It is a dream situation for many workers who find themselves stuck in a humdrum job but the reality of retiring early isn’t as glamorous as some might think.
US blogger Mr Money Moustache shares the secrets of his early retirement on a blog that documents how he and his wife retired at 30 to raise their son and enjoy their life.
Refreshingly, this isn’t the story of a lottery winner or millionaire but rather a demonstration of what thinking ahead and living frugally can achieve. Mr Money Moustache saved around 66% of his combined income with his wife for ten years to get to their early retirement goal.
The essential lesson is a classic one but one that is often ignored in our credit obsessed society; spend less than you can afford to. As in much less.
Here are some teachings we learnt from this extreme money saving method.
First step; attitude change
The first and seemingly crucial step to an early retirement is getting rid of the sense that you “need” things. Purchasing things that aren’t necessary because you feel that you need them to meet other people’s expectations will not only drain your bank account but create added stress. Also, paying for conveniences like a car or bigger house than you need is only setting you back.
Save more than half of your income
Depending on how soon you want to retire you will have to start saving around 50-75% of your salary as soon as possible. The extra money should be used for investments in traditionally “reliable” assets such as property and stocks that will pay you regular rental income and dividends respectively. Mr Money Moustache also contributed to an American style retirement fund but here in Australia our superannuation works differently, in that you won’t be able to access your super until you are in “retirement age”, also known as your 60s. Aussie’s looking to retire early will still be required to make compulsory super contributions during their working life but extra cash should be stashed in a high interest savings account for easy access when it’s needed most.
Clear your debt
The extra income you save should also be used to pay off any existing debt including student loans and mortgages. As you are no longer spending more than you earn, high interest debt, like that attached to credit cards, should be a thing of the past as well. Clearing your debt is a crucial step in preparing for your new, stress free lifestyle.
Your new lifestyle will take care of you
For those of you wondering what happens if the money runs out, Mr Money Moustache believes that your new lifestyle and attitude towards money will ensure that never happens. If you have set up your investments to provide a regular income, and you only ever live within your means, then running out of money should never be an issue.
While some of these lessons are extreme they are all built on good common financial sense. Most of us have probably realised at some point that the money we earn often goes on trivial things and we have nothing to show for our hard work. By cutting down on some of these luxuries and making sound investments perhaps we can all retire a little earlier than hoped. You can read the wisdom of Mr Money Moustache over on his blog.