Retire early? When you hear these words, a lot of things come to mind. Because this is something, everyone hopes for. So, let’s answer the question, how to retire early and make it possible?
A lot of people dream of early retirement. Having financial independence where you can have fun and be stress-free.
You get to travel to different places, or you simply stop working and enjoy your life. This standard of living is what retirees dream about after years of service and labor in their lives. It’s paying off all the hard work a person has put in their lives.
The basic idea behind being Financially Independent and Retiring Early is that you have enough passive income or savings to pay for your lifestyle without needing to work. This doesn’t mean that you need to stop working altogether. It means that you can do whatever you want!
You can decide to pursue your dream career or launch your own dream business without having any pressure.
When you do not entirely rely on your paycheck to meet your monthly expenses, your nest egg, investment options, and retirement funds and savings plan in general.
For most people, retirement even sounds far, far away, something you shouldn’t be planning for until you’re at least 50. What if I told you that many people don’t even have enough money to retire?! That will not be your path! Retirement is possible in your 30s, 50s, 70s, whenever you want it. You just have to plan for it.
For me, having the option to retire early is all about freedom and flexibility. If you have the same dream of wanting to retire early, here’s how to make it possible!
How Much To Save?
When you want to know how much you need to save. First, is it necessary that you think about how much you want to spend? This will be the main way to know how much money you will need to save. This means that the higher your spending, the more you will have to save.
To cut down your spending, read more about 25+ money-saving tips here.
How to calculate how much you need:
- Desired amount of annual spending / 0.04
This is also known as the 4% rule or the rule of 25.
Let’s take one example. My spending would be $15.000 in retirement.
15000/0.04 = 375.000. This means I would need $375.000 to retire early.
Read more detailed information about this over at the Ultimate Guide to Financial Independence and Retire Early.
Tip: Create a budget that works for you. This will help you track your expenses and spend on the more important and essential things.
Living stingy may be a good idea as this will help you to save more. Also, there are a lot of awesome things that you can do without having to spend a single penny.
Planning for a retirement is easy if you know how to use your hard-earned money each month.
Your Savings Rate
It is important to consider the savings rate, which is how much you have left each year divided by how much you can live on – savings/(expenses-taxes).
Your savings rate determines how long it will take you to become financially independent. When you are saving 0% of your income, you will never be able to retire (unless someone else saves for you, like the government or your employer).
On the less extreme end of the spectrum, there are some fascinating considerations. Did you hear about compound interest before? That means when you invest or save money, the money starts earning interest or returns.
If you reinvest these returns back into your investment account, they will start to earn their return. Over time, your returns will start to gain momentum and will continue to grow. That’s also known as the compound effect.
Years Until Retirement
Below you will find the perfect exponential graph, like the one created by Networthify:
This graph explains how long it will be until you reach financial independence. If you save a good amount of your income and live on the remaining, it can go quite fast.
You can go about this in two ways:
- Either you calculate based on actual income and spending
- Or you look for your desired retirement horizon.
I am planning to retire in 11 years, so I will have to save around 64% of my income.
With the paying yourself first principle, you can determine what amount you want to put into your investment and savings account. The upside is that you can spend the remainder on whatever you want. The downside is you need to become creative at times to cut spending or save extra money.
If you are curious about what is the amount that you would have to work, please see the graph below from Mr. Money Mustache:
Focus On Decreasing Your Spending
We all know the people who pick on people for enjoying their daily latte. It comes from a place of wanting to help! If you are focused on increasing your income, that’s great. The most effective thing is to save some money.
Here are some ways to save money:
- Cutting your cable – savings €360
- Bringing lunch to work – saving €360
- Switch Energy provider – saving €500
By implementing these simple steps, you will save an extra €1220 this year. To illustrate how this works, if this increases your savings rate by 5%, you can retire 3 years earlier!
If you cut these expenses, they will become part of your lifestyle. This means that your spending permanently drops. In addition to increasing your savings rate, you will need less money to spend for the rest of your life!
Want to know how far you are with decreasing your expenses? Do a monthly money routine to see where you are with your finances.
Boost Your Income
One way to make early retirement possible is to increase your income. You should also have investment accounts to help you save for retirement. Here are some suggestions of things that you can do.
Do A Side Hustle
Do you have a lot of spare time? Then doing a side gig may be the best fit for you because it can add up to your savings. You may do side hustles after work or during weekends.
- Earn some extra cash in dog walking. Sign-up here and earn extra now!
- Join paid focus groups
- Get paid as a DoorDash driver. Check out the full DoorDash review for more info.
- Get paid to lose weight. Try HealthyWage by signing up now! Read our full HealthyWage review to earn extra money while being healthy.
- Start your own blog. Try Bluehost now and start your journey in blogging.
Tip: If you work a 9 to 5 job, you may ask for a raise, especially if you think you deserve one. You may also work extra hours to get you some extra pay if you don’t want to have a side hustle. That strategy can also help your personal capital to reach your desired early retirement age.
When we talk about investing, it is always intimidating because of the risks involved. But this can be a huge boost to your savings plans and your retirement money in the future. There are a lot of investments that you can apply with and experience good returns.
Other suggested investments that you can apply now:
- M1 Finance – Check our full M1 Finance review to learn more about the service.
- EstateGuru – Invest in real estate crowdfunding platforms by reading our full EstateGuru review for more details.
- DEGIRO – This is an online broker where you can invest in stocks, options, or index funds. Check out our full DEGIRO review for your investment needs.
Investing your money will help you shorten the years of saving for retirement. Grow your portfolio and achieve the best returns. Do your research and due diligence when investing. It is best that you choose the one that suits your financial status.
Summary On How To Retire Early
Early retirement is like music to our ears. We may think that being independently wealthy is not achievable, but starting early and educating yourself will surely achieve your retirement plans.
Prioritize your personal finances so that it includes retirement income planning and a retirement savings plan.
These retirement strategies will provide your working life with something to look forward to because we all deserve a comfortable retirement in our lives.
Dreaming is free, so make that dream into reality, start planning your early retirement, and achieve financial freedom.
If you’re not sure whether early retirement is for you, I recommend you think about having a mini-retirement. You can do whatever you want in a mini-retirement, go traveling, or work on a passion project, being two of those.
Negotiating a mini-retirement is easier than you think. Don’t wait until retirement. Enjoy life today!
What do you think, will you be able to retire early?
Founder of Spark Nomad, Radical FIRE, Journalist
Expertise: Personal finance and travel content
Education: Bachelor of Economics at Radboud University, Master in Finance at Radboud University, Minor in Economics at Chapman University.
Over 200 articles, essays, and short stories published across the web.
Experience: Marjolein Dilven is a journalist and founder of Spark Nomad, a travel platform, and Radical FIRE, a personal finance platform. Marjolein has a finance and economics background with a master’s in Finance. She has quit her job to travel the world, documenting her travels on Spark Nomad to help people plan their travels. Marjolein Dilven has written for publications like MSN, Associated Press, CNBC, Town News syndicate, and more.