How to Reach Your Financial Tipping Point

how's it going everybody doesn't beat the bush today I'm going to talk about how to reach your financial Tipping Point what do I mean by Financial Tipping Point because I just made this term up and it fits perfectly it's when your investment returns interest everything added up together exceeds your expenses this is a magic point at which you can decide to just retire and do nothing for the rest of your life my auto blinds are just changing right now or as I've come to realize that actual retirement where you're just sitting on the beach and doing nothing or vacationing non-stop is actually not that interesting my whole theory of finances and everything is to be very very frugal at first this builds up your Investment Portfolio very very quickly early on your investment income ramps up rapidly so much so that at some point it might be even difficult to spend as much as your investment income I make a lot of frugal videos and how to save this or that and I spend very little every year all of this really is to get to your financial Tipping Point quicker why do you want to get there quicker because a lot of magical things happen after you can choose to retire or suddenly you have this financial banking and you can suddenly do anything that you want you can go after business ideas that are quite risky which in turn might end up making you even more or money I did not grow up in a rich family at all so everything you see here I made with my own two hands I bring this up not as a humble brag people that are already rich that has a financial backing from their parents to start businesses they have an edge up on everyone else because they already reach this financial Tipping Point they can try a lot of risky things and they don't have to worry about where they're gonna eat that night where they're gonna sleep that night because it's already set there for them it's like a solid base if you grew up in a poor family you have to build this base up yourself and so my experiences this is indeed possible you just have to be very frugal at first and build up your base and once you reach your financial Tipping Point then you can do stuff like other rich people where you can start risky businesses go after your passion which in turn might earn you a lot of money this video is brought to you by Mumu the commission free trading app I have an exclusive offer from MooMoo this time if you just open up account you'll get a free share of stock without even depositing any money if you deposit a hundred dollars in your account you'll get a total of 10 free shares of stock if you deposit a thousand dollars you get 20 total free shares of stock valid until the end of May in 2023. check out my referral link down in the video description below I always wanted to describe my theory on why I needed to be so Frugal at first so that I can enjoy my money a lot more than other people that enjoyed it too early in their lives let's take a fictitious example over here where someone graduated college right they're 22 they earn fifty thousand dollars a year and I know people are gonna get raises and all that but let's just say they always earn fifty thousand dollars for the rest of their lives a person living paycheck to paycheck spends about 49 000 of that fifty thousand dollars yes I know there are taxes and everything so let's just call that after tax income you have a thousand dollars of savings and if you don't invest it right you just keep on putting in your high yield savings account or like low yield savings account even look at the chart of this scenario here you can't even see how much wealth this person has built because it's so thin it's that blue line right at the bottom they're just spending every dollar that they earn they're not saving anything they're not letting their investment work for them and letting it compound now this second scenario is the same except they put their money in an investment account let's say they make eight percent gains investing in the stock market index fund and let me just insert really quick here that investing in the stock market index fund is simple to say but it almost seems like it takes a lifetime to really understand and really practice it let me just leave it at that so for someone that's living paycheck to paycheck and they scrounge whatever they have left and invest it well they're gonna do a little bit better they're that green line down there on this chart but if you do this for a lifetime all the way to 6 C5 you're only going to end up with about 350 000 of net worth people almost never invest all of their money into the stock market and a lot of people have money in real estate and split off whichever way but to make this video simpler let's just say all of that is invested and you get eight percent yield every year now let's skip to a fictitious example of which of Wall Street which of Wall Street is a super Frugal lady all her entire life no matter how many millions she has in her bank she keeps on spending that low amount all the time can you imagine if you have like five million dollars but you still spend twenty thousand dollars a year well look at this example here same scenario same income over here and they spend only twenty thousand dollars every year their entire life and invest everything and get eight percent look at how crazy their net worth becomes they end up with 10 mL million dollars at 65 and I assume this person is going to take it to the Grave or like if this person have grandkids they're gonna take it and just spend it superfluously just basically wasting it so that's the main point here if you look at this extreme example I'm not trying to be frugal my entire life in fact I am actually trying to spend more and more money because my passive income my investment income is bigger than my expenses so I can rest easy that I buy something oh it's already being paid for itself it's basically free without an additional hour of my own work now here's what it looks like and let's say I've been spending twenty thousand dollars every single year all the way until I'm 40. but at the age of 40 I increase it to forty thousand dollars a year a huge jump of quality of life and then every single year after that I spend five thousand dollars more and so on and so forth until I don't know I'm like 60 year old and I can spend a hundred forty thousand dollars a year I wouldn't even know where to spend it because Studies have shown that the older you get the less wants and needs that you have you don't go on vacation as much so there must be a sweet point where you know it's time to increase your expenses a little bit because no matter how you try to spend you're not going to be able to spend down your net worth so you can see here I am living this chart here in Gray where I'm very very frugal in the beginning and then now I am starting to spend a little bit more in the end I'm still going to end up with about five six million dollars of net worth at 65. even though I'm spending like a crazy person at least compared to my previous Frugal self so that's the name of the game here it's not about saving forever sometimes when I enjoy my money a little bit people are like oh my gosh they're not Frugal anymore that's not the point the entire point is to maximally enjoy the money that you make I'm not gonna take all my money to the grave in fact I want to spend most of it this example illustrates how you can earn the exact same amount of money and yet in the end you have a lot more total let's say life enjoyment because you delayed gratification but because of that delayed gratification you let the investment earnings make a lot more money for you than theoretically your total life experiences your total life enjoyment in totality of your entire life would be way way better than if you were to just do paycheck to paycheck I want to highlight something else here check out the seventh year if you only spend twenty thousand dollars every single year if you saved thirty thousand dollars and you get eight percent gains by the seventh year your investment is gonna make more than twenty thousand dollars your current burn rate which means at the seventh year you can already retire of course I don't recommend retiring right at that point because then you're gonna have to spend only twenty thousand dollars every single year for the rest of your life ideally what you want to do is just keep on making money for a few more years after that have your investment income balloon to whatever amount that you want per year maybe the gain reaches maybe a hundred thousand dollars every single year then you can go oh okay it's it's reached high enough let me increase my spending now that's why you see me buy certain things it's time for me to spend a little bit I hope you guys enjoyed this discussion and really understand why I'm so Frugal early on and my saving habits just keeps on going I actually have to force myself sometimes like I gotta I'm gonna spend a little bit more on this you know enjoy a little bit more thanks for watching this video don't forget to give me a like And subscribe for more thanks for watching [Music] thank you

Channel: BeatTheBush

Views: 6,304

Keywords: personal finance, financial independence, FIRE, beatthebush, beat the bush, financial tipping point, tipping point, the tipping point, investments passive income, retire early, how to retire early, maximum life satisfaction

Id: mIgk2ByLpJ8

Length: 9min 28sec (568 seconds)

Published: Sun May 21 2023