Everything you need to know to become an early retiree

More and more members of the generations X And Y, exhausted by the current world of work, are turning to solutions that allow them to become financially independent (early retirement). This is how many websites and books on this topic have sprung up everywhere since the beginning of this century. There was the book with the very commercial title,  The 4-Hour Workweek, but whose application is unrealistic. There was also the popular Everyone deserves to be rich, with simple principles applicable to anyone. Strategies to become a rentier in ten years goes further into the concept by giving several reliable investment leads. My E-Book completes this picture by focusing mainly on income from dividends.

Early Retirement Extreme

Jacob Lund Fisker, with his book Early Retirement Extreme, is probably the one who has taken this approach the furthest. With his method you could be able to retire in just five years. His movement started in 2007, and a few of his followers are already starting to retire. Jacob Lund Fisker believes that anyone earning virtually any level of income in the developed world can retire in just a few years, provided they cut back on their expenses, save, and turn their savings into passive income.

Jacob is at an unprecedented level of frugal living, living on just $7,000 a year. He never eats out and grows some of his own food using a vegetable garden. None of his early retirement concepts are revolutionary. Many students are already using them to save money. Jacob is simply proposing to continue living like one of them. By living cheaply and earning as much money as possible, you can retire sooner, not only because you have more money but also because you need less money to maintain your lifestyle. This is also one of the principles I apply in my E-Book.

A massive reduction in spending

Now let's look at an extreme case of early retirement, Jacob's way. If you earn $$50,000 per year and save $80% of your income, with an annual rate of return of $5%, in six years your nest egg will be worth about $$289,000. That's modest, but since you've cut your expenses to $20% of your income, you can live on less money in retirement, and that nest egg should last you the rest of your life.

Your expenses are so low that you only need to withdraw 3.5% of your $ 289,000 per year. This amount will last as long as you can earn a real rate of return of more than 3.5%, plus inflation. While this may be difficult if the money is invested in Treasury bonds at historically low rates today, this return is not impossible for those who know how to invest in thereal estate, stocks and bonds.

But why live with so little?

Jacob Lund Fisker suggests rethinking our unlimited need to consume. He advocates a simple lifestyle where happiness does not rely on consumption. For example, he recommends learning to live without air conditioning, stating that the body can adapt to extreme temperatures. If you live close to where your activities are located, such as your work, you also reduce your expenses significantly. You can also prefer an economical mode of transportation such as walking, cycling and public transportation. If this is not possible, you can always opt for a small-engine car that does not consume much fuel.

Most people are constantly buying useless items that they just pile up in their house. Garages are no longer used to park cars, but to store those memories of one-day futile expenses. In the end, we pay exorbitant rent to accumulate things that are useless and that could even bring in money if we sold them. Possessions are expensive, take up space, require maintenance, can be stolen and are difficult to get rid of.

If you want to help yourself, Sell immediately at internet auction Any item that you haven't used in more than six months. Use the 1 in / 2 out rule. For every item that comes in (purchase or gift), take two out (sale, donation or clearance). Finally, before any purchase, make a list. When the item you covet has been on the list for 30 days and you still want it, go for it! This will save you from many impulse purchases.

Marketing

If a product needs advertising to convince you that it is good for you, then beware. People have become slaves to the latest technologies, because they are an outward sign of wealth and belonging to society. But do they really bring you a better quality of life? Today, instead of focusing on the usefulness and quality of a product, we unfortunately no longer pay attention to the brand, design and fashion.

Develop your skills

Instead of paying daily for transportation, childcare, pre-prepared meals, or a housekeeper, you can build a set of skills that allow you to meet these needs directly. Why work to pay someone to work for you? You don’t need a large income to achieve financial independence. You can also develop the skills to do without it. So move from being a consumer to a producer. If you don’t do this, no matter how much income you make, your spending will tend to be closer to it. Without the wisdom to set boundaries, consumption takes up all the available space.

In a way Fisker, with his early retirement, is the opposite of Tim Ferriss. The 4-Hour Workweek Ferriss advocated "outsourcing" to give you more time to do the things you want. Fisker instead believes the solution is to reverse the outsourcing of ordinary life skills and gradually internalize skills that have been previously acquired in the market.

Financial independence begins with independence, pure and simple.

Without free will, we act like sheep, we want to look good socially and we consume trivialities. In his best seller Rich Dad Poor Dad, Kiyosaki explains to us that the educational system, with its performance rewards (grades), has taught us to fit in very wisely in the professional world, to become very good employees and therefore big consumers. On the other hand, it never teaches us how to become very good employers and how to consume well! By practicing in this way, we are encouraged to stay in the system, the Rat Race, this race for work and consumption.

The paradox is that the more successful an employee is, the less time he can devote to his family. On the contrary, the more successful an investor is, the more time he has! Financial freedom, is therefore to have both the money and the time to live for oneself. A salaried job and the boss who goes with it will never give you this freedom. The employee does not realize that one can live on the income from a capital, which does not depend, unlike work, on the time devoted to it. Very often the one who manages a capital gains by doing nothing and remaining wise.

Early Retirement: What is your real hourly wage?

The authors of Your Money or Your Life suggest calculating your real hourly wage, taking into account not only the costs of acquiring the income, but also the time spent directly or indirectly on your employment activity. You must start by deducting from your net income your transportation costs, the cost of your meals at restaurants, your work clothes, the amount spent relaxing after a hard day, treating a job-related illness and even some vacations that you would not normally take (anti-stress spa treatments)... the list can be long.

I talk about it in my E-Book, depending on the situation, about 10 to 30% of the net salary is spent on income acquisition costs. I personally compared the amount of my professional expenses to my net income and I reach roughly 20%. This means that I work one day out of five to cover the costs inherent to the acquisition of my income.

Time spent on paid work

As for the time spent directly or indirectly on your activity as an employee, in addition to the contractual schedule, you must also count the hours spent getting ready for work, the time spent traveling to get there, the lunch break you don't spend with your family, the time to relax at home after work, leisure as a way to gradually reduce stress, etc. Here it is even worse than for the income acquisition costs. According to my estimates, the indirect time spent on work amounts to between 30 and 50% of the contractual time. Personally, I have to add 50% to my work schedule, and I don't even count overtime in that.

Divide the new reduced amount by the new number of hours and you get your actual hourly wage. By my estimates, once you deduct the income acquisition costs, factor in the indirect hours related to your activity, and still deduct income tax, the real hourly wage is between 40 and 50% of your contractual net hourly wage. As far as I'm concerned, it's the bare minimum, i.e. 40%.

Early Retirement & Vital Energy

Calculate your real hourly wage. Have fun converting the price of some of your purchases into minutes or hours of vital energy that you will have to devote to them. I did it for myself:

• 30 minutes to buy a Big Mac menu
• 1h30 for a haircut at the hairdresser
• 4:00 to fill up my car
• 5:00 a.m. for a restaurant with my wife
• 6:00 for new pants
• 25 hours a month to pay for my car lease
• 40 hours a month to pay the interest on my mortgage debt
• 40 hours a month to feed my family

By doing this, we see certain expenses from a different angle. It's no longer "I'm treating myself", but how much time I'm going to have to work to afford it. 4 hours to just fill up my car is 4 hours that I'm not spending with my family. Is it worth it? Instead of going to a restaurant, why not cook for yourself? Instead of going to the hairdresser, why not cut your hair or have your partner cut it?

Our assets allow us to be passive

If my expenses are consumers of vital energy, my dividend paying stocks on the contrary, give me the equivalent of 10 hours of this precious time each month, without me having to do anything. In fact, my "assets" (my securities) allow me to be passive. My liabilities (my house, my leasing) on the contrary force me to be active! The authors of Your Money or Your Life show us that our consumer society, instead of making us more independent, has led us into a network of financial dependencies. From birth to death, we are financially dependent on our parents, our employers, unemployment insurance, banks, insurance companies and our pension plans.

Material progress that was supposed to free us has made us slaves. Psychotherapist LaBier demonstrated in his book Modern Madness that focusing on money or success at the expense of personal fulfillment led 60 percent of a sample of several hundred people to suffer from depression, anxiety and other job-related disorders, including the ever-present "stress." So it's up to you to choose your priorities...

Early Retirement: How to Save Money

• Pay yourself first, by systematically putting aside, and before expenses, a constant (or increasing) portion of one's income.
• Grow a vegetable garden, even on your balcony, with space-saving plants like cherry tomatoes, gherkins, radishes, arugula, parsley or chives.
• Cheap cooking, by eating fresh, seasonal produce (from your vegetable garden, for example), by mixing meat, starches and vegetables, and by reusing leftovers.
• DIY
• Write down your purchase wishes on a 30-day wish list to avoid impulse purchases.
• Buy used instead of new.
• Buy durable and quality items.
• Resell items that have been unused for more than six months.
• Apply the 1 in / 2 out rule: for every item that comes into your home, sell two.
• Healing with fruits, grains and vegetables (from your vegetable garden for example), you will avoid the side effects of medication on your health and on your wallet.
• Getting around without a car.
• Cut your own hair.
• Insure only against major risks and assume the smaller ones.
• Take back clothes yourself.