I’m well on my way to being able to retire early, but the journey wasn’t totally without bumps. I look forward to the day when I won’t have to worry about needing to work to earn an income. I hope to influence my kids to become savers when they grow up. My children are still too young to learn advanced financial lessons at six and three years old, but here are a few points I plan to bring up as soon as I feel they are ready to absorb the concepts.
Compound interest will do most of the heavy lifting for you, if you let it. You might strike it rich if you successfully time the market with volatile investments such as equities, but almost no one is able to do this. However, time in the market is a winning strategy. There’s a better chance you will be rewarded with a positive return if you stay in the market through multiple business cycles, because long-term returns are based more on business earnings than emotional investors buying and selling. Therefore, it’s important to start saving as early as you can so you can take advantage of one of the easiest ways to build wealth.
Nothing beats hard work. Saving enough to retire early is a difficult feat. You will likely need to work harder than your peers for a while because you have to actively choose to earn more and spend less. You won’t get to retirement without being willing to put in significant effort and make some sacrifices.
Early retirement doesn’t mean a short burst of effort. Super savers don’t have to work as many years at the average person, but it will still probably take you at least 10 years to build up a significant amount of wealth. But don’t torture yourself to save enough for retirement in a decade. You don’t want to work so hard that you are unable to keep it up. It’s much more enjoyable to retire in, say, 20 years instead of 10 years if that means a more sustainable journey to your goal.
Being frugal is extremely powerful. There’s no need to argue whether it’s better to increase your income or decrease your spending. Don’t waste your time wondering which path is better because a dollar is a dollar no matter where it comes from. However, most people can’t instantly increase their income, whereas pretty much everyone will be able to save more. If you have to pick a side, then start with cutting expenses first. Lowering your spending will likely simplify your life, giving you more time and mental capacity to strategize ways to increase your income. Plus, your frugal habits will carry through to your retirement. You may not want to continue earning income once you are financially independent.
You will have doubts along the way. Retirement takes years of hard work to prepare for. That’s a lot of time for anyone to question whether they are on the right path. You’ll feel awesome to accumulate so much money some days, but there will be times when you doubt whether foregoing current purchases is the right thing to do. If you decide you want to enjoy a few more luxuries, you can always switch back to a more traditional retirement with a long career. Having money in the bank gives you freedom that makes you much richer than spending a lot of money. Plus, it’s never too late to spend more if you ever feel you’ve saved too much.
Pursuing a traditional retirement is perfectly OK. I decided to work hard and save more than the norm because I feel comfort knowing that the money I saved gives me the option to retire when I want to. But early retirement isn’t for everyone. While the pursuit of early retirement worked for me, you may want to retire in your mid-60s, or time your retirement to when your friends and spouse leave their jobs.
David Ning is the founder of MoneyNing.com.
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