The simple maths to achieve Financial Independence.

Financial independence is where your stash of Ringgit is able to provide you with enough Ringgit to pay for all your expenses without the need for you to work at all (unless you want to). The stash of Ringgit would usually be invested somewhere with a minimum return of at least 4%  (the higher, the better).

For you to be able to achieve financial independence, there is only 1 factor only. And the factor is (drum rolling), your savings rate, as in the percentage of your take-home pay.

WHAT? WHAT IS THAT?

To put it simply, it is how much of the pay that you are saving.

For example, if your salary is RM 36,000 per year and after all the expenses are being deducted, you still have RM 3,600, then your savings rate is 10%. If you still have RM 18,000 after all the expenses, then your savings rate is 50%.

To find out how long would it takes to achieve financial independence, we would have to make some assumptions to proceed.

• Assumption 1 - You can earn a 5% investment return after inflation during the savings years.
• Assumption 2 - You will live within the 4% safe withdrawal rate after retirement.
• Assumption 3 - You will want your stash of Ringgit to last forever.
• Assumption 4 - Your net worth is RM 0.

Below is how many years you would have to work until you achieve financial independence according to the different savings rates. 

As you can see, if you can increase your savings rate, you would be able to achieve financial independence faster. 

So, how do you increase your savings rate?

There are two factors:

1. Increase your income.
2. Reduce your expenses.

While both of the above are important, you can start working on increasing your savings rate by cutting down on your expenses. Tracking down all your monthly expenses would give an idea of how much is your expenses (and how much you are saving at the moment). Look into your expenses and think of how you can reduce it. The more common methods are changing mobile phone plan to a cheaper one, eat at home instead of eating out, cut subscriptions that you don't use often (gym, Astro, Netflix), and take public transport if possible. The reason is simple to start reducing your expenses because of its double effect:

1. Increase the amount of money you can save.
2. Reduce the amount that you need every month for the rest of your life.

With this, you would be able to achieve financial independence faster!