I would like to ask for help from those with more experience on how to achieve financial independence on, say, an N year window where N is large enough to get there but as small as reasonable. I just don’t mention a number because (a) I don’t want to set a false expectation and (b) I don’t know what a realistic number would be. Specifically - are there any obvious optimizations which I could make to my current situation? For example, save to a certain amount before investing, re-allocate monthly spending, etc.

[edit: by financial independence I mean enough to have bought a home, car, and maintain those expenses as well as the cost of living and a bit more (Christmas presents, a vacation a year). But assume any “luxury purchases” - first class flight tickets, big ticket toys, larger charity donations, etc. would be bought with subsequent income based on projects pursued for fun as opposed to necessity]

My situation is that I’m 25, have $1k in savings, $1.25k in indivudal stocks that earned about 6% in the past year, and $500 in cryptocurrency (mostly BTC, ETH) that have earned 0% all time. I have about $28k of student loans at 6-8% (different providers). I don’t own any assets really and have a leftover income of about $1.2k per month after rent, electric, other personal expenses (food, clothing, going out, etc.) to devote to financial and personal investment.

Currently my income is split as follows:

  • spending (eating, eating out, clothing, leisure, other life expenses): 42%
  • rent, gas, electric, internet: 20%
  • savings: 13%
  • student loan debt: 12%
  • personal development: 5%
  • investing: 5%
  • recurring subscriptions: 3%

[edit: dollar amounts are provided in USD for convenience; I live in Central Europe - slightly lower cost of living - most of the time but have US citizenship]

  • 10
    Please clarify on what "financial independence" means to you. Does it mean not working, being able to eat out every night, or driving a Lamborghini?
    – Pete B.
    Commented Nov 5, 2019 at 12:32
  • 27
    The path to Financial Independence leads through the Forest of Living Below Your Means (without becoming a miser). And time.
    – RonJohn
    Commented Nov 5, 2019 at 13:47
  • 11
    We all had to look in the mirror. I'm glad that you're looking now instead of waiting until your late 40s, like I did.
    – RonJohn
    Commented Nov 5, 2019 at 14:01
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    If your investing is making 6%, but your student loans are costing 6-8%, then your investing is actually losing you money. You should stop investing immediately, and pay off your student loans ASAP! In 1 year that would be enough to eliminate 1/2 your student loan, reducing your spending could account for the other half. So, in one year, you could be debt free, then you could really be on a path to financial independence.
    – Glen Yates
    Commented Nov 5, 2019 at 20:24
  • 5
    Reducing eating out is one of the easier ways to save money and it can have major health benefits. It might be different where you are but my experience is that home cooked meals cost a small fraction of restaurant meal. This is especially true if you are having drinks with your meal.
    – JimmyJames
    Commented Nov 5, 2019 at 21:42

6 Answers 6


First off, I have to say "rent, gas, electric, internet: 20%" is phenomenal, do everything in your power to keep this at that % for as long as possible.

Then, given the safety nets that are standard for most European countries, a large amount of savings isn't required. Unless that is, if you need a lump sum of money for a significant investment (real estate comes to mind), so the 13% can be lowered or left out altogether after you assess your specific situation.

Another point of note is the 42% spending, given the meager % required of you for the rent/utility package, I'd assume you can have a comfortable life with much less spending than almost half of your income.

I'd use a considerable amount of that 42% and the savings to rapidly tackle any type of debt you have, especially if there's more debt than just student loans that are typically low rate. [edit: 6-8% as added to the question is huge, you should definitely try to tackle this debt ASAP]

Unless you're speculating on it and/or using it as learning or a hobby, I wouldn't bother trying to beat the market with individual picks and would invest in whole-market ETFs, preferably at low or zero commission. Tackling the crypto issue, if you believe in it, you can buy in a small position over time (anything from 1-10% of your total investment budget) to compliment your primary (ETF) portfolio. To enhance returns, store that in a yield-bearing account like the ones offered by BlockFi.

As for the N year window, it really can and will fluctuate. Do you intend to increase your spending, be it lifestyle inflation or genuine causes like children? Is your salary projected to increase by gaining experience? Do you want to purchase a home to live in? (which may not necessarily make sense from a purely economic point of view)

A good rule of thumb is to aim to have 25 times your annual (projected at retirement time) expenses invested so you can more or less be able to live off a modest assumed 4% yield, but that's not the end-all-be-all answer to such complex questions.

  • 1
    Surely the point of this question is to grow the savings category, not shrink it?
    – pjc50
    Commented Nov 5, 2019 at 16:50
  • 11
    @pjc50 Money in a savings account is making very little. Diverting money towards paying off debt now rather than letting it sit around will lead to more savings in the future. Commented Nov 5, 2019 at 17:03
  • 1
    There's an 'easy' way to get the <20% figure. Decent paying job in a low cost of living area. Renting I'm around 12% of post-tax income. Buying a reasonably nice house here might nudge me into the 20-25% range. The gotcha is that if not quite the middle of nowhere, I can all but see it from where I am. Big urban areas are great for many things; affordable housing isn't one of them. Commented Nov 5, 2019 at 18:06
  • @pjc50 What @ pip said holds even truer here in Europe where rates are near zero for savings account(unlike the US where you can still get ~2% rates) so you 're not even preserving money if you keep it in saving accounts long term but rather lose it after inflation is accounted for.
    – Leon
    Commented Nov 6, 2019 at 6:49

FWIW, you unwittingly laid a trap by setting up your question the way you did, and half of your responders fell into it.

How much you're spending on what right now is completely irrelevant. So are your current assets, because they're so small. Current debt is marginally relevant.

The only questions that drive the "Financially Independent"/"Retirement" target are

  1. "How much will I need to spend when I reach my FI/Retirement goal?" That includes both mandatory (housing, food, etc.) and discretionary (travel, entertainment, etc.) amounts.
  2. "How much will I need to have set aside for unplanned expenses not covered by #1?"

You have to determine those numbers, but there's tons of data out there on how much people spend, when they spend it, and what they spend it on. Remember that you want numbers on what people at and beyond your target FI/retirement age spend; what people your age, or your age + 10, spend is irrelevant. In particular, you'll be spending a lot more on health (care, insurance, prescriptions, MediGap, etc.) between ages 60 and 90 than you will between 30 and 60. (yes, I realize that's a "Duh")

As an aside, it seems likely that your low housing percentage that looks so impressive is because you have at least 1, and maybe 2 or 3, roommates sharing those expenses. Or a sensational/rent-controlled/etc. lease. But, as noted, that number is irrelevant.

Item 1) Is not quite as obvious as it sounds, since it is what you'll actually spend minus whatever you'll be receiving in the way of Social Security, fixed pensions, part-time work, or whatever. That net amount is what you pull from retirement savings.

The "25 times" and "4% withdrawal" rules are very conservative. Basically, Bengen did his calculations for rolling 30-year periods starting in 1926, and underlaid the worst-case periods with a floor that kept the well from running dry. In over 90% of the cases, the balance at the end of the 30 years is more than it was at the start. https://www.kitces.com/blog/how-has-the-4-rule-held-up-since-the-tech-bubble-and-the-2008-financial-crisis/ has lots of info on that subject, and leads to more. And the "25 times" thing will be replaced by your estimates here. At least the current analysis uses real numbers when available; accurately answering the question "How much will I spend the year before I retire 30 years from now?" is...ambitious.

So, you'll have to decide what your target withdrawal rate will be. Then decide what you think the CAGR of your investments will be (hint: over long periods, the S&P 500's inflation-adjusted CAGR is over 6%, so using 5-5.5% for planning is conservative). Then plug those numbers into any of the 1.2 zillion (+/- 3%) retirement calculators out there.

That gives you the retirement nest egg you need to cover 1).

2) is similar; the withdrawals are irregular, but large when they happen. You can look at what people that age now are spending, but how you apply those numbers to your estimates is your call. For this item and the health part of 1), looking at what your 60/70/80-year-old direct and near-direct ancestral relatives spend will be helpful (i.e. grandmother/great uncle yes, 3rd cousin of grandmother by marriage, not so much). Don't forget to increase the numbers you find to account for inflation.

When you get the total of 1) and 2), the rest is easy. You can do it in one cell of an Excel spreadsheet. In fact, you don't even need Excel; http://support.content.office.net/en-us/coach/excelcoach_FV_PartI.html has everything you need.

The number that counts is the "Payment" amount; the amount you're "paying" into your FI/retirement assets. A.k.a. "Monthly Retirement Savings".

Once you have that, you can (finally) look at what you're currently spending. But only the aggregate matters for this analysis: how much do you have to reduce your current total spending to be able to save what you need for retirement, plus what you need to be putting away in a current rainy-day/car-replacement/etc. account? Obviously, the categories matter to you--not having funds for food or clothing doesn't really work--but the savings number doesn't care where cuts are made.

My recommendations for saving (which--along with $2 or so--will get you a cup of coffee) are

  1. At your age, Roth-style after-tax is preferred over traditional pre-tax options. Revisit that when you get within 10 years of retirement or hit the 33% tax bracket.
  2. At your age, bonds are silly; just direct everything toward a split (70/30 or so) of VTSAX/VTI and VTIAX/VXUS (or whatever your retirement plan offers that is closest to those) and then ignore it. Or go with a "target" fund and let someone else do the allocation for you. At your age, I'd go with VTTSX (or equivalent), which is almost 90% equities. And then--you guessed it--ignore it. If you mess with it by trying to time the market, you are much more likely to hurt your results than you are to help them.

When you're within 5-10 years of retirement, you'll want to start building up the Bucket 1 and Bucket 2 components of your strategy. A Web search for "morningstar bucket" will lead to hours of reading on the subject.

I categorically disagree--most of the time--with the "pay rent for your entire life" recommendation:

  1. Most of the time, the spread between buy and rent isn't large enough to give you a big chunk of money to direct toward savings. Your current situation may be an exception; if so, how long will it stay that way?
  2. If you buy, and pay off before your FI target, you have free housing for decades. In fact, once you reach age 62, you have better-than-free housing: a reverse mortgage pays you to live in your house. Reverse mortgages were more than a bit iffy during the early years, but the industry is starting to clean up its act.

I absolutely agree with paying off your loans as soon as feasible. Sometimes, there's an interest-rate balancing act there: in years when the stock market ROI is more than the interest on the loans, you end up with more by directing more to the market and less to the loans. The reverse is (obviously) the case for down years. Your rates are high enough that investments will only beat them maybe half the time, so I'd go ahead and pay them off.

Bottom line: you need to do a lot of reading to learn how to develop your estimates. Then adjust your spending to support reaching the goal. It's your plan; take the time to make it a good one.

BTW, it's amazing--as in amazingly rare--to see someone your age actively planning this far ahead and seriously committing to the plan. Kudos.

  • Disagree with the VTTSX recommendation. Why pay Vangaurd extra MER to rebalance your portfolio when you can do it yourself as you go? Also at that age you don’t need any bonds in the mix.
    – Dugan
    Commented Nov 5, 2019 at 23:38
  • And kudos to you for a thorough answer. Welcome!
    – bishop
    Commented Nov 6, 2019 at 8:56
  • "It's your plan; take the time to make it a good one." intend to! I see I indeed have a lot of reading in my future. The answer scared me a bit because of how ignorant I am on this stuff, but better to know what I don't know. Thank you for such a thorough answer. Want to take advantage of the "time on my side" with how compounding works for investments and the like, but I also agree with you that answering the question "How much will I spend the year before I retire 30 years from now?" is...ambitious (and probably a waste of time!). Just want to aim before shooting :) Commented Nov 9, 2019 at 14:48

I would recommend reading Mr. Money Mustache which provides advice on how to cut down on your living expenses, manage debt, avoid sinking money on things that don’t add value to your life, and offers tips on investing for retirement. I would also recommend reading JL Collin’s stock series which will give you a primer on how investments work, where to invest, where not to invest and how to think about your investments.

In general they will recommend:

-Living below your means.

-Getting our of debt before investing anywhere else.

-Avoiding purchasing a house unless you’re getting an insanely good deal since renting indefinitely and investing that capital that you save is often the better financial move.

-Quietly saving every extra dollar you have to buy index funds in a retirement savings account or tax free account.

As for how many years this will take— the rule of thumb is that if you have 25 times your annual living expenses you’ve can draw down 4% of that annually more or less indefinitely (provided it’s invested in an account that’s earning a reasonable rate of return). Depending on your income and savings rate and desired lifestyle this could take anywhere from 10-30 years if you did everything correctly and didn’t have any huge surprises.

  • Purchasing a residence could very likely be cheaper (and better) than rent, not to mention that much of the payment for cost of living goes towards a mortgage which is itself an investment. You have to upkeep that cost, unlike with rent, but you could rent or sell it.
    – Andrew
    Commented Nov 6, 2019 at 17:11
  • Agree on recommending MMM blog - it is excellent
    – Andrejs
    Commented Nov 6, 2019 at 17:34
  • @Andrew and others — highly recommend that you read the article Why your house is a bad investment understanding the lost opportunity cost of having your money tied up in an asset as big as a house is probably one of the best pieces of financial wisdom you can gain.
    – Dugan
    Commented Nov 7, 2019 at 4:29
  • @Dugan So I've actually run the numbers, which is exactly why I suggest getting a residence. You can save so much money by owning a place rather than renting. For one, whatever expenses you pay for a residence, the people renting it out to you have to pay that as well. That's going to factor into your cost of rent. Also, you can get a much higher quality everything by owning a place; that's what you're getting with your mortgage + interest. A lot of these bullet points are completely wasted when you consider the fact that you have to live somewhere anyways, especially if a professional.
    – Andrew
    Commented Nov 7, 2019 at 18:10
  • @Andrew here’s a follow up article where they break down the costs of home ownership versus renting. The simple back of the napkin calculation is that if you can find a place that’s as nice as the place that you’d rent for less than 110 times what you spend on rent every month then it makes more sense to buy than rent. Otherwise you’re generally better off renting. If your calculation is coming out strongly in favour of buying then I suspect you’re miscalculating the lost opportunity cost.
    – Dugan
    Commented Nov 8, 2019 at 0:41

In your current circumstance, the best thing you could do is pay off your current debt as quickly as possible while avoiding any new debt. If you paid an extra $1k a month towards your student loans, you could be debt-free in under 2 years. Even quicker if you diverted some of your monthly savings towards paying that off.

In those 2 years, spend an hour a week reading about retirement planning and investing. Once you have no ongoing payments aside from your living expenses and a good foundation you can focus on building for your future.

  • I agree, though refinance "6-8%" to something below stock income might be a better solution. Commented Nov 6, 2019 at 7:34

spending (eating, eating out, clothing, leisure, other life expenses): 42%

rent, gas, electric, internet: 20%

For most people, these are the other way round, and rent is their single largest expenditure. If you've got a really low rent you're in an excellent position.

by financial independence I mean enough to have bought a home, car, and maintain those expenses as well as the cost of living and a bit more

For most people, "financial independence" means not having to work, or not having to work on someone else's schedule at least. This means income from either landlordship or investments. And since the easiest way to benefit from "gearing" (capital appreciation on something bought with borrowed money) is to buy a house, that's usually the first stop.

You don't even necessarily have to live in the house yourself, if your current rent situation is good enough. But doing so is usually better for mortgage and tax purposes.

So: focus on finding a suitable property, preferably in an upcoming urban area where it will appreciate in value, getting a mortgage, and paying that off as soon as possible. If the property is larger than you need, sublet it (within the locally applicable law).

  • 4
    I agree long term that home ownership will be a good goal, but someone with $2400 in savings and investments, while having $28k of outstanding debt is not ready for a mortgage.
    – spuck
    Commented Nov 5, 2019 at 17:47
  • 3
    "where it will appreciate in value" -- you can't be certain. If houses were guaranteed to appreciate in value, every investor would put all their money into houses, to the point where all of the expected future returns would happen immediately, and the guarantee about future value appreciation would go away.
    – juhist
    Commented Nov 5, 2019 at 17:50
  • 1
    Investment properties earn about 6% on average after expenses. A total stock market Mutual fund is more likely to earn you 10%. Houses are not the winning investment everyone makes them out to be.
    – Dugan
    Commented Nov 5, 2019 at 23:31
  • 1
    @Dugan I agree that houses are not the end all be all, but on average they do appreciate significantly in value over time, especially in urban areas. It's a way to diversify your investments. But I wouldn't recommend the OP buy a house now, not with this much debt.
    – E.T.
    Commented Nov 6, 2019 at 9:50
  • A residence can definitely be a good investment. As I commented elsewhere, it can also be cheaper (and better) than your rent (factor that also into your "earnings" and larger investment opportunity!). It is true that the OP is not ready for a residence just yet, but knowing about it being a good opportunity now will help him to be prepared for it when the time comes. Residences can also appreciate more if you fix them up a little over time or just before selling (if wanted). You're unlikely to gain 10% consistently in stocks.
    – Andrew
    Commented Nov 6, 2019 at 17:18

[I] have $1k in savings, $1.25k in indivudal stocks that earned about 6% in the past year, and $500 in cryptocurrency (mostly BTC, ETH) that have earned 0% all time. I have about $28k of student loans at 6-8% (different providers). I don’t own any assets really and have a leftover income of about $1.2k per month after rent, electric, other personal expenses (food, clothing, going out, etc.) to devote to financial and personal investment.

Currently my income is split as follows:

spending (eating, eating out, clothing, leisure, other life expenses): 42%
rent, gas, electric, internet: 20%
savings: 13%
student loan debt: 12%
personal development: 5%
investing: 5%
recurring subscriptions: 3%

So the thing is that you are spending a lot on "spending" with a ~30k debt.

6-8% interest is an after-tax cost (I assume), so it will be hard to get a reliable investment to beat that. I'd be tempted to clear that debt as a first step.

38% of your income is 1.2k, so your income is about 3.2k. Rent/gas/electric/internet is then 600$/month, and spending is about 1.3k/month.

Halve spending. Halve savings. Keep up personal development (I'm assuming this is useful to earn more income in the future). Keep up investments (honestly, you are doing that to learn about investing). Keep up subscriptions.

 21% spending
 20% housing+internet
 6% savings
 5% development
 5% investing
 3% subscriptions

this comes to 60%, freeing up 40% or 1.3k to put into debt retirement.

28k of loans at an average of 7% comes to 163$/month in interest; so you can put 1.1k into debt reduction per month. At that rate in about 2 years, give or take, you'll be debt-free.

Next, inflate savings until you have 3-6 months of after-tax income saved up (so 10-20k). This will give you the ability to do things like handle a recession, the urgent need to buy a car, or uproot your life for an opportunity, or serve as a downpayment for a house.

At 45% 1 year will get you there; 20k in a bank account, no debts, some investments.

After that, do a bump on your standard of living; from 21% to 26%. Whenever your savings fall below 5 months of income, you have to repay that out of your standard of living.

The other 40% now aims at investments.

Your investments should be mostly index funds with some geographical diversity; in the event of a local recession or economic problems, your ability to earn income could collapse at the same time your investments do. On the other hand, if you intend to retire locally, local investments may be better.

Regardless, at 45% of your income (1.4k) over 2 years you'll have almost 40k in investments and 20k in savings; this is 5 years from today. Add another 5 years and you'll be approaching 150k.

In this time you can hope to (a) increase your income, (b) maybe partner up with someone with a similar trajectory.

150k at 5% is is only 7.5k per year. A 2% wage increase above inflation per year over 10 years is worth just as much. Your biggest asset remains your ability to earn income, even after 10 years of savings.

If you you manage that and you steadfastly put your wage increases into investments (except the 5 month savings), you'll be closer to 200k invested at the decade mark.

Reaching the ability to maintain your current standard of living without working, at 4% withdrawn per year, requires a million dollars. And the problem is that while your spending money will stay flat, odds are you will start picking up health problems over the next few decades, and your medical costs will go up.

Reaching the standard of living of spending 60% of your current income requires 600k. Hitting that with investments earning 5% will require saving 40% of your income for 2+ decades.

On the plus side, you will die; the above assumes we our nest egg has to last indefinitely.

On the other hand, if you double your income without changing your standard of living from 60% of your current income, your ability to invest goes up 2.5x and instead of taking 2 decades to save up enough to coast on, it will take a half a decade.

The key to your problem is, like most people, (a) finding a higher paying job, (b) not increasing your spending to match your increased income, and (c) waiting in proportion to your ability to do both of the previous.

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