The eternal question: How to retire early?

It requires a great deal of patience.

For many young people, retirement is an almost non-existent word in their dictionary. Why should it be? 20s are the ‘work hard, play hard’ times. You spend everything you earn and wonder why there’s still plenty of month left at the end of your money.

Smashed avocados are a no-no

We’re surrounded by all those ‘indispensable’ tech gadgets, apps, subscription-based movies and music services. Then there’s gourmet cooking, eating out, drinking craft beer and prosecco. And traveling. There are plenty of things you can spend money on. After all, they give pleasure and, sometimes, happiness.

Before we step into the ‘When I was trying to buy my first home, I wasn’t buying a smashed avocado for $19 and four coffees at $4 each’ (courtesy of Australian property developer Tim Gurner) territory, there’s a significant thing to say: if you want to retire early, you need to save plenty of money. Around $50,000 per year should do the job. But if you plan to retire at 50 and live off your passive income until 80, then you need $1,500,000 saved.

So putting that couple of dollars you have on your account the day before your paycheck comes is not enough.

Maybe avoiding smashed avocado is a good first step. But there are hundreds more still to come.

Early Retirement Calculator

Take a look at this Early Retirement Calculator. Feel free to use it in different ways. For example:

  • How long will it take to earn as much money as I need? Remember that you’ll need around $50,000 every year to have a comfortable life. And the younger you retire, the more investment balance you’ll need.
  • What can I get if I invest $200 every month for 30 years?
  • How much do I have to deposit every month, if I want to earn $1,000,000 before I turn 50?
  • I have such-and-such net income; I want to retire at 55. Show me what should I do.
Early Retirement Calculator

Whichever way you look at it, it always shows the same thing. Unless you earn enough money so you can already retire, you have to put an enormous chunk of your salary on your investment account to stop working by the time you’re 50. And the older you get, the more money you have to put aside every month.

Why? We’ve explained that in the piece about compound interest. Take a look.

It’s just a roadmap

But there’s an upside to that basic math. If you’re patient and invest rigorously every month, you end up with plenty of money. If your investment plan gives you 4% growth every year, then after 17 years, you have twice as much cash.

Treat what you learned from our Early Retirement Calculator as a roadmap. It’s a long journey, but as J.R.R. Tolkien wrote in ‘The Lord of the Rings’: ‘The Road goes ever on and on / Down from the door where it began.'

There always has to be the first step.

How to take it?

First step and then a hundred more

To invest money, you need to have money.

Start with writing down all your expenses and incomes. Whether you do it in a dedicated app, spreadsheet or just a piece of paper, it’s all up to you. But you have to do it every day. Write down every little thing you spend money on.

Then, categorize your expenses and figure out what you can save on. Every person defines ‘frugal living’ differently. Some just cut down on luxury stuff like the proverbial smashed avocado, because believe it or not, saving $2 every day means you saved $730 in a year.

But some go all the way and do weird stuff like put a bottle filled with sand in their toilet tanks so there will be less water to flush.

Whether you want to belong to the former or latter category is completely your decision. But unless you buy a new gadget every month, the secret lies not in cutting down on one thing, but finding a marginal saving in every little one.

Save, invest, repeat

For example, try stocking up on cosmetics when they’re discounted. They will last for quite some time. At best, until you find another discount. You can also use them more sparingly.

Combine those little savings, and you end up with a quite solid amount of cash at the end of the month which you can put in an investment account.

The real problem is that it has to become your lifestyle. So you have to do it every month for more than 10 years. That’s 120+ months!

Remember that what you learned from the Early Retirement Calculator: it’s a roadmap. Go back to it every time you cannot find the motivation. It may show you how far you’ve come.

It’s not the end of the world

If you don’t have the money you need to invest every month, then keep your head high, save as much as you can and do your job. Good times will come.

If you invest the money you can save, you’ll still get plenty of cash at your retirement age, which will give you an enormous boost after 65. You’ll need that money when you are old.

And don’t try to cut every way of spending money. Avoiding social interaction is not healthy. You might save money, but you can lose plenty of important things. We won’t get into details, but it’s obvious that mental and physical well-being are connected. There’s still plenty of life to live.

Early retirement is a wonderful perspective, but it requires severe austerity. If you can pull it off, then massive kudos. But if you just save money to use it after retiring at 65 (or later), then you’ll still live comfortably with that amazing feeling of a well-done job of saving money your entire life.