retire early by 40

Live Below Your Means: How to Retire Early by 40

It’s a dream of many to retire early at just 40 years old.

You quit your job and leave your old career behind. You can finally tell your boss what you really think of them.

I had a very pleasant time working for you, but now is the time move on – Glenn

What? Not everyone has a bad boss!

Your days are now dedicated to your hobbies, family, travel, and anything else you’re interested in.

Yet many people just don’t believe retiring at 40 is possible. We’re here to show you otherwise.

The secret is to start now. To put that in perspective:

“The best time to plant a tree was 20 years ago. The second best time is now. – Chinese Proverb”

If you start living below your means now, retiring early is more than possible. Here are the best ways to change your lifestyle, save more money, and possibly retire by 40.


Plan Early

You don’t just wake up one day and retire. You plan for it. You lay the foundation that will support your early retirement.

Prepare yourself mentally as well. What will you do with the extra time? What goals do you wish to pursue during your early retirement years? What do you hope to accomplish?

If travel is your goal, decide how much it will cost. Where do you want to visit? etc

Your why and what will inform your how. A plan helps you establish the amount you need to save now to achieve your goal of early retirement.

An early plan also let’s you enjoy the benefits of compound interest. The earlier you start saving and investing the better. Compound interest, after all, is a function of time.

Look at Buffett’s net-worth accumulation for example, the bulk of his enormous wealth has come with time.

retire early - the power of compunding

Have a specific and clear plan of how you want to accomplish your goals.


Figure Out How Much You Need

Your plans and goals will determine your ultimate figures. Using the “four percent rule” for example can help you determine a safe withdrawal rate. This is the percentage of your invested assets you could spend each year in retirement and not run out.

The more you need during your retirement, the more you need to save right now. If you wish to pay for your kids or grandkids tuitions for example, then you need to factor in those figures into your calculation.


Develop Good Financial Habits

Developing good financial habits is essential, even if you don’t plan to retire early.

Start by tracking your income and expenses. Knowing exactly where your money goes each month helps you cut costs on unnecessary expenses.

You can then plunk that extra money down into savings.

A spreadsheet is all you need to track your income and expenses. Money management software or an app is another option. and Quicken are both popular.

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Spend Less Than You Make

The key to living below your means is to spend less than you make. Much less!

Tracking your income/expenses and creating a budget is the first step. Even if you don’t write your budget down, always ask yourself “do I really need this?” Or, “is there a cheaper alternative?”

I personally don’t use budgets, and only ever spend what I have to spend.

It’s all too easy to overspend if you don’t know exactly where your money goes each month.

An emergency savings account is also essential. According to Vanguard, most experts recommend an emergency fund that covers at least 3 months of normal expenses.

A 3 – 6 emergency fund cover should help you weather most financial emergencies.

Fall back on this account during hard times rather than overusing credit cards.


Retire Early: Minimize Lifestyle Creep

Lifestyle creep is an unfortunate side effect of making more money. It’s all but unavoidable.

It works like this: as your income increases, so do your expenses. A lot of people, especially young people, spend a bump in pay on more dinners out, a new car, or a larger home rather than sticking that extra money into a savings account.

We will buy X when I get my raise/bonus.

Sound familiar?

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Get into the mindset that you don’t need to “keep up with the Joneses.” What’s most important is living within (and hopefully below) your means even as your income increases.

Keep your fixed costs minimal. Look at the top 3 expenses and determine how you can control them. Housing, transportation and food will cost more if you don’t keep an eye on them.

A bigger paycheck might prompt you for example to get a better ride, or move into a bigger house. To retire early you have to resist the urge. Instead of splurging, save some more.

If your budget stays the same despite an increase in pay, you’re on the right path to retire early.


Retire Early: Pay Off Debt

Value Penguin states that the average debt for an American is $5,700. Much of this is the kind of consumer debt that comes with high-interest rates.

You should make it your goal to avoid consumer debt wherever possible, but life sometimes gets in the way.

The next best thing is to pay off your debt as soon as you can.

The money you save from these paid-off debts can now be placed in savings to facilitate early retirement.

There is no reason why you need more than one credit card. And that credit card should have a very low maximum amount, to make you think every time you spend: “am I going over my limit?”

One soon-to-be early retiree, one credit card.


Retire Early: Boost Your Income

Boosting your income, and then saving this extra money, is another way to live below your means to retire early.

Here at the Casual Capitalist, we’re big fans of utilizing the sharing economy by making extra income with platforms like Uber, TaskRabbit, Airbnb, etc.

According to JP Morgan, the average sharing economy worker adds an additional 15% to their earnings through these side gigs.

Best of all, you can make money with these platforms whenever you have a few hours to spare. A few hours over the weekend, waking up early and spending a few hours before work, and so on.

Here’s a more in-depth discussion of getting started in the sharing economy. Alternatively you can check out our advice on finding freelancing clients (and keeping them)!

Additionally check out the tools to skyrocket your side hustle income.

Not sure where to start? Try our sharing economy quiz to find out which sharing economy platform best suits your lifestyle.


Retire Early: Save as Much as Possible

All of our advice so far hinges on saving as much money as possible.

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Most experts recommend saving 10% to 15% of your income – but that’s with a normal retirement age in mind. If you hope to retire early by 40, you need to increase that amount considerably.

A combination of a strict budget, frugal lifestyle, and side hustles with sharing economy gigs should make it that much easier to save well over 15% of your income.

Those with a good income (say $100,000 per year) should shoot for the moon and try to save at least 25% of their earnings.

Other tips to help you save more:

  • Consider downsizing your home
  • Adopt a minimalist lifestyle
  • Ditch the car (if you can)
  • If you can’t, invest in proper car maintenance
  • Automate your savings
  • Save windfalls and tax refunds
  • Save your loose change
  • Unsubscribe from unnecessary services and marketing emails
  • Take advantage of your local library for books. More libraries offer an e-book option without the need to visit in person.
  • Audit your home energy use
  • Use less water by installing low-flow shower-heads and faucet aerators to reduce water usage and costs.
  • Go generic on your food and prescription drugs if that’s an option
  • Exercise. Ultimately prevention is always better than cure. This should lower your health care bills in the long run.
  • Brown bag your lunch. You’ll not only eat healthier but also cut food costs


Final Thoughts on Retiring Early

It might seem like a pipe dream, but retiring by 40 is completely possible.

Let’s do quick math. I know, I know, but stay with me.

Assume you make $60,000 a year, throughout your career. Yes, you start lower, but you finish higher. You work from 20 to 40. That’s 20 years.

Throughout that 20 years, you adhere to the above advice, and save diligently. Almost half your income in fact. On a monthly basis, you put $1,600 away into your savings account.

Now, the average return on the stock market and mutual fund investments is 7%. So let’s use that.

Based on these numbers, when you retire at 40, you will have a nest egg of about $1 million dollars. Yes, $1 million!

Take our 7% average return, and $1 million dollars will give you a yearly income of about $70,000 before taxes. Not too bad for a retirement fund!

Thousands of people just like you have successfully accomplished this.

The key is to start following the tips above as soon as possible. There’s no time like the present!


Please let us know in the comments section below your best tips for early retirement…and whether it’s worth it for you?

Editor’s note: This post was originally published in Nov 2016 and has been revamped and updated for accuracy and comprehensiveness.

About the Author Glenn Carter

Glenn Carter is a sharing economy expert and is sharing his passion for side income through new digital platforms with his readers.

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