Finax Blog

Information which helps you to invest properly.

Financial freedom - how to retire young and wealthy

It is often discussed in central Europe, how to teach people to save and smartly invest at least small percentage of their income. In the meantime, a different trend is taking off in the west. More and more people save majority of their income to gain financial freedom. Money can buy you not only new things, but also something much more valuable – freedom.

Ján Tonka | Personal finance | 6. September 2019

FIRE (Financial Independence, Retire Early) represents a movement whose followers want to achieve financial freedom and possibly retirement long before they reach the retirement age.

The ground stone of financial freedom is accumulating investment assets in such amount that they are able to generate a passive income covering all your expenses over a long period of time. The steps toward reaching this goal are quite simple – spend (much) less than you earn and invest the rest.

Work to earn money first (typically for 10 to 20 years) and let the money work for you afterwards. If you have a monthly salary of 1000€ and your investments automatically generate you the same amount, then you do not have to go to work anymore and you are free.

Buy yourself time, not new clothes

Today’s society is addicted to consumption and going against the tide is not always easy. Advertisement is omnipresent – buy new outfit (does year truly have 52 seasons?), phone or computer, go on at least 4 vacations each year and by the way, isn’t it time to buy a new car again or to renovate your apartment?

On the contrary, the fans of FIRE reject needless consumption that often leads to debts. Every useless installment can prolong the time needed to gain financial freedom by years. 

They put stress on experience and time spent according to one’s preference. Even if you abstain from many modern conveniences, you will still live a better life than the aristocrats did a century ago. Therefore, the FIRE movement has a lot in common with minimalism and environmental protection.

Nowadays, a big portion of consumption of the developed world does not satisfy the basic needs but fights boredom, exhaustion from the everyday routine or helps to escape from reality.

" The three most harmful addictions are heroin, carbohydrates, and a monthly salary.”

Nassim Nicholas Taleb

If you can escape from the vicious circle of spending, running into debt and increasing your expenses, you have almost succeeded. When you are happy with your life, you do not need to always seek for distractions and entertain yourself with buying new stuff. The less money you need every month, the less dependent you are.

What is the cost of freedom?

In order to achieve financial freedom, the passive income from your investments needs to cover all your expenses. The 4% rule is used to calculate how much money in investments will you need for that. It says that you can annually safely withdraw 4% from your investments and not deplete (outlive) them.

Thus, if you need 1000€ every month, you will have to save up 300 000€ (4% from 300 000€ is 12 000€ every year, or 1000€ every month). You get to the same number if you multiply your expected yearly expenses by 25 (12 000€ * 25 = 300 000€).

Is 800€ enough for you? In that case you will need 240 000€ in your investment portfolio (25 * 800€ * 12 months). Our algorithms can also help you to calculate your target amount.

If you insert 240 000€ into our investment planner and you want to reach it in 15 years, you will see how much you need to invest on a monthly basis or in a one-time deposit.

parametre podielových fondov

Do you pay 20€ every month for Netflix or HBO? It is alright, but you will have to save 6 000€ more to cover that expense. Second car for which you monthly pay 400€ (gas, insurance, lease plan) actually costs you 120 000€ and so on.

Where to find the money?

Everything is possible on sufficiently long horizon. Do you want to appreciate 100€ to one billion? No problem. You only need to invest it in stocks… and wait for 187 years. Compound interest will deal with the rest. Everything is possible. Theoretically, you can make a billion from one cent. However, if you want to achieve your goals earlier than the sun stops shining, you will need to cut your expenses and speed up.

There are no limits to cutting your expenses and increasing your income. If financial freedom is your goal, you can move to a smaller apartment, use public transport or bicycle instead of car or work even more. There are a lot of options.

New definition of retirement

Retirement does not need to mean just mandatory withdrawal from working life in an age, which the politicians just agreed on.

If you want a Swiss pension, you will have to create it for yourself. By relying on state pension, you will eventually be independent from work, but certainly not financially.

Start getting rich

Try investing into index ETFs today.

Families could once live off one income. If they could do the same now and invest the second income, they could reach financial freedom in 16 years. Life would then no longer be just about how to save for one vacation a year. Your whole life would be one big vacation.

Most read articles

2. July 2020

Want to know more? Meet us online or attend our webinars!

Why should you invest? What are the advantages of investing with Finax? Are you looking for a help with investing or planning your finances? Do you want to learn how to invest properly? Meet us online or attend our free webinars to learn more.

Read more
Book review: Rich dad, poor dad | Finax.EN
25. November 2020

Book review: Rich dad, poor dad

This book made me look at money from a different perspective than I had known before. Everyone who is interested in managing their personal finances in a better way should read this book. It should be a part of your path to financial literacy.

Read more
Are ETFs a bubble? | Finax.EN
27. November 2019

Are ETFs a bubble?

Recently, there have been reports going around in the media criticizing passive investing and warning of ETFs. Among the authors of these negative news can be found not only legendary investors, but also Slovak brokers. Do investments in ETFs really carry a higher risk? Finax has built the portfolios on these great tools, so we see it as our duty to clarify this matter.

Read more
21. August 2018

How do we choose our ETFs?

You have probably already noticed that Finax portfolios are mixed from ten ETF funds depending on the level of risk the client is willing and able to carry/to handle. But how did we choose specific securities and why is the composition of the portfolios such as you see in your accounts?

Read more
We are happy to advise you!
Schedule a call