Financial Independence

How to Reach Early Retirement and be Happy

Way before even thinking about early retirement, we all have that moment when we sit down and think; what do I want out of my life? You can have a great job, great family, health and all but still do not know what you want out of life.

For me, this was at 23. I was working full-time, one year in a great relationship and thinking about getting a house. Few goals in mind but I was not thinking of early retirement quite yet.

Extreme early retirement

Each pay, I was investing a large part of my income simply because I wanted to buy stocks. I saw the appeal of owning companies I liked such as Apple, Tesla, Facebook but I did not have any long-term plan or vision.

It took me a while but I finally took the decision to minimize my spending and increase my savings in the hopes of buying a house. With a concise plan in mind, I started cutting on anything that did not give me joy-for-the-value.

how to cut the cord

Slowly, cable was replaced with Netflix. Bar nights replaced with house parties. Soon enough, it all added up to good savings. After a year of investing, I sold all my stocks and we bought our first house.

I saw what others were splurging on but came to realize that it was not things I needed to be happy.

In my field of finance, for example, almost everyone drives to work in a brand new BMW or Mercedes. I was walking to work, living downtown, so I did not have a car. Once we needed one we got a used, 2007 SUV with low mileage and paid cash.

Here is the thing about cars, they are monetary sinkholes. On average, a car will lose 40% of its value in the first three years. So I thought to myself; what do I want to spend my money on?


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Older cars can still look nice and still run great! The other advantage of spending less on the purchase of a car is the incredible savings you will make paying cash rather than taking out a loan. Car loans can go up into the double digits of interest. You will end up paying almost double the price for that fancy new toy. You can see my calculations behind my car purchase if you want to see the reasoning of my purchase.


We live well, eat well, travel a lot… but always live under our means.


It is all about the lifestyle.

I really wanted to save enough for a down payment in one single year. That was not an easy feat but I achieved that.

As I continued to earn, I continued to save and invest. Had to think about the next goal, the next thing to save for… For me it was; early retirement.

If that is what you want to, you are at the right place. The very first steps are to cut the small things since they are the easiest to stop and often add up to a good chunk of your spending. Restaurants, bars, snacks, and outings can really add up.

You should really take the time to make a budget and track your expenses or use platforms such as Personal Capital to do it automatically. Once you have paid off any high-interest debt you have, you can start saving and investing.


Pay yourself first

Besides budgeting, you can set up automatic savings and invest a portion of each paycheck. Then, live on what is left to drastically increase your savings rate.

You do not need to be born in wealth or make a million dollars a year to be wealthy. Fortunes build themselves but you need to steer it in the right direction.

If there is one thing to keep in mind is that as a young saver, you have every chance in front of you. With dedication and perseverance, anyone making an average salary and living below their means can retire early.

Life is meant to be lived. If a slight change in lifestyle can get you to save and reach financial freedom, go for it!


Living on half our salaries

The basic goal I have given myself is to live on half my income and invest the rest. If you can live below your means and save a good chunk of your income, your dollars will work for you.

Your savings rate is a cornerstone to the number of years you will need to stay in the workforce.  The more you save, the less you actually live on and therefore, afford that lifestyle in early retirement.


Your personal savings rate =

Annual savings including any employer match (or any debt repayments) x 100

Total income less taxes, plus any employer match


For example, if you end up saving about 75% of your income, you are buying yourself three years of retirement for each year at work. With the magic of compounding, you will be able to generate enough passive income to pay for your lifestyle after a few years of hard work.

From previous research, we can assume that withdrawing 4% of our portfolio, adjusted for inflation, is safe to last and survive major market crashes. If one would want to retire on a  4% withdrawal rate, it would only take 7 years of work to save up enough money to safely retire solely on investments.


Use every advantage you get

Personally, I am currently saving 50% of my income each year and I am hoping to save up to 70% soon. When used in the proper tax-advantage accounts (401k / RSP), your savings will actually lower your taxes and you will barely feel the hit.

For example, I am currently at a 45% marginal tax rate, this means that for every dollar I invest in my tax-advantaged accounts, I actually feel a hit of only 55¢ (I got this figure since earning $1 working would only give me 55¢ to spend). This figure is even lower if you get an employer match!

I have included below a chart to illustrate the power of your savings rate. Feel free to play around with it in this interactive version. If you want to either pay off debts quickly or start saving for early retirement, you should learn to boss around your finances and build a strong budget. Bringing yourself closer to the 50% savings rate, or more can make any goal achievable relatively quickly.


saving rateSource:


Change your mindset

Savings are only a mindset. If you are thinking about it as something easy, it will be easy. To increase your savings rate, you need to start thinking:

How much can I save by doing this?

rather than

How much can I spend on this?


I am not saying you should not shop around and look for the best prices. However, you should definitively think about how much you will save by not buying that thing.

To put it in perspective, someone that makes 50,000$ a year, for example, would be left with about 35,000$ (depending on the state but we are assuming here).

Now assume he is Mr. Average American saving only 6% of his salary like the majority of Americans do today. This means he could retire after only 62 years of work (so at about 80 years old!). Basically working until the government or a private pension pays for his retirement.

10 frugal tips to save money

If he is so average, Mr. Average probably pays 100$ a month for the newest iPhone with a nice big data plan that he probably does not need. He probably never thought about it but if he just saved that 100$ a month instead of spending it on a phone, it still adds up to 1200$ a year.

This small saving alone could actually decrease his working years to only 51.4 years and just like that, he can retire 10 years earlier by skipping the data plan. (Assuming 5% market returns. and that your current annual expenses are equal to your annual expenses in retirement)

Now, instead of following the average, if you choose to save half you are income like me, you can relax and enjoy the security of having a safety net and become financially independent after a few working years. Your future self will thank you when your safety net will grow enough to become your retirement nest egg!

Then, you can work (or not) on whatever you want to. You will have the leisure to live your life at your own pace, doing whatever you want.


Saving does not need to be a burden

It cannot be said enough; if you can live on less, you need to accumulate less wealth to support your future self. The basic idea is to hold 25x your annual expenses in investments to sustain yourself in whether or not you generate more income.

This comes from the assumption that a 4% withdrawal rate per year can sustain you with a very high rate of success. I suggest you play around yourself with cFIREsim or Personal Capital’s free tools to test out scenarios to really get the grips of it.

.Welcome to my blog and best of luck. Stay happy! Xyz.