The Most Important Factor for Early Retirement

One of the most important and possibly THE most important factor in financial independence is Savings Rate. Essentially, this is the percentage of money you save relative to your net income.

Some use gross income (pre-tax income) and others use net income (post-tax income). I prefer to calculate my savings rate using Mr. Money Mustache's formula which is (Take home pay + employer match - spending) / (take home pay + employer match), X 100. I prefer post-tax because I cannot prevent paying taxes. Increasing your savings rate is a double bonus. Not only are you saving money, but you are reducing the amount of money it costs to fund your lifestyle. So every dollar you save is worth more to you because you need less of it. In other words, $1,000 for a lifestyle that costs $20,000 is worth a lot more than $1,000 for a $100,000 lifestyle. It is all relative to how much money you actually need.

Last year was the first year I actually calculated my family's savings rate. We have always maxed our Roth IRAs, saved double digits-worth percentages in our 401ks, saved for kids' college, and payed extra on the mortgage and did the same last year. I was a bit nervous about what our savings rate would be considering we have a mortgage and daycare bills, but it ended up higher than expected.

In 2017, we ended up with a savings rate of 49%. And considering we have been doing the same for the last 5-8 years, that feels pretty good. I hope to trim off some expenses in the food and beer categories which should bump up the rate. If someone can save this much for 10 to 15 years the odds of being FI is quite likely with average returns from their investments.