The One Thing You Need to Know to Retire Early

Retire early. Most people like the idea, but how can you do it? Start by knowing this one thing.

Subscribe: Apple Podcasts | Google Podcasts | Spotify | RSS | More

We discuss retiring early on The BIGG Success Show today. Here’s a summary of that discussion.

How do you win with money? How to win the game of life?

Don’t just think about today. Think about today AND tomorrow AND through your retirement.

Which brings us to a very important question to ask yourself, the one thing you need to know to retire early:

After all the earning and the spending, how much is left?

Mathematically: Earnings – Expenses = What’s Left

The driver of early retirement

This simple formula shows the driver of early retirement. It’s not what you make that counts. It’s what you have left at the end of the month.

Picture a line which shows “What’s Left” in percentage terms.

At one end of the line, it’s 0%. Earnings = Expenses. After all the spending is done, there’s nothing left over. For these people, retirement is not an option.

At the other end, it’s 100%. Earnings = What’s Left. (We know this is unrealistic, but it helps make the point simpler, so please bear with us.)

Would you agree that, if you could bank 100% of your income, you could retire earlier than someone who saves less than 100% of their income? (Assuming you both make the same amount of money, of course.)

Bottom line? The person who saves more can retire earlier. What’s Left is the single most important factor to achieving financial freedom.

Retire early by growing the gap

Do you want to retire early? Then grow the gap between Earnings and Expenses. Grow What’s Left.

The bigger the gap between earning and spending, the sooner you can retire.

Let’s look at an example. Assume you make $100,000 a year.

If you save 10%, you will save $10,000 a year ($100,000 earnings x 10% savings rate). It will take 10 years to save $100,000 ($10,000 yearly savings x 10 years).

But if can you save 20%, you will save $20,000 a year ($100,000 earnings x 20% savings rate). It only takes 5 years to save $100,000 ($20,000 yearly savings x 5 years).

Of course, we’re ignoring that the money you’re saving will make more money, which in turn, will make even more money.

And which one do you suppose will accumulate the most money? At every point, it’s the 20% saver.

Retire early, really early

What if you could really ramp this up? What if you could save 50% of your earnings?

Impossible, right?

Plenty of people do. There’s a whole movement called FIRE – an acronym for Financial Independence Retire Early, a community of extreme savers who regularly save 50% or even more.

Let’s say you like the idea of saving more. Running with the example above, you make $100,000. You save 50%, meaning you stash away $50,000 a year ($100,000 earnings x 50% saving rate). In 2 years, you’ve saved $100,000 ($50,000 yearly savings x 2 years).

Still think it’s impossible. Consider this example: You’re married. You and your spouse each make $50,000. So, your household income equals $100,000 – the same as our earlier example. Want to save 50%? Live on 1 income.

Can’t make it work? Then bank your pay raises, your bonuses, your tax refunds, etc. Before you know it, you’ll be living on half your income.

Because the more you save, the faster you’ll reach financial freedom!

How to grow the gap

So focus on growing your gap between earnings & expenses. How?

1) Increase earnings

In the long run, this is the only way to grow the gap between income and expenses. Costs can only go to $0. (Say your cable bill is $100 a month. You cut the cord. Now your cable cost is $0. But it can’t go below that. No one will pay you to not use their service! Wouldn’t it be great if they did?!)

While costs can only go so low, income can rise almost without limit. Sure, there is a restriction on what you can make right now. You may need more education and/or experience. You may have to change careers. You may need to move from employee to entrepreneur. In other words, you may need to invest in yourself.

But that’s beyond our scope today – our point is you need to look for opportunities to improve your earnings and/or earnings potential. And that takes practice. Most people overlook opportunities that are right under their nose. Develop the habit of looking for opportunities. It’s the only way you’ll find yours! What can you do to supplement your income?

2) Decrease spending

In the short run, it is far easier to cut spending than it is to increase income. Income is not as controllable as costs.

What can you do right now to make sure your spending is inline?

Would you like to have a tool which could rapidly pinpoint opportunities for you to save more money?

Would it be good if it was designed with non-financial types in mind?

Would you like to know how your personal finances stack up to your neighbors?

Then, we have something may find interesting. Check out our Financial Freedom Tool.

Here’s to your BIGG success!

George “The Professor” & Mary-Lynn

Co-Founders, BIGG Success