This blog is about showing you how to retire early. Not 5 years early. More like “within the next 5 to 10 years” early. This is a blog about my own journey to early retirement, and how I discovered that anyone could do it, but few even think it is achievable. I am currently on track to retire within 10 years of creating this blog.
How to retire early, is it only for high income earners?
There’s a popular misconception that only people with a very high income can have access to early retirement. This is because people in our culture think that making more money is the only way to accumulate enough. The truth is, the best way to become wealthier is not only to make more money, but to reduce expenses. And, surprisingly, reducing expenses, with a bit of practice, is way more achievable than getting a raise.
Maybe you’re there already, but you don’t know it yet: If you’ve been pretty frugal your entire life, it’s possible that you’ve already achieved financial independence, and are already ready to retire early. Surveys show that people who have a million dollar in investments can already pull the plug.
If you’re not there yet, don’t worry: with a combination of lowered expenses, increased revenue and motivation, anyone in a developed country can become a millionaire, and ensure they will get their path on how to retire early. I firmly believe it does not matter if you have kids or not, and the main key to wealth and early retirement is to get your expenses under control.
I started my journey towards early retirement because my day job started to become a huge burden against my happiness. I wanted to spend more time with my kids before they grow older, I wanted to spend more time on personal projects, without the pressure of having to worry about how much income these projects would generate. I wanted to spend more time with my wife, doing those long walks we used to do around the city and on the beach when I was still a student.
Retiring early is not about becoming lazy and spending all your day on a sofa, like some people might want you to believe. It’s about opening more doors, more possibilities for your future life.
If you are wondering how to retire early, keep in mind that the dream is perfectly achievable. Someone saving 50% of their income can basically retire within 25 years. Saving 50% of your income should not require any dramatic effort in general. If you’re diligent and start in your twenties, you’ve got yourself a ticket to retire at 45.
Someone saving 75% of their income can retire within 7 years! 75%, for many people, is becoming a huge stretch in terms of savings, but some people have done it before.
I am personally trying to target something in the middle, maybe around 60 or 65% of savings. But no matter where you are today, if you’re serious about finding your way on how to retire early, making a budget, tracking your expenses should be your first step. Most people in first world countries save less than 10% of their take-home pay. Strive to increase your savings ratio, get your significant other onboard, and you will see dramatic improvements in your life very, very early in the process.
One of the things I discovered through my quest is all the side benefits of financial independence. Reducing expenses, removing clutter and unnecessary things in your life has the side effect of increasing your happiness. By not relying on “spending money” to feel happy, you soon end up focusing on what actually makes you feel happy in a durable way. It can be friends, family, a breathtaking landscape after a day of hiking. As you progress through cutting your expenses, you realize the way money can make you happy is by bringing you more freedom, not more stuff.
The steps to take are amazingly easy, all it takes is the will to get started. And trust me, I’ve attempted many times to get to the gym, never achieved it. Meeting early retirement goals, in comparison, felt super easy, because, simply put, it *is* easy.
How to retire early, where do I get started?
- The first thing you have to do is discuss your plans with your significant other, and get them on board
- Secondly, you should track your expenses, have a budget, understand where you spend your money each month. Many Personal finance bloggers recommend the free tools from personal capital to track all your accounts.
- Start cutting on the big money tickets, strive to save a larger share of your take-home money every month:
- Do you really need a second car? (do you need a car at all?)
- How often do you eat out? (hint: if you eat out for lunch at work, or on regular days for no special occasion, you eat out too much)
- What do your groceries expenses look like? Do you have a list for grocery shopping?
- Did you cut the cord? Do you really need your TV service?
- How about your utilities? Can you reduce your phone bill?
- Do you have expensive entertainment? Have you thought about free stuff that you can do with the people that really make you happy?
- Put the money you save in indexed funds or ETFs. Worry-free (long term) investments with an average of 7% return is where you want to go. Despite popular belief, the stock market (+bonds) is where this happens. Follow the boggleheads philosophy. Some people do it on a google spreadsheet, here again others recommend the free services from personal capital.
- (optional) look for ways to generate side income
The recipe above is simple, and it works. You’ll be surprised at how easy some changes in your lifestyle are, and how much more you are able to save, just after a couple of months. Our family went from a saving rates of 38% to 53% within 6 months, with tiny changes like this, that didn’t impact our lifestyle significantly.
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