The readers that have followed us for a while may remember from our previous Norwegian blog post "Hva Koster en Fridag?" which we posted last summer. In the post we explained that you could learn to invest into assets that generate you free cash flow. And that you can use that cash flow in exchange for your salary. If you could find an investment opportunity that pays 4% in a dividend yield you'd have to invest something like $6,000 to get an annual dividend of $240. That could you be your new pay check which could cover one day of "paid vacation". Furthermore, if you learn to get higher returns and to be a better investor you could get more vacation days for less capital invested. Let's say you could manage to get an annual return of 10%. Then you could get the same $240 by only investing $2,400, instead of the whole $6,000.

How are we doing?

We like to consider ourselves as both good savers and investors. We have also been compounding for a while. If we continue like we are doing, we'll not be surprised if  one of us manages to both earn an extra vacation day per month from savings, as well get an extra day from the expected investment gains. Imagine building freedom at the pace of two extra vacation days every month! After one additional year of working, saving and investing well he can add 24 extra days to his freedom account.

How can you do this yourself?

Well, if we assume that you can get an extra $240 in income per year by saving, investing and adding between $2,400 and $6,000 to your investment account, you'll get there gradually. The average US citizen saves about 10% or a little more of his income. If you have an average income of  lets say $40,000 after tax, and you have a savings rate of 10%, you could save $4,000 per year. That might be enough for an extra paid vacation day per year, if you earn 6% on your investments ($240 / $ 4,000 = 6%). 

Increasing your savings rate will speed up the process and make you reach your goal earlier

If you could increase your savings rate to 20%, your pace of reaching financial freedom would double. You could then increase your yearly addition of extra vacation days from 1 to 2. And if you have a savings rate of 30%, perhaps you could save 3 extra days per year. If you in addition would be a really great investor and earn 12% instead of 6% per year on your investments, a savings rate of 60% could help you get 12 extra vacation days per year.

How to calculate it, an example

We calculate this as follows. If we assume one vacation day needs to earn $240, then a 12% return on your investments would require $2,000 invested per vacation day ($240 / 0.12 = $2,000). If you have an average salary after tax of $40,000 and save 60% which is $24,000, that could give you 12 extra days of vacation earning $240.

And you could use these vacation days every day as long as your investments keep producing income.

You could even give them to your children. Imagine getting a month of extra vacation days as an inheritance from your grandparents!