Thursday, August 20, 2009

Discretionary $ and Savings Rate: Crucial Factor in Determining your Assets

How should you choose where to work or what business to do when you are making the preparations for Financial Independence (FI)? You must pay attention to one figure: how much you are left with at the end of the month after paying off all your expenses, taxes and loans (ETL). So, if a person working in China earns US$300/m, spends only US$150 for ETL, and can save up 50% of US$150/m, then he is worse off than an American who can save up only 20% of his US$5,000/m salary.

If you are young and single, hence mobile, you should choose to work in a place---even overseas---where you can maximize your savings rate. This way, you can shorten the period of your financial accumulation period, and retire earlier.

As you can see, the % of your salary that you can save doesn't matter as much as the absolute figure itself: e.g. US$150 or US$1000.

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