Work Your Money, Not Your Life

Chapter 5How to Increase Your Financial Runway

Many people find investing to be the most interesting part of personal finance, and who can blame them? With numerous media publications devoted to covering every little movement in the stock market, and supposed investing experts yelling and screaming about stocks on cable television, it can be easy to think that not only is investing the most interesting part of personal finance, but the most important aspect as well.

But as we saw in Chapter 1, focusing on saving and keeping your expenses in check can significantly affect many aspects of your life. And believe it or not, saving money actually has a much bigger impact on your financial situation early on, compared to investing.

For illustration purposes, let's say you had annual living expenses of $100,000. In Table 5.1, you can see if you're able to save $10,000 a year, you've bought yourself a little over a month of financial runway. Assuming your investment portfolio could get an average return of 5%, your investments wouldn't generate $10,000 a year until you amassed a portfolio of at least $200,000 — not an immaterial sum of money to save up.

Table 5.1 Months of Financial Runway Added ($100,000 Living Expenses).

Savings Per Year	Investment Portfolio Required to Generate Savings Per Year (5% Return)	Months of Financial Runway Added
$500	$10,000	0.06
$5,000	$100,000	0.60
$10,000	$200,000	1.20
$20,000	$400,000	2.40
$30,000	$600,000	3.60
$40,000	$800,000	4.80