Have you ever felt just a tiny bit jealous of people that have taken early retirement?
I know I have…
Imagine the feeling of never having to work again (unless you want to).
Imagine not having to worry about bills.
Imagine never having to get up while it’s still dark.
Imagine all the quality time you could spend with your family and friends.
And how wonderful it would be to fill your day with “passion projects” rather than the drudgery of everyday work.
Just imagine!
I think we can agree that life would be rather different to what it is now!
But of course we know from Jacob at Early Retirement Extreme and Mr Money Mustache that you don’t need to be retirement age to retire. And you certainly don’t need to be a multimillionaire to do it earlier.
The wonderful thing is that with some hard work, dedication, frugal living and some epic budgeting anyone has the potential to retire early – as in decades earlier than the average population believe is possible without a lottery win.
The Surprising Math Of Financial Independence
I’m no financial whizzkid but the dudes that are throw around two basic formulas for calculating how much money you need in savings/investments to actually retire completely.
They are:
300 times your monthly expenses
or
25 times your annual expenses
And while this might sound like huge numbers for those living expensive, consumer lifestyles, for those of us willing to be rather more frugal these numbers are surprisingly reasonable.
You’ll have to excuse my “cute old British ways” but I live perfectly comfortably on less than £1,500 a month. If I was budgeting hard, I could reduce this to £1,000 without too much sweat.
Taking that £1,000 as a base figure, that would mean I’d need £300,000 (just over $500,000 at current exchange rates) to retire on at the low end of the scale. £450,000 ($750,000) in investments would be comfortable.
While that’s still a fair old chunk of cash, it’s nowhere near the “millions” most people assume you’d need to quit the rat race early.
My Plan To Escape The Rat Race
When I first started in the work place, I earned only a tiny bit more than minimum wage. It was a depressing situation – and it’s a rut that some people remain in their whole lives.
But I wanted more. So I worked hard and by winning promotions and payraises, as well as making several jumps from one company to another, I’ve managed to raise my income from minimum wage to above the national average.
Not “minted” in any way – many people I know earn far more than me. But I’ve more than doubled my salary in the last ten years. And this increased income has also brought increased opportunities.
Over the last 4 years or so I’ve scrimped and saved and have succeeding in paying off all my consumer debt. With a frugal lifestyle leading to very low monthly overheads, I’m now in a position to start saving roughly 40% of my income each month.
That’s a lot higher than the average Brit (and something I could never have done all those years ago when I first started working) but according to this chart, it still means that I’ll have to follow this plan for 22 years in order to achieve financial independence.
Better than never, but I want to do a lot sooner than that.
So my plan is to keep saving, but rather than simply putting my money into passive investments, to actively invest in a franchise. I have some ideas in mind for what I want though I’ll reveal more as the time approaches.
But in essence I’m going to leverage as many of the skills I’ve picked up in the workplace as possible in order to become a business owner and (I hope) reap the financial rewards that come from that.
Becoming a business owner will, I hope, double my income or more, allowing me to save 80% of my money. Which, going back to the original chart, should mean being financially independent roughly 5 years after starting the business.
Now there are a lot of variables here. When will I have saved enough to invest in a business? How much will the business make? Will I be able to keep my living expenses down? Will I have the discipline to save so much of my income?
All of these variables could speed up or slow down my progress. Or derail it altogether.
But at least I have a plan of action now. Something to focus on. A reason to save. And a potentially bright future.
And that’s how I plan to go from minimum wage and serious debt to financial independence – hopefully by the age of 40.
Are you aiming for early retirement? What is your master plan? Please share your thoughts in the comments below…
The post How To Reach Financial Independence On Minimum Wage: My Plan To Escape The Rat Race appeared first on Frugality Magazine.