Early retirement for many people is just a fantasy. But it doesn’t have to be. There are strategies that work, and not just for brilliant investors. Some of them are nothing but predictable and repeatable science.
So, this post highlights the theory, why it works and why only a few people make it. There are also tips to help you attain success with the strategy.
The Early Retirement Math
For quick math, assume you earn $48,000 a year. Also, assume this is your income after tax. Every month you will have a spendable $4,000.
If you decide to save $2800 every month (70% of your earnings), at a return of 8%, after 10 years you’ll have $515,000.
You will be forced to live on $14,400 a year. But after 10 years, you will have financial independence.
You can also decide to retire earlier and save 80% of your income. This will mean extreme frugality. But again, in 7 years or less you will be enjoying financial freedom.
Silencing the Naysayers
Someone reading this may laugh the idea off. Especially if you can’t even cover basic expenses with 100% of your earnings. But in many cases, this is not the “truth”. It is about your lifestyle choices.
People choose a lifestyle of extreme frugality because they’d rather not slave most of their lives for money. They opt for the cheaper options everyday just so they can realize their dreams.
The point is that it works and it has worked for many people.
Why Few People Retire Early
Many people want to, but most of them fail. Why? Because you need to have impeccable self-discipline to save 70% to 80% of your income. It is even harder for people with spouses and kids.
This is just one path. You can choose to start a business or get into real estate for the same results.
Understand these key principles:
- The more you save, the earlier you can retire.
- Inflation and investment return don’t have a huge effect in the short term.
- Financial independence is not enough motivation to live frugally. That is why few people achieve it.
Questioning the Goal
What is your goal: financial independence or financial freedom? They are different.
A super frugal lifestyle is anything but freedom. To achieve financial freedom, know your values and then create sufficient wealth to actually live them.
Your Plan and Your Values
For some people, extreme frugality is not something they see themselves doing. So, incorporate your plan into your values. You want to attain both financial independence and financial freedom. Your plan should reflect your reality. There is nothing like a one size fits all when it comes to a wealth plan.
One of Four Paths
This post is aimed at showing you how saving and frugality can help you achieve early retirement. But there are other paths.
- Getting lucky (inheritance, the lottery, etc.)
- Traditional saving strategies
- Hiring financial advisors
- Using tried and tested methods
Wealth planning is a personal choice.