Early retirement might not mean what you think. Follow these steps to retire early and find your financial freedom
Six months after taking my first job as a corporate accountant, all I could think about was how to retire early and ditch the 9-to-5 rat race. It’s that way for a lot of people, strategies for retiring early to some sandy beach and Mai Tai cocktails are a favorite on the web.
But do you really want to retire early or do you just not want a “job”?
A Gallup survey finds that more than 70% of workers hate their job or feel completely disengaged at work. Just look at the catchphrases we have for work including ‘rat race’ and ‘the grind’. Why should you spend a third of your day for 30+ years miserable, hoping for some magical bliss after early retirement?
A lot of people work hard their whole life to retire and then find out that doing nothing isn’t all it’s cracked up to be.
A report by the Institute of Economic Affairs found that retirement increases your risk of depression by 40% and many early retirees showed accelerated signs of aging.
What I’ve found talking to people on the blog and through my own experience has been that it’s not retirement that people want but financial freedom. Financial freedom to do what you enjoy, to live where you want and do the things that make you happy.
But it doesn’t mean you’re not making money. It just means making money the easy way through something you enjoy and not having to worry about how much you make.
Sounds idyllic but it is easily achievable if you put together a plan.
How to Retire Early…or not at All
Making money doing something you enjoy means not worrying about how to retire early. While you may cut back on your weekly schedule for more travel or other activities, “work” basically just becomes something you do as a hobby and wouldn’t think about quitting.
My wife has to pull me away from the computer sometimes because I enjoy what I do so much. I’ll get bored watching TV or sitting around the house and will go do some investment research on the computer or outline an article for a client. Monday, Saturday, weekday or weekend – it doesn’t matter.
I like what I do and don’t know what I would do otherwise.
The problem is that you may not make much money initially on your hobby-job so there is an element of planning and you may not be able to quit the rat race just yet.
If everyone could jump into these work from home ideas and make six-figure incomes immediately and easily then don’t you think they would do just that?
It’s this reason that spawns so many retire early scams and get-rich-quick schemes. People chase the easy way out of the rat race, end up spending all their money on scams and keep dreaming about early retirement.
It takes a few years to save the money and build your hobby job into something you can do full-time but having a goal during that time helps to make it so much easier.
The upside is that by saving a little extra each month and investing responsibly, you can reach financial freedom well before the normal age of retirement. Saving $350 a month and earning a conservative 6.5% return means you’ll have an extra $106,000 at the end of just 15 years. Withdrawing $800 a month for expenses from that $106k means it will last 20 years, long enough to allow for social security or other retirement income to become available.
Earning 6.5% is higher than the average investor return but achievable if you get out of your own way. Too many investors fall into bad investing behaviors and end up trading in and out of stocks. I recently highlighted Motif Investing as a great resource to invest in funds and avoid over-trading.
Putting Your Retire Early Fund to Work
Combine this $800 a month with 25 hours a week of your hobby-job making $20 an hour and you’ll have nearly $35,000 a year to cover expenses. That’s not too bad considering you’re now doing what you enjoy and only spending 25 hours a week “working.”
Finding that extra money to invest is a matter of living on a little less. One reader shared the debt plan that helped save $22,000 in just one year, well beyond the money you’d need to save $350 a month. Living within your means and saving the extra money isn’t about being frugal and sacrificing, it’s about spending money on what makes you happy and saving money by not buying stuff that really doesn’t matter like a McMansion or an extra car.
We talk exclusively about finding your work from home passion on our sister blog, My Work from Home Money. The site covers the range of work from home ideas from selling on Amazon FBA to self-publishing and how to start a blog. Many of these are great for hobby-jobs and can make well over $20 an hour. I make over $45 an hour writing for private clients though it has taken me years to build up to that level. Starting your hobby-job a few years before your “early retirement” means you’ll save more money and your new source of income will be at full-steam when you need it.
Got an idea for a hobby-job but not sure you know enough yet? Udemy regularly offers courses for as little as $15 each (check out the coupon link below), for a discount of up to 90% off regular prices. I've used the site to learn how to refine my social media strategy. At that price, for most video courses which are three hours or longer, it's hard to find a better way to get a skills update in something.
Once your “retire early” fund depletes, you will have been at your hobby-job for more than 20 years. Over that period, you’ll become a true expert in the field which will allow you to charge more per hour. You’ll likely find that you start earning enough from your hobby-job that you can stop withdrawing from your investments for living expenses. Since you enjoy what you do, there’s less need to save a huge nest egg for retirement…because you’re already there.
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.