Retire early and afford to do what you please

Most people assume that the key to being wealthy is a high-paying job. It certainly is easier to accumulate savings when you earn more but most people never become 'financially free' because their expenses proportionally increase.

If you have been fortunate enough to experience a pay jump you will know exactly what I mean.

For many, the problem isn't earning more it's spending less.

The Kiwi dream

We all know what many describe as 'the Kiwi dream'... picture this: Homeowner, security through income and retirement at 65.

One big problem.

I dream of being able to choose whether I work, what I do for work, and how often I work.

Financial freedom

My dream is what's termed financial freedom. It's having enough assets to pay yourself the salary you need to sustain your lifestyle.

When you have above a threshold invested, you can withdraw from the portfolio, paying yourself enough to cover your expenses and depending on how much you have saved - and some.

The impact of this is that you no longer need to work for anyone. You have your financial situation covered and can work if you want to.

Time is our most valuable currency. I would hate for a need for income to determine what you do with it.

Why is this not the dream?

It's a pipe dream. If you fall into this mindset, I challenge you to question why everyone retires at 65 despite others earning more. As paychecks increase, so does the swell of our lifestyle. Some dine out more often, and some travel. Some drive fast cars, and some fly business. You can retire early through frugality, earning more, or a mix of both.

Tall poppy syndrome. This is a big one. Particularly in New Zealand, where most would agree that stamped in the country's culture is behaviour that holds people back, criticises, or even sabotages those who reach for above-average success.

I'm sure many reading this blog post will think the dream is impossibly difficult - that this is only for the arrogant and privileged - that is why it is not the dream.

Retire early and afford to do what you please:

If the freedom to do as you please sounds inviting, read on. You will realise that it is much easier than you might have thought.

The end goal is to own a portfolio of assets that is so large that 3% of it could support your basic annual expenses forever.

The average cost of living for a family of four is $63,600 annually.?Your portfolio should then be worth upwards of $2 million.

Don't be scared - read on.

See this chart for how much you can save in 25 years based on your monthly investment. The annual rate of return for the S&P 500 is ~9%, so focus on that column - it's already adjusted for inflation:

At 10% - the average saving rate, you are not retiring early. Not even at the higher income brackets.

Depending on your income, at 30%, you might be there or you're getting warm. If you start early, you might retire in your early 50's.

When you save 50% of your income, the real magic happens or when you start earning more. At this rate, most will retire in 25 years or sooner.

If you currently earn $5000 a month and invest 50% of this into the S&P500, realistically, your income will grow over time, retiring you in 25 years.

I would be 46 and capable of paying myself $60,000 a year on top of any other income I earn.

Equally, you might stick to a $2500 monthly investment.

By doing this, your savings % will reduce over time as you earn more, leaving you to spend the extra money freely on all the nice things you like to buy.

Now. There are variables everywhere. But the principle is that you can accumulate significant wealth through saving, investing, and earning more.

Amounts unfathomable to most of us.

That's my plan.

Why post this now

At the time of writing, the stock market is down 20% from its all-time high. Times like these are rare opportunities but great ones to begin investing aggressively.

Pick up this thought:

Start wondering why everyone retires at 65, despite some earning far more.

As paychecks increase, so does the swell of our lifestyle. You CAN retire earlier through frugality, earning more, or a mixture of both.

Spend less, earn more. Watch your wealth compound, and get the freedom to do more with your time than work.

Again, this isn't for everyone. But that does not mean there should not be more awareness of the opportunity.

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