00:00hey guys it's Aman and Christina from
00:02our Rich Journey this week we have a
00:04very special video for you guys if you
00:07have been watching our Channel you know
00:08that we have videos on financial
00:11Independence and retiring early and all
00:13of these videos can be very overwhelming
00:16in fact we created these videos as a
00:19diary of our journey towards Financial
00:21Independence so sometimes the sequence
00:24doesn't always line up and we've gotten
00:26a lot of questions from people asking us
00:29where do they start their Journey how do
00:31they start investing in the stock market
00:34and maybe if they're already investing
00:35how do they optimize those Investments
00:38for fire well today we are sharing with
00:41you a course that we created that walks
00:44you through those steps from A to Z so
00:48in this video we are sharing with you a
00:50module from our course and in this
00:53module we are going to show you how to
00:55calculate your financial Independence
00:57retire early number your fire number the
01:00number that you would need in order to
01:02retire early so we hope that you find
01:05this sample video from our course useful
01:08now remember this is just a sample it's
01:10a small snippet of our overall course
01:12and our overall course is more than 4
01:15four hours long it has 21 modules and it
01:18has more than 30 handouts of summary
01:20notes homework assignments and other
01:23resources and it also includes a 19-page
01:26individual investment plan for you to
01:28work on throughout the course course of
01:30this class so if you guys want to see
01:32what else is in the course we will leave
01:34a link in the description below other
01:36than that enjoy this video on how to
01:39calculate your fire number and the 4%
01:53rule so welcome to module number three
01:56we are so excited because we're going to
01:58get into the investing aspects of this
02:01course but before we pick our first
02:04investment every investor should start
02:07with a goal in mind you see by
02:09establishing your goal upfront you can
02:11better identify what investments you're
02:13going to make in the future so in this
02:16specific module we're going to talk
02:17about investment goals and we're going
02:19to talk also about how to calculate your
02:21fire number but remember that we are
02:23doing all these modules in sequential
02:25order so we really hope that you already
02:27went through module one and module two
02:29because module two focuses on paying off
02:32your high interest credit card debt and
02:34also establishing an adequate emergency
02:36fund so you should do those things
02:38before you start really moving into the
02:40details of how to invest so whenever you
02:43start investing whether or not you're
02:45investing in the stock market in real
02:47estate or you're starting a business you
02:49always start with a goal in mind now if
02:52you're taking this course we are going
02:53to assume that your goal is to reach
02:56Financial Independence and to retire
02:58early or at a minimum just to reach
03:00Financial Independence and in order to
03:02do that you need to know what your fi or
03:05your fire number is and this number is
03:07the amount of money that you need to
03:10accumulate in your Investment Portfolio
03:12in order to live financially independent
03:15and also to retire early now Christina
03:17just pointed out two very interesting
03:19things she said the amount of money you
03:22need in a stock portfolio to either one
03:25be financially independent or two
03:27financially independent and retire early
03:29you see the retire early part is all up
03:32to you but achieving Financial
03:34Independence and what you do with it
03:37that all comes down to identifying what
03:39your financial Independence number is
03:41and once you achieve that Financial
03:43Independence number it's your choice
03:45whether or not to retire early but you
03:47cannot retire early unless you Achieve
03:49Financial Independence so we're going to
03:51talk about your fire number and we're
03:53going to use it synonymously with the
03:55fire number and the F number but just
03:58keep in mind again if you want to reach
04:00Financial Independence it's the same
04:02thing as your fire number so to
04:04calculate your fire number all you have
04:06to do is estimate your annual expenses
04:09in early retirement you take that number
04:11and you multiply it by 25 this is your
04:15fire number and this is the amount of
04:17money that you need to have in your
04:19Investment Portfolio in order to reach
04:21fire now note that Christina said your
04:24estimated annual expenses in retirement
04:27those are not your expenses right now
04:29those are the expenses that you identify
04:32will be when you retire how much money
04:34it will cost you every single year to
04:37sustain your life in retirement and that
04:40number is completely different than what
04:42you are spending right now to live your
04:43life so what we want to do is we want to
04:45run some numbers with you because
04:47sometimes numbers make it more tangible
04:49and you can understand it better when we
04:50start placing numbers in so let's give
04:52some examples so let's say someone's
04:55calculated their estimated expenses in
04:57retirement and that those expenses total
05:00$50,000 a year to calculate the person's
05:03fire number we would just take 50,000
05:06and multiply that by 25 which would give
05:09us 1.25 million so in this example this
05:13person's fire number would be
05:15$1.25 million so let's say that this
05:19person was investing in the stock market
05:21this means that this person would need
05:24$1.25 million in his stock portfolio in
05:28order to reach Financial Independence
05:30and to retire early so before you run
05:32off and go calculate your fire number
05:34it's important that you understand why
05:36we're saying 25 times your annual
05:38expenses that 25 times your annual
05:41expenses in early retirement comes from
05:43something called the 4% Rule and the 4%
05:46rule became popular because of the
05:48Trinity study so we're going to talk
05:50about the Trinity study right now and
05:51give you more details about the study
05:53what it looked like in the conclusions
05:55of the study because it's really
05:57important when you're understanding your
05:59f number I mean we can tell people that
06:01you use 25 times your estimated annual
06:04expenses but it's really better for you
06:06to really understand the meaning behind
06:09this and understand why it is that 25
06:11times number so let's talk about the
06:14Trinity study so this study was
06:16conducted by a group of Finance
06:18professors at Trinity University in
06:20Texas the study calculated retirement
06:23portfolio success rates with various
06:25monthly withdrawal rate assumptions and
06:28various portfolio asset
06:30allocations now Christina may have
06:32confused you with all of the jargon she
06:35was throwing out if you are new to
06:37investing some of these terms may sound
06:39foreign to you so we're going to slow
06:40these down a bit but what Christina
06:43essentially said was that this study ran
06:46a bunch of different scenarios where it
06:48looked at various types of portfolios
06:51and it looked at portfolios that were
06:52made up of all stocks portfolios that
06:54are made up of all bonds and portfolios
06:57that had a mix of the two and BAS Bas
06:59off of those makeups of the portfolio
07:03how long those portfolios would last
07:06before they ran out of money based off
07:09of how much a person took out of those
07:11portfolios and how much a person takes
07:14out of a portfolio they referred to as a
07:16withdrawal rate so they looked at
07:18withdrawal rates of 3% meaning that
07:20someone would take 3% out of their
07:22portfolio someone that would
07:24consistently take out 4% and someone
07:26that would consistently take out 5% so
07:29with with those different withdrawal
07:30rates they looked at these portfolios
07:32and they looked at whether a portfolio
07:35was successful after a 30-year period
07:38meaning whether there was still money in
07:40these portfolios at those different
07:42withdrawal rates after 30 years so let's
07:45get into the results of the study
07:47because this is where the explanation
07:49for the 4% rule comes from based off of
07:53this study it was determined that
07:55someone with a retirement portfolio of
07:57100% stocks could safely withdraw 4%
08:01from their investment account adjusted
08:03for inflation each year and not run out
08:05of money over the course of 30 years so
08:08just to emphasize that this study showed
08:11that a portfolio that was made up of
08:13100% stocks and had a withdrawal rate of
08:164% over a 30-year period had a 100%
08:20success rate so in other words the study
08:23showed 100% success rate at a 4%
08:26withdrawal with 100% stock portfolio now
08:30what's interesting is they also looked
08:31at different mixes so they looked at a
08:33portfolio with 75% stocks 25% bonds and
08:38also a 4% withdrawal rate and they also
08:40found that this type of portfolio also
08:43had 100% success rate meaning that after
08:4630 years this type of portfolio would
08:49still have money in it now there is a
08:52point in this study where the results
08:54start to vary so in this study they
08:56found that portfolios with 50% stocks
08:59and 50% bonds had a much lower success
09:03rate than those other portfolios they
09:05also found that when people stop taking
09:08that 4% withdrawal rate and start
09:11increasing it say to like a 5%
09:13withdrawal rate the success rate lowers
09:16so the point is the more money you
09:18withdraw the less likely your portfolio
09:21will be successful over a 30-year period
09:23if you are starting to withdraw five six
09:2610% of your total portfolio annually the
09:30less likely that portfolio will have of
09:33success so let's go over the specific
09:35results of the study and we'll actually
09:37also leave a link to the study so you
09:40can read it and go through it and really
09:42understand the details of this specific
09:44study so like we already said a
09:46portfolio with 100% stocks and 0% bonds
09:50at a 4% withdrawal rate had a 100%
09:53success rate after 30 years the study
09:55found the same results for a portfolio
09:58with 75% stocks and 25% bonds now an
10:02Investment Portfolio of 50% stocks and
10:0550% bonds at a withdrawal rate of 4% the
10:09study found would only yield a 91%
10:12success rate after 30 years and it gets
10:14even worse for someone with an
10:16Investment Portfolio of 25% stocks and
10:1975% bonds with this portfolio at a 4%
10:23withdraw rate the Trinity study
10:25determined that the success rate was
10:29so again seeing those numbers those are
10:31all related to the 4% withdrawal rate if
10:35you go higher and you start withdrawing
10:37more at a higher rate the success rate
10:39of these portfolios lower so that is the
10:42basis of the 4% Rule now just imagine if
10:46you can live off of less than 4% your
10:49portfolio has a greater chance of
10:51surviving those 30 years if you only
10:54live off of 1% or 2% 3% the point is a
10:58lower % also increases the success rate
11:02of your portfolio so that is the Trinity
11:04study and that's what really explains
11:06the 4% rule but let's relate that back
11:09to that 25 times your annual expenses in
11:12early retirement if you take that number
11:14now remember we said someone who had for
11:16example a retirement a fire number of
11:20$1.25 million if you take that 1.25
11:24example if you take 4% from that that is
11:28the $50,000 that that person estimated
11:31that they would need in early retirement
11:33so we provided this information for a
11:36very specific reason to help you
11:38establish your goal you see with your
11:41goal now you can identify how you go
11:44about investing to meet that goal if
11:46your goal is financial Independence and
11:49retire early calculate your fire number
11:52and with that fire number you can better
11:54understand the timeline it will take you
11:57to amass that kind of money in an
11:59Investment Portfolio the Trinity study
12:01also points out risk it talks about
12:04asset allocation and that is something
12:06that we're going to talk about in
12:08upcoming modules but it identifies the
12:10mix someone can have in their portfolio
12:13between stocks and bonds these are all
12:15things that we're going to talk about in
12:17upcoming modules but just know that we
12:19provided this information to you
12:21specifically to help you identify your
12:23goals for financial Independence and
