I’m frequently asked: How can you afford early retirement? And also: How can you afford to travel in early retirement?
Saved money, made investments, spent only what was needed, didn’t have kids, took some risks.
Ok. There is a little more to it than that – but not that much.
The short answer is on the About page, there is more on my philosophy on quitting the rat race early on the first entry I posted to this blog. But I have never given more detailed answers (minus specific financials). And so, this that.
The how of it
You don’t have to be an accountant, a financial planner, or day-trading wizard to put a plan together – we aren’t those. You don’t have to make a ton of money – we didn’t. There is no secret to this — there is no magic involved.
The answer is three key premises to live by, long term: save early and invest consistently; don’t have debt; live below your means. Yes, it is really that simple — (here is the ‘but’ you are expecting) but you have to stay committed and follow through, and that’s what makes this so difficult for most people. I know this from personal experience.
The pressure to spend money in our advertising-crazy culture can be extra heavy. It’s all so tempting: a new smartphone upgrade, a new car, a bigger home, new ‘name brand’ shoes, expensive vacations and new clothes to go with it, useless tchotchkes, specialty foods instead of more sensibly priced store brands, and on and on and on down the line. It all adds up. If you took money spent on the latest and greatest fill-in-the-blank, and invested it instead, you’d be so much closer to financial independence.
When I met Tedly, I was a 29-year-old single woman, drowning in student loan debt and hardly making enough money to pay it down, and also pay the rent, maintain a used car, feed myself, and look ‘nice’ for a job in an industry that held physical polish in high esteem (TV news). Tedly was a guy who lived below his means, yet he also enjoyed life with his own home, budget-friendly winter vacations to warm locations, he had hobbies like ice hockey and motorcycles, along with many other nice extras. We worked in the same industry as fellow worker bees and I knew he wasn’t making a huge salary. So how the heck did he do it?
On my 30th birthday in 2001, Tedly surprised me with many gifts: a leather purse, a jacket, trendy earrings and necklaces, Starbucks coffee, and other goodies. All name brand. (Tedly being Tedly, he also stuck a package of Depends into the giant gift bag, with a note that said it’s all downhill from age 30.) I thought: what a good guy, to gift me all of this stuff – how sweet is that? What I found out later was that he had a ‘gift closet’. He went to super sales where he found goods for up to 80 or 90 percent off. He stocked up on goods for later disbursement. I had known people throughout life who had done that, but I had never paused to evaluate the reason and appreciate the effort in the name of saving money by being a smart consumer. Tedly gave me that pause.
He bought groceries from a discount chain. When I met him, he drove a pickup truck that was falling apart. He bought a new car only after amassing discount points on a credit card and when automakers had a fire sale after September 11, 2001. He owned his home in a somewhat seedy part of town and paid off a small mortgage, well below his means. (It is a great house in an area that has since gentrified and is now a hot spot.) He paid his bills and small debts, he spent wisely, he saved a lot of his money, and he invested it.
I was so curious — here was this sweet, goofy guy who made jokes and had fun with everything he did, and yet when it came to money – he was dead serious.
When I think back about how I treated money before I reached 30 years old, I cringe. The younger I was, the more foolish I was. Even after 30 years old, I still spent more money than I should have. Here is a big example: I bought a new 2002 Jeep, and spent years paying that off. I could’ve gone with something cheaper – such as a used Wrangler, which would have satisfied my dream of having a fun four-wheel drive. After all, I had bought used motorcycles and had a blast on them. In addition to the payments, the Jeep was a gas guzzler, so that only added to its total cost. (It was the only new car I ever bought, and I drove her til she died.)
As the daughter of former business owners, you’d think I would have been better at managing my spending before I met Tedly. I guess it takes what it takes, and the universe unfolds as it should. I didn’t earnestly try to learn about money and spending until Tedly gave me pause.
What was he saving all that money for? Exactly this. Early retirement. He wanted a travel life similar to the budget vacations that we had started taking together a few times a year starting back in 2002. We went to many places each year until we retired: Mexico, Panama, Costa Rica, Nicaragua, road trips around the U.S., Vegas, etc. Once retired, he wanted to travel nonstop before he was 65 or 70 years old. I loved that idea and it also became my dream.
I didn’t want to wait, and I was impatient. I often questioned him in our early days: why couldn’t we drop out and travel right now? We could simply get jobs as we needed them, I reasoned, and that would add to the savings we already had. But Tedly wanted sure footing, and he didn’t want to work again once he stopped.
So I paid attention, cut my spending, paid off that student loan, made a serious effort to save. He taught me a little about investing. By the time 2007 came, I had stocks that were doing well. When some of those companies took big hits in 2008, I panicked and sold some of them. That taught me about capital gains and losses. It also taught me that downturns are the absolute best time to buy, not sell. That first lived-through recession won’t be my last, and I know I have a lot more yet to learn.
Tedly’s maturity on money already taught me a great deal. Even though I am not as good at investing and managing my money as he is, over the years I still managed to accumulate a decent sum in retirement, stocks, and savings accounts. His accounts will always be larger than mine – he is eight years older than me, and he started saving at an earlier age. However, my smaller sums have grown a lot since I started, even in recent years during my early retirement when I haven’t put additional money into them.
Despite my growth, it’s Tedly’s long-term, consistent strategy launched early in his career that made a huge difference. For more than 25 years, Tedly saved at least 20 percent of his income and he continuously invested that money. If there is any magic to any of this, it would be the magic of compounding.
We don’t feel comfortable sharing the specifics of our personal financial information, but there are plenty of other early retirement bloggers and authors and speakers who are happy to share their details, if you feel you need a specific yardstick with which to measure your own progress. (Some share more details than others. And some remain anonymous. One directory is here.)
We also don’t make specific investment suggestions because everyone is in a different circumstance with different goals — we are not financial planners for other people. For example, we did not want children, and that undoubtedly added to our financial growth. Another example: Tedly’s former home is a now a rental property that helps us pay for places we rent around the world. There isn’t a one-plan-fits-all approach to this beyond the key basics we’ve already covered: save and invest early and consistently, don’t have debt, live below your means. Anyone can adopt this as a base plan, and tailor it to your specific needs, risk levels and investment preferences.
Countless personal finance sites, blogs, and books detail how to achieve early retirement. Any plan of action you put together should be vetted by a certified financial planner. Ask around from people you trust for recommendations. If no one you know can make such a recommendation, find planner who has a lot of reviews over a period of time.
In our case, Tedly paid a financial planner a one-time fee to review the plan and asked, What am I missing? before we were married and we sailed off into the sunset. The planner didn’t find any holes in our plan but he did make suggestions that made sense.
If those key basics are the ‘secrets’ on how we got here, the secret to how we stay here is this: sticking to a budget.
Our budget in Mexico and Central America was $2,000 a month, and now that we are in Europe, we upped it to $2,400 a month. If you read those posts I just linked to, and others on this site, you’ll see this lifestyle is totally possible on those amounts of money — we are comfortable on these budgets! We get to do amazing things, like Sahara Desert trips, hikes up volcanoes, swims with whale sharks, trips to protected ocean reserves, jungle treks to Mayan ruins, just to name a few of the more active adventures we’ve enjoyed. We also get to lay around and be lazy on beaches, or go to musical concerts and museums.
The why of it
Tedly was 52 and I was (almost) 44 when we retired early. We almost didn’t stop working that early. In fact, one plan we kicked around after I moved to San Diego from Cleveland (we weren’t married yet) was that Tedly could retire first and join me in California as my house wife (my job was kind of demanding) while I kept working a few more years. Honestly, all of our ‘plans’ felt more like just talk to me. It was difficult for me to really envision a life of travel in early retirement.
But, the universe flowed in a way to help me along and realize the dream. I was laid off. I decided to back out of the rat race after a severance offer added to my coffer, and I met a woman dying of cancer who reminded me of the most important thing – yes, even more important than money: You only live once.
Why do we want to a life of travel in early retirement? My answer: I want to see the world! I love being on my own schedule at my own pace as I explore new places and cultures. Life feels like a permanent vacation. Tedly’s answer: What else is there to do? And also: Because I’m from Cleveland and it’s the ABCs – Anywhere But Cleveland. (He’s joking, of course.)
There were obstacles outside of finances that we each overcame before early retirement – this isn’t our entire story, by far. So having the funds to retire early was only part of the challenge to get here. Another big hurdle was finding courage to take the risk and actually do it. We only live once.
We haven’t looked back. This early retirement budget travel lifestyle is a gift we are so fortunate to unwrap and experience. We are immensely grateful.
You won’t wake up one day and suddenly have a million or more dollars sitting in an account that will enable you to live a life of financial freedom because you found some trick. And if you do hit the lottery or get a windfall inheritance – congratulations! – most people aren’t as lucky.
Don’t despair if you didn’t start saving and investing in your early-to-mid 20s, like Tedly was smart enough to do. I didn’t make any attempt until I was in my early 30s, and the account totals aren’t too bad for a late start. Any savings growth is better than none.
There might always be that nagging question – how much money is enough to retire early? The answer lies in the work of making a realistic plan tailored to your situation – and your resolve stick to it, long enough to let the compounding magic happen.
If you’ve made your plan, and you stuck to it, but you’re unsure about actually going through with early retirement, I previously wrote a little pep talk for people in your situation. Find that past post here.
Now a final note for anyone who struggles with spending versus saving. I check in on a few early retirement blogs now and then, and I saw this video on one of them. I felt it was worth sharing here. I’m not a follower or a fan of Jay Shetty, in fact, I’d never heard of him before. But he makes quite a compelling case against consumerism. Maybe this will motivate someone out there to keep focused — to skip buying that new watch or new car that’s not really needed, and instead save the money for new experiences in your new life.