How to retire early
Someone said that I should write a blog on how to retire early, and I guess that as I did retire at 47 it means that I have some experience on the subject.
My journey started off not really aiming for early retirement, but rather trying to achieve financial freedom - getting to a position where we had enough money to broadly do what we want, and to let the decisions be in our hands and not in the hands of an employer or bank.
In it's simplest form, there is no big secret to how to retire early - the fact is that you will have to be good at putting money away each month and year in savings. The earlier you start to save, and the more that you can save each month and year, the earlier you will achieve your retire early ambition.
That is pretty much what I did and, unless you're lucky enough to win the lottery, most likely that is what you will have to do as well.
Around the saving, these are some of the other things that were important to us getting to be able to retire early:
Save hard - obvious, huh! But there are a couple of things still to say about it. The first is to start saving as early as possible. Even if it is not a big amount to start with, it gets you into the saving habit, and then as your career develops and your earnings grow, the amount you can save will increase as well. Another for us was that if we got a bit of extra money, perhaps a bonus at work, we saved it - it is easy to say that if it isn't expected then it can be spent, but that will just delay your retire early date. You still have to enjoy life though, so don't spend all your time saving and then have no spending money to do things - try to hit a good balance between the two.
Maximise your earnings - again, not exactly rocket science...if you earn more, then you should be able to save more, and get to your retire early goal sooner. There are different ways to grow your income, such as a job promotion, change in employer, gaining additional skills, switching career, taking on shifts or overtime, work a second job, start your own business, check your investments. These may or may not apply to you, but at least they are a reminder that there are ways to increase your earnings, and it is in our own hands to do it. I think that, at the right time, it's OK to take some (sensible) risks to maximize your earnings, especially when you are younger when you may have less responsibilities and have time to recover if it doesn't quite pan out. For me, it was working overseas that boosted my earnings, it was a risk and it hasn't always been easy, but it definitely moved my retire early date forward.
Keep track of your money and budget - I've always kept track of our money a few times a month to see how much we're spending and what we're spending it on. I have a big spreadsheet and check where we are at the end of each month compared to the month before, and whether this is in line with our plans. Making a budget can also help, so that you know how much you have to spend on what, and how much you are committing to saving each month. Having this focus will help you manage your money, and with this focus you may naturally keep a limit to the spending and therefore be able to save a bit more.
Invest your money wisely - This was always a tricky one for me as my financial investments didn't always do very well. Eventually, our "go to" investment became residential property that we rent out. We get a safe and reliable monthly income from these, the rents increase with inflation, and generally we will get a capital increase as well if we were to ever sell them. With low interest rates, just putting cash in a savings account is not going to help you too much. We have some more property purchases underway at the moment, and when these are completed we will have 12 properties - I would never have believed this would be possible, but by saving regularly and buying during dips in the market, we have got to this position. I'll do a separate blog about our property portfolio soon (if you subscribe to my blog by filling in your email at the foot of this page, then I'll email you the property blog once it's ready).
Exit your investments wisely - This has been a major factor in me being able to retire early, with the sale of two properties having the biggest affect. One was the house that we purchased in Dubai, which we bought not only to live in, but also because we thought it was a good investment. Over time, the house increased in value to a level that I thought was too high to be sustainable. Thoughts of selling the house and taking a good profit was made difficult by the fact that it had become a family home more than an investment. It was a tough decision at the time, but we sold and made a good profit - thank goodness, because prices have subsequently dropped around 20%. It wasn't easy, but we certainly exited that investment wisely.
Live your life, but don't try to keep up with the Jones' - We know about this one! For quite a bit of our life, our friends have tended to have nicer houses and nicer cars than us. It was always tempting to try to keep up, but that would mean that we had less money to save. We still had a decent house and a decent car, but we mostly kept disciplined on this, which helped us to keep saving money and therefore retire young. I think that some of this is harder to do when you are young, when you want to be seen having the "in" brands, but it is amazing how much you can save by not always following the crowd down the branded route.
Live in the right house - Similar to the "keeping up with the Jones'" comment, but it gets a separate heading as housing is such a big cost. The point here is to have a house that is suitable for what you need. If there are two of you, then a four bedroom house is probably bigger than you need, and will cost you more money in rent or mortgage and interest payments, bills, maintenance etc, which reduces the amount that you can save towards your early retirement. For us, we had a bigger house when the kids were at home, but we have downsized as they've left home and kept our housing costs under control and appropriate to the number of people in the house.
Avoid Debt - I really dislike debt and avoid it wherever I can. We did have mortgages for houses, and some loans for cars in the past, but that is about it. We have always paid them off as quickly as we could, and have no loans at all now. We do use credit cards as it helps us keep track of our costs and we earn benefits on the cards, but we pay these off in full every month, and always have. I'm generally a believer that it is good to save up for what you want. I think that getting into the habit of having loans means that you are more likely to buy things that you can't really afford, and maybe don't even need, and then not only do you have to pay for the item you have to pay interest on top. If you're doing this, it will reduce the amount of money that you can save to achieve your early retirement goal.
Know your target - This might be a bit harder but, within reason, you can have a go at working out your target. The basics are to know at what age you want to retire, and what income you need to live on each year in retirement. It was this second point that I had difficulty with. My advice is to find blogs like this one (and there are others as well) where people who have retired early share how much it is costing them. This is real life data which you can use and then adjust to suit your own lifestyle and arrive at a realistic figure (I didn't find the information from financial advisors, banks, investment companies etc very useful for this). Once you have worked out your planned date of retirement and the annual income you require, then you can use a retirement calculator to help calculate your savings targets.
I think that these items pretty much summarise what we did to build a lump sum of cash and investments to let us retire early. The simple summary is that we worked hard, saved reasonably hard as well, kept an eye on our budget and expenditure, and avoided debt wherever possible. Hopefully we did these things with a bit of balance to ensure we still enjoyed our life along the way. Good luck with your own plans.