Retire Early, The Simple Guide to Building Wealth

Spread the love

The Golden Rule To retire early: Live Below Your Means

Step 1: Cut out all un-necessary expenses.

If you want to retire early, maybe even real early, your number one goal needs to be to divert as much of your income to saving and investing. One of the easiest things in this process is to cut expenses and free up more of your income for saving. Here are a few ideas to get you started,

  • Learn to cook instead of eating out,
  • Find a cheaper internet service provider or eliminate it all together and use public wifi, find a cheaper phone service provider or eliminate it and make use of the millions of other phones around you everyday,
  • Take alternative transportation to work and save on fuel and maintenance of your vehicle,
  • Take a lunch to work instead of eat out,
  • Brew coffee instead of purchasing from a coffee shop,
  • Cancel magazine or other subscriptions such as netflix or hulu, etc.

Step 2: Establish an emergency fund.

Some might be tempted to start paying off your debt before setting up an emergency fund, but there are a few good reasons to start a savings first. Having a savings of 6mo to 1yr of expenses (which should now be greatly reduced) will help give you stability and greatly increase your odds of sticking to your plan. Lets imagine your water heater goes out next month, which would run a few hundred dollars to replace(assuming you or a friend can do the work). With an emergency fund established you can easily pay for the water heater from your savings and not put it on a credit card, which would run the risk of running up fees and interest. Another reason to save an emergency fund, you will likely find that you have a lot less stress when these little bumps in the road come along. Building wealth long term to retire early requires establishing a solid financial foundation, having an emergency fund helps create that foundation and gives you something to fall back on.

Step 3: Pay off your debt.

Building wealth and saving for retirement requires that you stop paying other people and start putting money in the bank. Clearing out all the old debt will free up that money that will allow you to grow your wealth more quickly and retire early. At one point we had debt payments of $150 per month, which at the time was a lot, even now I cant imagine making those kind of payments for any reason. The power of compound interest allows that $150 a month to grow quickly and if invested correctly provide additional income. Even if $150 a month seems like a very small amount in relation to your overall income, or maybe a lot, don’t discount the value in the lesson. Remember:

“Beware of little expenses, a small leak will sink a great ship” Benjamin Franklin

retire early

Step 4: Save and Invest

Now we get to the truly fun part of the plan, save and invest, save and invest… Every month, as much as you can. Before you know it your accounts will grow beyond what you thought possible. Just remember to stick to it, never give in and never give up. Guard every dollar you earn against those that wish to steal your goals and dreams away with little doodads. If you have never been on the Mr Money Mustache website or forum, I highly recommend it. Many on the sites forum have achieved a savings to income ratio of 80%. Meaning they save $80 of every $100 they take home each month. This is truly hardcore and the secret to retiring early is savings as much of your income as possible. Some people may not wish to get that hardcore, and that is ok, but if you are like me there is no other alternative. We live and breathe optimization of our bottom line each month, and take pride in living a shoe string budget.