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How to Retire Early | The $50 a Day Early Retirement Strategy
How to retire early
A good early retirement strategy is built on maximizing three aspects: Income, expenses, and savings.
To build your early retirement strategy, you need to determine your retire early or financial independence (FI) number. It is the amount of money you need for work to become optional. Be aware that the number will (and should) change as you change, and your desired lifestyle evolves.
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What early retirement means
Early retirement is not defined as when you stop working forever, but as having the freedom and flexibility that saving up enough money can give you if you want to leave a job.
The idea that when you retire, you are done working is an old school idea. Working is actually good for you. People that altogether quit working start losing their mental faculties and may die sooner.
The money you need for early retirement
Based on a series of papers known as the Trinity Studies, you need to save 25-30 times your expected annual expenses to have enough money to last you for the rest of your life.
This multiple is based on the percentage of your investment growth that you would be able to withdraw per year. A safe early retirement withdrawal percentage is between 3%-4%.
Cut back on your expenses
Cut back on your three biggest expenses.
- Housing: The easiest way to do this is by house hacking, where you rent or buy a 2 or 3 bedroom apartment and rent out the extra rooms to offset or make money on your rent or mortgage.
- Transportation: Don't buy a car if you don't need one. Or buy a used car.
- Food: Make food at home. Buy in bulk. Eat less meat.
Increase and diversify your income streams
Go out and try to make more money. Start by optimizing your full-time job and starting a side hustle.
- Optimize your 9 to 5: Negotiate a raise and work remotely, so you have more control over your time and more time to make money on the side. Ensure you are maximizing all of your employee benefits.
- Start a side hustle: Profitable side hustling is about the money/time tradeoff. It is a lot easier to make money doing something you love.
Set daily, weekly, monthly, and annual savings goals
Most of the retirement calculators come out with a number you will need to "retire" based on your inputs and current progression. The numbers are so large that they seem impossible to reach and consequently discourage saving.
However, a daily goal is much easier to consider. If you need to get to $1,250,000 over a 30 year period, you can wrap your mind around saving $50 a day with an expected 5% annual compounding rate.
Create a simple investing strategy
A good early retirement investing strategy should be simple, focused on stocks, bonds, and real estate, and be executed consistently.
- Ensure to have both a short- and long term investing strategy.
- Only invest in what you understand.
- Stick with asset classes that have performed well historically.
- Ensure your money is working as hard as it can for you by investing in a tax-efficient way.
Fast track your early retirement
Deposit as much money as possible into your investment accounts every day, even if it is only $5. If you get a bonus, invest it. If you make extra money on a side hustle, invest it.
Try to deposit $5/day and then increase it $1/week. You will probably not miss the extra dollar.
The most important numbers to track
The two most important numbers to track your early retirement strategy are:
- Your savings rate: This is the percentage of your income that you're saving either before or after taxes in all of your accounts
- Your net-worth: This is the most important metric to track. Net-worth = your assets - your liabilities.
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Early Mistakes, Late Start & Future Hurdles.
Savings and investments should be part of a monthly budget even when young or just starting a career.
You cannot save enough if you are waiting until your late 30's before...
Myth vs. Reality in Retirement Planning
- I’m not that old: It’s not about NOW but saving for your old days when you can no longer work full time.
- I’ll wait for a lump sum is just an excuse to postpone planning or procrastinate.
- Assumed Family/External Support: It’s better to be prepared for eventualities and have contingency funds in hand.
- Financial Requirements Decrease: Medical costs increase with age. Inflation and other factors might also come into play.
- I will not live that long or I won’t retire: People tend to live longer, but they will suffer from medical ailments.
Retirement Goals
To have a secure and financially independent retired life during your golden years with regular post retirement income, a corpus of savings/investments and a safe shelter or home.
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From consumer to investor
A consumer spends money and follows trends while an investor puts capital to work and takes advantage of trends.
Chronic...
Discover if you’re a consumer
- You feel the need to reward yourself after a hard day of work by buying new clothes/accessories or eating out.
- Lifestyle creep controls your expenses. When your income increases, you buy a new car or a more expensive house.
- You reserve your credit card for unexpected expenses instead of using an emergency fund.
- You rationalize using a credit card to buy things you might not purchase with a debit card.
- When something is on sale, you feel the urge to buy it, even if you wouldn't have otherwise bought it.
- You follow social trends.
- You don't think you have money to invest or the time for it.
The chronic consumer
Consumers will remain consumers, even if their income increases.
- Negative spending habits can destroy your financial life, and disrupt your mental health and relationships.
- Credit card debt can put stress on the quality of your life an contribute to unhappiness.
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Financial Independence
Financial independence implies not having to worry about money anymore, but rather focus on what you want to do, in your free time and your passions.
However, being financi...
Become financial independent
In order to attain financial independence, consider some of the below steps:
- invest your money into different projects, stocks. activities: diversification is sometimes the safest key to success
- do your research thoroughly before investing your money anywhere, to avoid unpleasant surprises
- increase your income by finding side hustle or getting engaged in new projects
- manage your income by cutting down unnecessary expenses
- invest in real estate: rent or resell properties.
Attain financial independence earlier than later
In order to feel less stressed about your expenses, start doing the research on how to achieve financial independence now.
It will save you a lot of frustration that might emerge due to work while also making you feel more satisfied with your own life.