Lessons from a man who retired at 30

Lessons from a man who retired at 30

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.

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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.

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Learn more about savings accounts

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

Can you have multiple ING savings accounts?

Yes, you can open up to nine accounts with ING at any particular time. If you’re saving money for various goals, such as buying a car or taking a holiday, you can name each of your multiple ING savings accounts differently.

To get a Savings Maximiser account, you’ll need to deposit more than $1000 every month and make at least five additional purchases. If you also want to grow your savings, from 1st March 2021, you can earn up to 1.35 per cent per annum variable interest on one account with a balance of up to $100,000 when you also maintain an Orange Everyday account.

With ING, multiple savings accounts can help keep track of all your savings goals. All the accounts offer flexible withdrawals where you can withdraw as low or as high as you want without impacting your earning interest rate. However, you can only earn the bonus interest on one account. To apply for a Savings Maximiser account, you can visit ingdirect.com.au.