthcare services when there isn’t any apparent problem. Even with healthcare insurance coverage, the inconvenience and break in routine may be enough for some people to skip visiting the doctors. But there who are …

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