Reading 6 min Published Updated
One of my main financial goals is to achieve financial independence and possibly early retirement. In simple words – the path to FIRE. Although I haven’t decided yet about early retirement, maybe I’ll continue to do something, but I definitely won’t refuse financial independence and the opportunity to quit my job at any time, just because I want to.
I have been walking towards my goal at a leisurely pace for more than a decade. I save about 30% of my income. Half of the way has already been passed. Now I can already afford a barista fire – work somewhere part-time or half-time, take the rest from capital. But so far, I’m not doing it. Why do I need these half measures.
But it was a saying, now the fairy tale will begin.
I try to spend all my expenses profitably: I pay for goods and services with cards with cashback and (or) credit cards with long grace. Deferral of payment on credit cards allows you to keep money in savings accounts and receive additional income in the form of accrued interest. Also a kind of cashback.
By my calculations The average cashback, if we take into account all the expenses of the family, is about 4%.
I believe that cashback is an underestimated helper in the FIRE movement. Knowing how to squeeze cashback from your spending, you get a small cheat that will help you achieve financial independence faster. Now I will prove it to you and show it by my example.
How can cashback help you achieve FIRE?
Cashback as future capital
Have you ever wondered: How much does cashback cost?
I mean how much does it cost?
Well, for example, 1 million on a deposit at 8% per annum brings us 80 thousand rubles. And some blozhik (like mine) – also brings 80 thousand rubles. So my blog can be conditionally estimated at 1 million subscribers.
You can do the same with cashback, but instead of contributing to sparring partners, we will take FIRE capital.
How to do it?
Let’s start from the end.
Fire has a 4% rule. Every year you can spend 4% per year from the capital and it seems that you will have enough money for a lifetime. There are some nuances, when you can manage to eat through capital during your lifetime, it still does not take into account taxes and other expenses (such as fees to exchange-traded funds). Therefore, for peace of mind, you can reduce the expected size of the annual withdrawal to 3.5%. But for simplicity, let’s take the 4% rule.
Now let’s calculate the amount of capital required to live on Fire.
To feel financially independent, I (the family) need 100,000 rubles a month, or 1.2 million a year (in today’s money). So, to ensure life on a fire, I need a capital of 30 million rubles.
How to quickly calculate how much money you need for FIRE?
We multiply monthly expenses by 300: 100 thousand x 300 = 30 million.
Or we multiply the annual expense by 25: 1.2 million x 25 \u003d 30 million.
And now attention!
- I can squeeze 4% cashback from my spending!
- So I can spend 4% less money on pensions!
- So I can reduce my fire capital requirement by 4%!
4% of 30 million = 1.2 million rubles.
The ability to extract cashback from my spending for me is equivalent to a capital of 1.2 million rubles!
CHIT #1 – Cashback makes it possible to accumulate a slightly smaller FIRE capital.
Accelerating the movement to Fire
But that’s not all (just like in some store advertising on the couch).
To achieve financial independence, I will be able to save a little less Fire-money. In my case, instead of 30 million, it is enough for me to put together a capital of 28.8 million rubles. So this will speed up my movement towards the goal.
Based on my FIRE capital aspirations, it will take me 22 years to reach my $30M goal, assuming I invest $50K monthly (in today’s money) with a 7% annual return.
Cashback allows you to reduce the term to 21 years!
Hooray! I reduced the deadline for achieving the goal by a whole year!
Perhaps one year will not impress someone. On such a horizon, it is a drop in the ocean.
Well, yes, well, yes, tell me that one year does not solve anything, those who, after the pension reform of 2018, raised the retirement age by a year. Tell them to their face that working a little more is not so tragic. You will immediately learn a lot about yourself.
For myself, I see this not as shortening the time to achieve the goal, but as an opportunity to live an extra year on capital. As sad as it sounds, we are all going to die sometime after we retire. Some will last decades, others may be 5-10 years. What will happen is unknown. But cashback allows me to prolong the pleasure in life a little, even for one year. I will retire earlier, more time will enjoy financial independence.
CHIT #2 – Cashback allows you to shorten the time to reach your FIRE goal!
If we develop the topic further, in order to accelerate the achievement of FIRE, you can invest all the cashback you receive in investments.
For example, I spend 30% on investments and 70% on living. This means that due to cashback, my flow into investments can immediately increase by 10% (instead of 30% of income, I will save 33%). And this is without additional efforts on my part and other budget restrictions.
What’s the point?
The more money I invest, the faster my capital growth will go, the faster I will reach my goal!
In my example: an increase in money for investments by only 10% from the initial level, allows you to reduce the time to achieve FIRE by another 1 year.
CHIT #3 – Cashback allows you to direct additional money for investments, which further reduces the time to achieve the FIRE goal!
I have repeatedly written that I often evaluate the feasibility of performing any action on the basis of a combination of two factors: the result obtained (most often financial) and the effort expended (usually this is time). We divide one by the other and get the cost of our reward per unit of time (usually an hour).
Submitting a declaration for deduction for IIS and other benefits is a matter of a few hours. And then the lion’s share of the time is spent on collecting documents if you need a deduction for tuition or treatment. A deduction for IIS or for real estate can generally be obtained in 5 minutes using a simplified system.
Several hours (or minutes) = several tens of thousands of rubles. Profitable business? Undoubtedly.
The topic with cashback is also a profitable activity for me. On what? All that is required of me is to pay for purchases with the right cards with a good cashback. Once set up the system – and use without additional effort. Perhaps once every six months or a year, conduct an audit for the appearance of new more profitable products.
In return, you get a reduction in the time to achieve the FIRE goal by several years.
I think a few superfluous years of life as a financial independent – superfluous they definitely won’t (although this is “butter oil”, it’s true😁).
Do you use cashback cards?
I look forward to your comments!