Moving on to Amit's question. He says, 'Do you always need to keep saving 20 to 25 percent per the financial order of operations
? Can I lower it or stop if I have the lump sum equivalent in retirement accounts already?' This makes me want to know how he knows how much he needs for retirement too, but I want to know your thoughts.
So there are two things that Amit has probably done. He's probably either gone out to moneyguy.com/resources
and download our wealth multiplier because the wealth multiplier tells you what lump sum you would need to have saved to hit a certain dollar figure— a million dollars, two million dollars, you know, whatever the number is— by retirement. Or perhaps somebody has done our 'Know Your Number'
course, which actually gets much more laser-specific. You can go to learn.moneyguy.com and check out our 'Know Your Number' course
because then it actually tells you what your number is to be able to retire.
So, if Amit's done that and he has his number and now he's backed into, 'Okay, well, I have enough saved up. I'm probably going to hit that number without saving any more.' That is an idea, and there's a chance that that could probably work out for you. It makes me a little nervous to think about just banking on that because what you are then relying on is a rate of return assumption.
If I have X dollars today and I earn, you know, whatever the rate of return is, six percent, eight percent, timber, whatever number you're using, and I earn that rate of return, then I will be able to retire. Then I will be able to have financial independence. Well, you're putting a lot of weight specifically on that rate of return, whereas if it doesn't happen by no fault of your own—maybe you go through a Great Recession, and then maybe you go through a COVID, and maybe you go through a 'fill in the blank' of a thing that could happen and by no fault of your own—just the timing of when you get to retirement, maybe that rate of return is not what you realized. You're sitting there thinking, 'Ah geez, I've got to work longer.'
I like the idea of, I don't think it's crazy to back down your saving because what I would do is I would, again, work through the 'Know Your Number' course, figure out how much I have, and how much I should save. But Brian, you said this with your wife way back when, 'Hey, if we can crush it in our 20s and we can save 25, 30 percent, I bet we're going to get ahead of the curve. And if we get ahead of the curve, then another take our foot off the pedal and stop saving are two very different things.'
Yeah, and I mean, I think for sure, let me—the short answer is yes, but there's a huge asterisk next to it because I think let me go through a few of these things. I think stage of life matters, meaning that, um, my conversation with my wife is, if we would be very disciplined when we were younger and those maximizing exponential growth opportunities of your 20s and 30s, it's all back to the money multiplier that we're talking about because that's where one dollar can turn into 88 when you're 20. One dollar as a 30-year-old can turn into 23 dollars. You know, these are huge multipliers. Meanwhile, you get up to where you're in your mid-40s. I mean, when I look at a 45-year-old, one dollar has the potential to become 4.46. You know, so that's a lot different than 88. So, I think that this is a decision if you are going to think that I'm going to pull back, you need to be in the stage of life that you're so mature in the process that you're not eating a lot of the wealth multiplier. You also have the critical mass behind you of assets that are working just as hard, maybe even harder now that you've reached this point of critical mass—harder than your brain and your hands can.
I also think I want to tell you to be very careful of knowing what are your goals and what are your needs and are they set. What do I mean by that is if Amit, I don't know how old you are, but if you were a 25-year-old single individual and you're only, because you're just so good at building wealth and saving, your footprint of expenses is like $15-20,000 a year. But down the road, you know when you're 50, you know, think about if you now have a spouse, you have multiple children, I bet your footprint isn't $15-20,000 a year anymore. So, I just—I tell you to make sure that your needs for life have been set, meaning you've got all the kids that are going to be brought into the world. You know what your living expenses are. That stuff needs to be firmed up because if the concrete has not set on that, you might be surprised at how life can throw some crazy curveballs at you that change your assumptions and your variables on that.
And then here's the other thing that I would tell you. I talk about a concept called '4 or scarcity.' This is my own thing that I've talked about for my wealth builder. For me, as I've gotten pay raises, I've made more money, I forced myself to have this moment of scarcity by automatically sending my money to all these other pots. Part of that is also to control my consumption because remember, part of wealth building is you want to make the good habits extremely easy. So, that's what automatic wealth building makes those always be buying opportunities there. But for scarcity, it makes the bad habits hard. And bad habits are just when there's money in your pocket and a little jingle, jingle. We always feel like we can go spend a little extra.
For scarcity limits that. So, I would caution you, just make sure that when you take the reins of saving off and investing off of yourself, that your lifestyle doesn't expand to a point now that you undermine the long-term success because you once again can spend yourself out of success and wealth if you don't understand your why, if you don't understand how these things are all interconnected. You can get yourself in quite a situation, so just be careful that your lifestyle doesn't expand, that it actually undermines your ability to actually be at the financial independence point.