Do you have to be a minimalist to retire early? I don’t think so, almost anyone can achieve early retirement with some planning. To save a large percentage of your income takes smart choices and lifestyle changes, but it doesn’t require you to give up everything. It also doesn’t require you to make six figures. Most of America is only saving 5-10% of their paychecks, if that much. I want to get to 50% or more so that I can retire early and enjoy life doing whatever I want. The more you can save, the less you need to make!
Some people will assume that if you save a high percentage of income, say 30%, that you are depriving yourself or eating beans and rice for every meal. I am not a cheapskate, but I have made some choices to give up spending in a few areas. The areas I quit spending money on were not ones that I enjoyed all that much. For example, I don’t spend money on sports equipment unless what I have breaks. I used to buy new stuff all the time, just because I could.
Focusing on what gives you the most happiness and trying to reduce or cut out the rest of the spending is the key to increasing your saving rate. Unless you make high six figures, it is tough to have several expensive hobbies and still save a lot of your paychecks. Some people would rather live paycheck to paycheck but have a fifth wheel, dirt bikes, jet skis, and lots of debt. I would rather travel cheaply using credit card rewards and retire at age 45.
I am not saying that a low savings rate means people are making poor financial choices. They are just not maximizing the power of compound interest and delayed gratification (two powerful factors in being able to retire early). I think many people could make some small changes and instantly double their savings rate. A good example would be timeshares. How many times have you had a friend say “we have a timeshare there, but never get to use it?” I have heard it too many times to count.
Another example would be cell phones. Some people upgrade constantly and suffer from the costs of those upgrades. Make the phone last more than 2 years and make sure you are not subsidizing other people’s upgrades by negotiating a deal after your 2 year contract is up and you will save hundreds of dollars a year.
I am saying that carrying lots of debt from credit cards, student loans, and car/boat/motorcycle payments are poor choices, though. The society viewpoint of focusing on monthly payments to determine affordability is a very dangerous theory for your finances. If you are in that situation, please realize the interest makes all of those items much more expensive and it limits your choices later on in life unless you can make a change and pay it off without adding other debt obligations.
There certainly are extreme early retirement people out there. They are willing to really analyze their spending and eliminate everything that they deem not in line with the mission of early retirement. I don’t have that kind of dedication, so I am more of a mild mustachian. I won’t ever get to a 75-80% savings rate, but I am okay with that. I think I found a moderate path that combined with my above average income will give me 20+ years more of retirement than I would waiting until age 65. We are at over 40% and plan to get to 50% in 2015.
That being said, I have still made a bunch of changes and my wife has adapted as well. We have goals and are working towards them (financial independence and early retirement being the biggest). The countdown is at about 8 years and that is enough to motivate me to try to take my lunch to work more often, buy less things, and find cost effective activities that I enjoy. My wife uses more coupons, shops in bulk at Costco, and tries to find things we want/need at garage sales.
We want to retire early and have made changes as a result. What changes have you made?