7 SIMPLE Steps To Retire Early & Be Financially FREE

Ever wanted to have Retire Early and enjoy Financial Freedom, instead of waiting till you are past 65 or 70 years old? Sounds great but you don’t quite know how to get to be Financially Free? Well have I got a deal for you in this blog article 🙂 Here we explore the to7 5 steps and strategies that some of the Financial Independence Retire Early (FIRE) experts talk about and use to get to their ideal lifestyles.

Early Retirement was a concept that I had thought about within the first few years of my working life. Its when I realised that working is not all that it was made out to be, especially when I was staring down the barrel of working for 40 to 50 years. Having dreams of Early Retirement was the easy part but I had no idea how to actually do it. In my mind, only very rich people were able to retire early by the nature of the wealth that they had accumulated. I had never in my wildest dreams imagined that an average person was also able to enjoy the benefits of Early Retirement, albeit with some planning and hard work to get there.

So what exactly does it mean to Retire Early and why should anyone go down this path? As discussed in previous articles like ‘Wealthy Life: Is our view of Work, Money & Wealth flawed?‘ the general system worldwide is for most people to study for 10-15 years and then work for 40 to 50 years, sometimes even more. The general age for ‘retirement’ in most countries is around the 65 years but it does vary per country and economy. This article on LoveMoney.com has a good pictorial view of different ages of retirement across key countries

To Retire Early is to retire before the average age of retirement in your country. There is no specific age as such, it just means you don’t wait till the general retirement age. Some in the Financial Independence Retire Early (FIRE) community retire in their early 20’s, which is one end of the scale, others in their 30’s or 40’s. On the other end of the scale. some retire in their 50’s and 60’s, which although may not sound like early retirement, is a lot earlier than some who just carry on working in their late 60’s, 70’s and 80’s.

The philosophy of early retirement is to not be financial dependent on making money in exchange of time, thus having the time to do other things in life apart from working for money. It may not mean that you completely stop working and sit on the beach all day. It probably means you do something that you are passionate about and really want to do.

To paint the picture, say you work in a corporate office in management. You may enjoy your job and get along well with your colleagues. But your real passion is actually working with bands and music. However as you spend at least 40 to 50 hours a week working , you only get limited time to pursue your passion. If you were retired, you could spend a lot more time with band and working on your music skills, as and when you wanted to.

So the main thing that early retirement gives you is time to do things you want to do. You don’t have to spend most of your week on jobs to pay the bills. The true meaning of early retirement depends on each individual circumstance and passion, so there is no one size fits all. The key point is that you have the luxury of choice and time, which a lot of us only have in our later years.

Apart from just wanting to retire because it sounds cool, you really need to have a good and well thought of reason. This may seem like a soft fluffy point but its actually quite important to know as you could get there and not feel the level of happiness that you hoped early retirement would give you. To find out you need to ask yourself questions on why early retirement is something that has come up and what are the main drivers behind it. There may be several reasons, each one of us will have our own but below are a few common reasons

• Want to Quit That Job – This is probably the top priority for a lot of people. Let’s face it, most people don’t like their jobs as such. you may like going to work for the social aspect but the actual work generally gets annoying and frustrating over time. I apologise to the small percentage of you who actually do enjoy your jobs but this is talking on behalf of the majority of us. The true test of how much people like their jobs, as opposed to what they say, is to see how many people show up to work if there was no pay involved. I would hazard to guess that most would not show up for too long Some will for a little while to gain favour and play the long game but the majority won’t. The primary reason anyone works is to get money. Although this may ne a bitter pill of truth to swallow, there is no denying this as a fact. This statement of course excludes volunteers as the nature of their work is for a purpose or passion, not money. Financial Independence provides a way to quit your job and retire much earlier than 65 years or more
• Health – some of us have health issues that may be the driver to retire early, sometimes we are forced to do so as we cant work. This is quite a real and life changing reason as when you are not in the best of health, you don’t really need the extra stress of having to deal with a job and financial pressures. If you were Financially Free and were able to retire, you have the ability to focus purely on your health and getting better
• Mental Health – although this is very related to the point above about Health but Mental Health is often not addressed with as much priority as other health issues. For me, my career of corporate work was definitely a factor that affected my mental health and propagated in several different ways in my life. I have never been diagnosed with any particular mental health issues as such but the I am sure there are a lot of other people in the same position. Unless you actually step up and ask for help, Mental health is such a thing that it cannot be seen by others, so often goes without being addressed. Over the years, having work stress, unpleasant bosses and colleagues, unrealistic timeframes and general rushed pressure surely does not help with the overall wellbeing of anyone. And that was my state of being for many years. I did not like it but I could not leave it as I had several financial commitments, family and other things to think about. Financial Independence could mean a lot less years of the mental trauma of jobs and financial pressure, resulting in general wellbeing.
• Family – when we work in stressful jobs, its usually from the morning till evening, including the travel time. So when you come back home, often you are exhausted physically and mentally. So spending quality time with family after work is often sought after but hardly well executed. The weekends are then usually filled up with general administrative tasks around the house and catching up on other things that you could not do during the working week. Financial Independence and Early Retirement would give us that flexibility to use our time better to achieve that balance with family time and the rest of our lives
• Passion, Hobbies and Interests – The way society has been moulded over the centuries, most of us have no time really to follow our passions, pursue hobbies and further out interests. That’s usually left to be addressed with any spare time left through the week after work and general life. Hence, the average working person is only really able to focus on passion projects, hobbies and interests during working life. You have to wait till retirement often to follow those dreams. Financial Independence and Early Retirement will give you the time to follow your dreams

Time is your best friend when it comes to finances and early retirement. Time not only gives you the ladder to get there but also facilitates the 8th wonder of the world, compounding. Compound Interest has often been written about but seldom understood well. Check out this article on einvestingforbeginners.com which goes into details on why compound interest was referred to as the 8th wonder of the world by Albert Einstein. The concept of compound interest is quite simple when you break it down.

• When you invest money, you expect to get some kind of return on your investment. The most basic example would be of putting $1000 in a bank savings account, which gives you 10% interest (which all of us would just love)
• At the end of the term, you would get your initial capital back which is the $1000. Plus the bank will give you 10% of the capital or $100 on top for the interest earned
• Say you put that in for 1 year, you would land up with $1,100 at the end of the 1 year term, so you are better off $100. This is oversimplified, so stay with me while I make the point
• Now if you did the same for the next year and reinvested the new capital of $1,100, you would get $110 of interest at the end of that second year.
• The total would then be the $1100 from the first year and the $110 from the second year, giving you a grand total of $1,210
• The key point is that in the second year, you got interest not only on your initial capital of $1000 but also on the interest you earned in the first year, which was $100
• So basically you earned interest on interest. This in simple terms is Compound interest
• Now for the magic part. Say you did the same for 10 years and kept reinvesting the initial capital and all the interest accumulated from the previous years. At the end of 10 years, you will have $2,593,74 in total. Sounds ok, not that magical but can’t scoff at $1,593.74 profit in interest over 10 years. In simple terms, that’s a 159% increase in your money in 10 years, which is pretty cool right?
• Well, let up the game a bit more now. Lets say you did the same for 60 years, which will be your time that you spent generally on education and working. Assuming of course your parents were generous enough to give you the $1000 when you were 5 years old (which I encourage all parents to do)
• Over 60 years, that $1000 becomes a whopping $304,481.64. Now that is something like 30,348% return over the 60 years. Now that has to be impressive by all accounts, even if the numbers we are talking about are quite small relatively.
• To conclude this magic show with the grand illusion, what if you added $10 every month through those 60 years to the initial amount. So effectively you are topping up the initial capital with money on a monthly basis. That will balloon to $668,659.61 over the 60 years. That is a staggering 66,765% return on the initial $1000 investment!
• So what we did to add sparkles to the magic was putting more money to fuel the compound interest fire. So you get interest on the interest of the money you put in over time.

Apart from the theatrics above, it hopefully proves the wonders of compound interest. Of course the numbers are small and the interest rate is ridiculous but it illustrates the power of time and compounding. For some of us, perhaps that is all we can do, get some money contributed by our parents to start off with and keep that going through our lives at $10 a month, which is a very very modest and achievable amount.

If you taught your kids to do the same, imagine the impact that it would have on their lives as they get older, even if they did nothing else financially speaking. A young adult who starts off with putting away some money and compounding it has a much higher chance of being able to retire early and be financially free.

Again a simple step but the statistics are shockingly surprising. A LOT of people have no idea how much income they make and how much they spend on a monthly or yearly basis. Without knowing exactly what you make and what your lifestyle costs you, its going to be hard put together a plan to retire early.

Know The Difference Between Salary & Your Actual Income

Most of us talk about our income or salary based on what we get on paper. So if I have a job that pays me $50,000 a year, that is what I have in the back of my mind, $50,000. The reality is of course quite different as there is this little devil that comes to eat up a chunk of your income before it even gets to you, lovingly called Tax. For arguments sake, lets say the tax rate is 20% flat, you will pay $10,000 in taxes, which leaves you with $40,000 to take home. So your salary may well be $50,000 but your income is only $40,000 and that is all you can really count, as the rest does ever get to grace your bank account. This is another subtle point but a key difference that a lot of people forget about, its the income that matters after taxes.

Calculate Your Expenses

In a cashless society that we mainly live in these days, its easy to spend money you don’t have. You just slap those new shiny shoes on the credit card and worry about how to pay for it later. The plus point is, the cashless society provides for very accurate electronic records that you can go back on to work out what you spend

You don’t need any fancy AI or software. You simply download your credit card or bank account statements into a spreadsheet and total the amounts over a month or year. It’s an exercise a lot of us don’t want to do as it can be scary to see what we really spend. But if you are serous about having a retirement plan, especially early retirement, you need to know what you need to live on.

This will also help highlight the areas of life where perhaps you can pull back on some spending. Money leakage happens to all of us and often we have no idea where the money is leaking to. If you can plug a couple of holes, you can save more and perhaps invest that (or spend it).

The exercise above of knowing your actual income and your lifestyle expenses will at the least tell you where are you at currently, financially speaking. If you are spending more than you make, you know you have an issue that needs to be resolved. If you are spending less than what you make, that’s one step closer to being able to retire early and be financially independent.

Increasing income can sound easier than it is to implement. However, these days there are several ways to make an income as opposed to say 50 years ago, where you either had a job or a business. These days you can have a job and a side hustle business quite easily. The gig economy has given birth to countless avenues where you can make an extra penny here or there.

Increasing income is one thing and as you can see above, there are many ways these days to do that. However, as one wise person once told me ‘ it’s not what you make but its what you make work’. The fundamental part of this profound saying is, saving a portion of your income to invest and make the money work for you. Making money work for you, rather than you working for money is the basis of being able to retire early.

Investment is your secret key to being financially independent. By investing the money you have saved, you can create yourself passive income that allows you to retire early and be financially free. Investment comes in various forms and levels of risks. which we have detailed in our previous post ‘Investing: Easy Proven Basics You NEED To Know For Financial Independence‘. So we will just outline the key investment options that you need to educate yourself in

• Real Estate – property is a popular investment vehicle but with a high barrier to entry. To buy an investment property, you have to save the deposit to get a loan to borrow the rest and its usually in the 6 figures. So it may not be something everyone can start off with but its definitely one with several advantages. The key advantage is the leverage of money that you can use with real estate investments, which you cant really use with too many other types of investments
• Shares / Stocks – the most popular form of investment really as the barrier for entry is very low. You can buy a share in a company for a few dollars and with the low online brokerage fees these days, the whole transaction may cost you a few dollars more in total. What that gives you is a small part ownership of the company that you buy shares in
• Business – businesses come in numerous shape, sizes and across all industries. A business is a lot more hands on than say Real Estate or buying Shares or Stocks. The risk can be a lot higher as well but the rewards can be significant.
• Funds – this is essentially a pool of money that is either managed by someone (a fund manager) or offered as a low administrative ETF (exchange Traded Fund). The advantage here is that as a collection of money, you are able to leverage investments into several businesses and sometimes full indexes of stock exchanges.

So above are a few key investment vehicles that can help bring in enough money to be able to retire early. All of them come with risks at varying levels, so you have to work out what suits you in terms of risk appetite. Often a balanced and diversified investment portfolio has been purported as the best want to spread the risk. So perhaps looking at more than one type of investment is the way to go.

If you are going to retire early, you could be in retirement for a number of years. Say you retire at the respectable age of 40, you may have another 20-50 year to live in retirement. Normally, retirement is usually for a lot less, assuming you retire at the average age of 65 years. So to sustain yourself in early retirement for a long time, you are going to have to plan it out.

Also, to retire early you have to fund your lifestyle with investments built up with savings of some sort. Investments and markets go up and down. So sometimes you will get more income out of you investment than at other times. For example, if you invest a lot in Index funds like many in the Financial Independence Retire Early (FIRE) community speak about. in market crashes your portfolio may take quite a dip. If that happens. your income to live off may dip as well.

To counter any investment ups and downs, its always a good idea to look at your lifestyle and see what can be changed to allow for such fluctuation. Not everyone who retires early retires on several millions of dollars. More often than not, people in the FIRE community retire on a million dollars or under. Although a million dollars is a lot by any standards, if you take a 4% return rate to live off like this Vanguard article details, you have to be able to live within about $40,000 a year. That may be fine if you are single and don’t have a family to sustain. But if you have responsibilities that take up financial resources, you will have no doubt had to look at your lifestyle, implement changes and make sure you don’t inflate your lifestyle over time.

Now that’s the part of the FIRE community that is most appealing to me. The emphasis is not on making millions at any cost. Its more on attaining a sustainable lifestyle, independent of having to work for money. The cherry on top is that the focus is on self reflection and increasing your happiness factor. As this Forbes blog states, just attaining FIRE wont make you happy. You have to find real meaning and purpose through regular self reflection to see how your interests, values and skills fit together. This is not a simple and quick task, it often takes a long time, if not a lifetime. But at least with Financial Independence and by Retiring Early, you will have the time to reflect and grow.