It seems 30 has become the new 65, with a number of people announcing their retirement from work in their 30s.
Jeremy Jacobson and Winne Tseng are a couple from the US that retired in their 30s to travel the world. When they retired, Jeremy was 38, Winnie 33.
What is perhaps surprising about this couple is that they had a small (relatively) combined annual income of US$135,000 – of which they managed to save up to 70% of over 10 years and invest it in index funds on the stock market.
How on earth did they manage to save 70% of their combined after-tax incomes?
They cut spending in the areas where costs are usually the highest: housing, transport, food and entertainment. They used a bicycle and bus for transport, lived in a small-ish apartment in a walkable neighbourhood (rather than a big house in the suburbs), and made most of their meals at home. They were a block away from a farmer's market, the grocery store and not far from a library and large park.
This is not cutting the $5 you spend on a coffee in the morning, but seriously targeting your major expenses, and building up passive income streams from dividends and interest.
As they write on their blog,
"Many assume that you have to work 40 or more years to retire, or that long term international travel is only for college drop-outs and dirty hippies living on rice and beans.
What is the secret? It doesn't require winning the lottery, inheriting a windfall, or getting lucky on some penny stocks. There is really only one thing that determines how quickly you could join us on the road: Savings Rate. What percentage of your income are you saving?"
Now they reportedly have millions worth of assets and cash in the bank and live on around US$4,000 a month travelling the world.
Not only did they manage to scrimp and save so much of their incomes, they also found they increased their happiness – although many of us might wonder about their choices – such as not owning a television or a car.
All up, their journey to financial freedom took almost 20 years, including 5-6 years to get out of debt, 10 years of saving like crazy and another 3 years of being retired during a bull market to get there.
Foolish takeaway
The key was knowing how much they needed to retire, using the 4% rule, compound interest and a fierce desire to get there. While you may or may not be able to retire at that age, cutting your spending and investing in index funds is a popular tried-and-true strategy for early retirement – not dissimilar to another early-retiree – Mr Money Moustache.
Many people complain about work and not being able to do what they want when most of them already have the means to solve their problem.
- Spend less than you earn and pay off your debt
- Invest in shares
- Invest regularly
Sounds simple and it is.
