- Grant Sabatier of Millennial Money built a net worth of $1.25 million in five years and retired early, at 30.
- In his new book, "Financial Freedom: A Proven Path to All the Money You Will Ever Need," he shares advice on building wealth, retiring early, and living life on your own terms.
- In the excerpt below, he says that your target number — the amount of money you need to retire early— is easier to reach if you break it into smaller money goals by year, month, week, and day.
- Sabatier devised a formula that factors in a 7% annual return rate on investments to help guide daily, weekly, monthly, and yearly savings goals.
The following is an excerpt from "Financial Freedom" by Grant Sabatier:
While your number might feel really large and impossible to attain, it will be much easier to reach if you break it down into smaller goals.
Since it's difficult for humans to comprehend large numbers and also difficult for us to think about the future, breaking your number down into more accessible goals really helps. I recommend breaking down your number into yearly, monthly, weekly, and daily savings goals.
Let's say you need to save $1,250,000 (which was my number when I first did this calculation). Depending on how soon you want to reach financial independence, you can easily break this down by dividing it by the number of years, months, weeks, and days until you reach that point.
Although any money you invest will be compounding as soon as you put it in the market, it's best to leave out the expected return rate for the purposes of this first calculation. Just know that, depending on how the market is growing, you could conceivably reach this number much sooner.
To figure this out using your number, you can use the simple calculator I created at https://financialfreedombook.com/tools/.
If you want, you can also factor in the expected 7 percent annual return rate to adjust the numbers based on compounding. This calculation is a little more challenging but easy enough to do in Excel or using the online calculator I built for you. To do it manually, use the following equation:
S = (Y − (1 + r)^n) / (((1 + r)^n − 1)/ r)
S = how much you need to save each year to hit your number by the time you want to retire
Y = your number
A = amount you already have invested (aka your principal)
r = annual compounding rate (as a decimal — i.e., 7 percent = .07)
n = number of years to retirement
So using my number of $1,250,000:
Y = $1,250,000
A = $0 as the amount already invested
r = 7 percent (.07)
n = 5 years
S = (($1,250,000 − $0)/((1 + 0.07)^5)) / (((1 + 0.7)^5 − 1)/ 0.7) = $1,086,816
So I need to save $1,086,816 at 7 percent compounding to have $1,250,000 after five years. Of course, this number will likely be smaller for you, since you're probably not planning to retire for at least five years.
Using this calculation in a spreadsheet, you can determine how much you need to save monthly by dividing this yearly savings number by 12, weekly by dividing the yearly goal by 52, and daily by dividing the yearly goal by 365.
It was crazy for me to see these numbers and how saving about $2 more day could help me retire one year faster (years 35 to 34) or that saving $10 more per day could help me retire two years faster (from 25 to 23). No matter how big or small your number, the more money you make and invest, the faster you will get there. It's incredible how fast your money starts growing once you start adding to it.
Now that you have your number, you know where you are going. Next, you need to figure out where you are right now.
Adapted from "Financial Freedom" by Grant Sabatier, copyright (c) 2019. Published by Avery, a division of Penguin Random House Inc.
SEE ALSO: How much money you need to retire early depends almost entirely on 2 factors
DON'T MISS: I retired at 30 with $1.25 million — here are the 3 key strategies I used to get there
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