Find Out What Age You Can Retire With This Equation

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If you're a dummy when it comes to savings, join my club. From the moment I got my first paycheck at 15, I was liberated with this newly-found financial freedom. I bought a surfboard I still to this day have never used and I raided Target's Disney DVD range to add to my own dusty collection. My first few paychecks never did last very long.

While I like to think I've come a long way since 15, my relationship with money is still a little dicey. So, will it ever be possible for someone with my bad habits to save enough to retire? Apparently, there's a way to understand the concept more simply. Let me impart that knowledge onto you.

If Cash Is Your Only Savings Strategy, You're Losing Money

Investing isn't as hard (or as risky) as it seems, but it's a lot of information and it does take some time to learn, which turns many people off of it altogether. However, if you've been putting it off and you have a hefty amount of cash savings, consider the problem of inflation.

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The maths equation, brought to our attention by Mr. Money Mustache, is extremely simple to grasp - particularly for a money dummy like yours truly.

Even if mathematics isn't your strong suit, the primary takeaway is that your 'savings rate' (i.e. how much you're saving) can be determined by your total income minus your living expenses. It seems so obvious, but say you're earning $1000 each week and pure living expenses equate to around $400 - and that's all you spend - your savings rate would be 60 per cent.

The bigger your savings rate, the quicker you can retire. Thankfully, you can make a retirement calculator, like Networthify, do all the hard work for you when it comes to the hard numbers.

After plotting my numbers in and seeing the results, I am now placing a moratorium on my online shopping tendencies.

Incidentally, while it seems rational that having a bigger income equals bigger savings, this isn't the full story. As Mr. Money Mustache explains, cutting your spending rate is much more powerful than increasing your income, as it builds your overall monthly savings and "permanently decreases the amount you'll need every month for the rest of your life."

Now, I just need to take these financial insights into my daily spending habits.

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The Reserve Bank of Australia (RBA) is currently floating some bold ideas to get the economy back on track - including reducing interest rates into negative territory. Instead of gaining interest on the money in your bank account, this means you would actually lose money. So what can you do about it?

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    Its a pretty simple equation. Spend less than you earn. Bigger the gap, the more you save. The more you save, the faster you get rich. Faster you get rich, the sooner you can retire. Its the most common thing rich people say when asked how they got there - spend as little of their money as they can.

    It gets easier as you go through those steps, with the hardest part seeing actual progress. If you save $200, it doesnt look like much. If you do it each week for a year, you have $10,000. At some point, you see that benefit and start to put more and more away. Amazon doesnt look as enticing then. Basically, you get into a routine.

    You'd be surprised how quickly it all falls into place once you get into that routine as well. Good budget leads to good savings, which leads to good capital to invest, and then good assets. Hardest part is getting to a position you can live with, and still save enough to be relevant.

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