How to Retire Early on Less Than 50k/Yr

How to Retire Early on Less Than 50k/Yr

June 17, 2019

Hi there. It still feels so good to be back from my months long hiatus. In the few months I have been gone, a lot has happened.

One strange conversation I had went a little like this:

MDAS - “Hey dude! Hows it going?”

Dude - Hey MDAS, doing ok, just got back from the mall with my girlfriend.

MDAS - I thought you had work?

Dude - Nah, I quit. I couldn’t deal with the customers anymore.

MDAS - Oh man, that sucks. What are you going to do for money now?

Dude - Meh. I am living at home with my parents, they still let me use their card. Money doesn’t matter to me.

MDAS - Do you want to get your own place to stay soon?

Dude - I live at home!

MDAS - But don’t you want to save for a house or an apartment? Maybe you could start investing. I’d be down to help you out and show you the ropes!

Dude - No thanks MDAS, I am just going with the flow right now. Besides. Stocks are such a gamble.

MDAS - I think investing is the key to getting out of the rat race Dude! If you get another job and invest 30% of your income you could be done working in less than 30 years. If you invest 50% you will spend less than 17 years working. Doesn’t that sound amazing?!

Dude - I don’t make enough money MDAS. I hate working anyways. I never made a lot of money, always less than 40-50k/year, so it would be tough for me to save that much. It just isn’t for me.

This conversation went on for a bit. And trust me, I sympathize strongly with Dude. Most people are NEVER taught the power of saving and investing. However, Financial Independence is still a possibility: and it is even more powerful at lower incomes. The process is slower, but every major spending decision, every bit of extra efficiency, will have a tremendous impact.

I think with people like Dude, you need to lead them to their first victory. Becoming debt free and investing is a HUGE accomplishment, so maybe setting a small goal of saving $1,000 for a rainy day is a good first target to aim at. (Famous Finance Guru Dave Ramsey even says so in his book, The Total Money Makeover)

I tried making the case that, by saving just a small amount each month, Dude will insulate himself from financial shocks. (AND he can possibly justify heading to the mall with his girlfriend)

At a few hundred dollars saved, a cell phone breaking is simply a temporary inconvenience. At a couple grand, your car can break down and you’ll be back on the road in no time. At the 10k+ mark, you can absorb an amazing amount of financial shock. Could you imagine having $10k saved in cash just sitting around in case something goes wrong?

This really is life changing stuff.

Saving that amount of money will very easily catapult you into the upper echelon of financial security. Coupled with a bit of investing, you will be dead set on the path of financial freedom. The beautiful thing is - you don’t have to save 75% of your income and be a monk on a mountaintop. This can all be done anywhere in the world and at nearly any income level.

Just take this example - an average American makes about 55k/yr.

The average savings rate in the USA is around 4-6% of take home pay, so we will use 5%

At this 5% level, it would take someone 66 years of work and investing to be able to comfortably retire on their own money. (This does not account for social insecurity or other pension benefits, because you should definitely NOT be relying on them!)

Watch: Social security potentially going broke by 2034

However - that same average American investing 30% of their income can comfortably retire in less than a 30 year stint at work. Very early by conventional standards!

Hit a 50% savings rate and you’ll be out of the office after just 16 years of work. People will begin calling you a weirdo freak. ( I like being the weirdo :) ) You may even start levitating at this point. I think Pete over at Mr. Money Mustache started levitating years ago but he just hasn’t told us yet…

Use this calculator to find out how much you need to retire early!

Anyways, I wish I could have explained to Dude that savings can work in other ways: they will allow him to take advantage of investment opportunities that come his way. Real estate deals, stock market crash, and other business ventures now become a real possibility to seize. These investments are potential for your money to make you money!! Then the money your money makes you makes you more money!

(I wrote a whole post on making money your slave, linked here)

If you haven’t already paid off all of your debt, it is more important to focus on that first before you start taking investment/business opportunities. By wiping out all debt except for potentially some low interest mortgage, you free up a lot of your cash flow. This will give you even more breathing room in the budget to save and invest down the line.

With all debt paid and a bit of investing started, some form of early retirement is now in play. Just remember that your life, financially and otherwise, will change. Things come up, people will enter and leave, but as long as you maintain these core tenets of earning, spending thoughtfully, saving, and investing, you will do just fine no matter what happens.

I don’t think I got through to Dude. But maybe I can get through to you!

MDAS

If you thought this was helpful, terrible, or somewhere in the middle, please leave me feedback in the form of a Direct Message on instagram @MakeDollarsAndSense, or feel free to send me an e-mail/text to the information on my Home Page. I truly appreciate constructive criticism and opposing views, so bring em on!

P.S. New blog posts coming your way every Monday!

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