How to Retire Early (6 simple steps)

There’s a lot of buzz on the internet about retiring early. The FIRE (Financial Independence, Retire Early) community is getting both kudos and criticism on unprecedented levels.

Retiring early might sound "out there", but FIRE movement people everywhere are finding that it provides them with unparalleled freedoms well before full retirement age.

Imagine having so much money that you work because you want to and not because you have to.  Or, imagine being able to take a lower paying job that allows you to achieve your dreams or make a difference in the world because you don’t need the money.

For those of you who want to know more about how to retire early, we’ve got you covered.  We’ll share six crucial steps you need to take if you want to retire early - no financial advisor needed.

We’ll also tell you what it means to retire early and how much income or money you need to have to do so.

6 Simple Steps to Early Retirement

1. Adjust your perspective on spending
2. Create an early retirement budget
3. Find ways to bring in more money
4. Invest your extra cash
5. Pay off your debt
6. Stay on course

The steps to get to early retirement are pretty no-nonsense. However, you have to be willing to take those steps.  This is where most people get hooked up.

They’ll start the steps toward achieving early retirement and then lose steam. They start to get too comfortable as they see their net worth rising. 

Or, they get tired of being disciplined.  There’s no arguing that getting to the point where you can retire early takes discipline.

Do you have what it takes?  If so, start on your own path to early retirement. After all, a journey of a thousand miles begins with a single step.

1. Adjust your perspective on spending

The first step you’re going to want to take if you want to retire early is to adjust your current spending.  Most of us piddle away hundreds of dollars a month or more on stuff we don’t need.

All of those drive-thru runs, coffee shop stops and big box store excursions equal money you could be putting toward early retirement.

It’s time to change your personal finance mindset and start redefining where your values lie.

Value-based spending

One way to do this is through a value-based spending perspective.  Here’s the deal: sometimes people get hung up on budgeting because they think a budget is going to take away all of their “fun”.

In truth, a budget done right is just a tool to help you determine what’s fun (i.e. important) to you.  For example, your budget should begin with a list of all of your monthly expenses and annual expenses.

Start with necessary expenses such as housing, food, utilities, health insurance and other insurance costs.  Then determine monthly budget amounts for non-necessities.

Both necessity costs and non-necessity costs can be higher than needed and thus take money away from saving and investing.  For instance, you need clothes to wear.

However, do you need top-of-the-line name brand clothing bought at full price?  Probably not.  Even if your job requires you to dress in high-end clothing, you don’t need to pay full price.

Instead, you could shop for gently used name brand clothing on a site like Poshmark.  Or, you could resolve to save money by only shopping the clearance rack for your favorite high-end clothing brands.

Food is another budget category that can get out of hand quickly. Yes, you need to eat; however, you don’t need to eat sushi three times a week and you don’t need to eat out.

Look for ways to save money on groceries by creating a menu plan and eating at home. And when determining what you want to spend on non-necessities, practice value-based spending.

Ask yourself: “What is more important to me; this restaurant meal or retiring early?"  Doing this kind of cost comparison with potential expenditures will help you get perspective on what you truly want out of life and how you can achieve financial independence.

The end goal: have more fluid income each month.

2. Create an early retirement budget

As you start learning which of your purchases brings value to your life and discarding the ones that don’t, you’ll be able to revamp your budget.

The goal? Find as much extra money as possible to go toward your early retirement fund.  As you create a new budget, consider adopting a “challenge everything” mindset.

In other words, look at all of your estimated annual expenses and figure out a way to either reduce or eliminate them.

Some examples are:

• Shopping around for car and homeowners insurance to find lower rates.
• Canceling your gym membership and working out at home.
• Cutting salon costs by DIY-ing certain services or going less often.
• Canceling magazine, streaming and other subscriptions that aren’t necessities.
• Limiting your kids’ extracurricular activities.
• Foregoing expensive entertainment options for free ones like watching movies at home.

The more expenses you reduce as you create your new budget, the more ways you’ll save money to put toward your early retirement fund.

3. Find ways to bring in more money

The next step in your plan to retire early is to find ways to bring more cash into your life with additional income streams.  Believe it or not, this is not as difficult as it may sound.

Here are some tips for optimizing your cash inflow and building up that early retirement savings vehicle.

Optimize your main job’s income

The first place to start if you want to bring in more cash is to be sure you’re optimizing your income at your main job.

Ask yourself questions such as:

• Am I due for (and do I deserve) a raise?
• Are there additional duties I could take on to warrant a pay increase?
• Is there a higher position in my company I could apply for?
• Could I be making more in my field if I worked for another company?

Here’s the deal: You need to start believing in yourself.  Believe that you deserve more out of life. And know that believing that begins with living and working in a way that promotes integrity.

In other words, be the guy or girl that people watch and say “That guy (or girl) is great at his job” about.  Be the person people want to mimic.

Be the person that your boss knows he or she can count on.  Earn that raise or promotion before you get it, so that you can put yourself in a position to ask for it.  

Show up early, stay late, do the extra work and work in a way that benefits your company.  Then, when it comes time to ask for that raise or promotion, tell the powers-that-be why you deserve it.  

And back up your requests with facts and examples.  Work to maximize your main income, and then consider these other ideas for bringing in more money.

Start a side hustle

A side hustle is a second job or an on-the-side business you can work in your spare time.  Here are some ideas for side hustling.

Pick up a second job

Part-time job opportunities are everywhere. Choose one for yourself based on your skills and interests.  Scour Craigslist, job sites like Indeed, or stop in at local businesses to ask if they’re hiring.

You could do jobs such as:

• Cashier or stock work in retail stores
• Work as a server, hostess or cook at a local restaurant
• Deliver pizzas
• Work at night cleaning offices
• Work on weekends as a brand ambassador

There’s typically always a demand for part-time workers in these types of industries.  Decide which type of job is best for you and go find work.

Freelance your skills

Another way to side hustle is to freelance your skills. If you’re good at writing, you can work as a freelance writer. Do you like graphic design?

Offer your graphic design services on a site like Flexjobs.  Or create a Redbubble or CafePress account and start uploading your own t-shirt designs.

My oldest daughter does this and gets a tidy little check every month.

• Do you like to drive?
• Are you a good driver?
• Why not use that skill to work for services like Uber or DoorDash?

Earn money driving people around in your spare time.  Make a list of your skills and start searching the internet for ways you can use them to freelance.

Start a small business

Another option for side hustling is to start your own small business.  Start a babysitting or pet care business. Or, start mowing lawns for people in your neighborhood.

How about starting a mobile car washing business?  If you live in the south, you could clean pools.

• Are you good at fixing things?
• Why not start a handyman (or handywoman) business?
• What about renting a spare bedroom in your house on Airbnb?

If you live in an urban area or close to a major city--or even if you don’t--you might be able to make some serious cash by renting a bedroom out.

Small business opportunities are everywhere, and your startup doesn’t have to be a big, formal thing.  Just start as a sole proprietor, keep track of your income and expenses and go from there.

Sell your stuff

Another option for adding another income stream is to start selling your stuff.  What do you have in your drawers, closets and basement that you don’t need? 

• Can you sell your gaming system?
• Sports equipment?
• Pare down your clothing and accessory collection?
• What about housing?
• Can you find a place with cheaper rent?
• Get a roommate?
• Downsize your house to something that costs less?
• Can you trade in your newer car for a reliable car that costs less and eliminates your car payment?

Think outside the box and find stuff you can get rid of.  Sell things you don’t need and put the proceeds in savings for your next step toward early retirement.

4. Invest your extra cash

Okay, you’ve got your head in the right place as far as budgeting and saving. You’ve worked hard to increase how much monthly income you bring in.

Now it’s time to start investing that cash so you can grow your earnings in a passive income sort of a way.  If you’re new to investing, the thought of giving your money to a company to invest in the stock market with the promise they’ll give you more back might sound scary.

And I get it.  You’re trusting what amounts to a total stranger with cash you’ve scraped and sacrificed for.  But know that investing is key to a successful early retirement plan.

Big-time billionaires like Warren Buffett swear by it.  And I’ll tell you a secret: The key to investing well is understanding your risk tolerance and understanding the investments you choose.

Take a risk tolerance quiz

Taking a risk tolerance quiz is a good place to start. The results will give you an idea of what types of investment accounts and investment strategy will allow you to invest with peace.

For example, I have a low risk tolerance level. Some people get excited at the prospect of high returns on their investment--even if it comes with high risk.

Not me. I’d rather take lower returns and know that my money is less at risk to be lost.  Luckily, there are several options for low-risk investments.

The thing about investing is that you have to be able to sleep at night regarding the investments you choose.  If you are choosing investments that are outside of your risk tolerance zone, you won’t be happy.

Start learning about investing

Another important step as you invest your savings is to start learning about investing. There are several good books out there that can help you do that.

Here are some suggestions.

• The Intelligent Investor by Benjamin Graham
• The Essays of Warren Buffett by Lawrence Cunningham
• The Little Book of Common Sense Investing by John C. Bogle
• One Up on Wall Street by Peter Lynch

I know that learning how to invest can feel overwhelming at first.  However, the more you learn about investing, the more comfortable you’ll be with investing your money for growth and prosperity.

Work to find balance in your investment portfolio

Last but not least, work to create a balanced portfolio that compliments your risk tolerance level.  For example, if you have a low-risk tolerance that doesn’t mean you should avoid higher-risk investments altogether. And vice versa.

Low-risk tolerance people might want less high-risk investments. And high-risk tolerance people might want less low-risk investments. But everyone should have some of each.

Diversity is key to investing success. As a popular investment saying goes, “Never put all of your eggs in one basket”. Why not?  Because if you drop the basket (i.e. if the investment fails) you’ve lost all of your eggs.

5. Pay off your debt

One major hindrance to early retirement is debt. It’s important that you eliminate all debt as soon as possible if you want to retire early.  It doesn’t matter whether it’s consumer debt, student loan debt or mortgage debt.

The less debt you have, the less money you’ll need to retire early.  You’ve taken the steps to maximize your annual income, and you’ve learned how to invest in a way that suits your personality.

Now you might be wondering what should come first: paying off debt or investing.

Pay off debt first or invest first?

Some people choose to eliminate their debt first. Others choose to save and invest first.  And still, others choose a combination approach. The combination approach is my favorite.

Take some of your money and start investing and earning compound interest.  At the same time, work hard to pay off your debt quickly.

This is especially important if the interest rates you’re paying on your debts are higher than what you’re earning from investments.  If that’s the case, it makes more sense from a money perspective to get rid of the debt first.

However, the important part is just to get it paid off before you retire. Work to have a goal that you won’t retire while you still have debt.

6. Stay the course

Step six is likely the hardest step you’ll face when working to achieve the ability to retire early.  Here’s the deal: distractions and discouragements will come on your road to early retirement.

The car will break down. The roof will need to be replaced. You’ll have opportunities to spend a lot of money on fun stuff!  And it may be more tempting to spend on that fun stuff as your net worth grows larger.

Or, it may be tempting to give up on your early retirement dreams if you’re hit with a few financial blows.  Your job is to keep your “why” at the forefront of your mind.

Remember why you want to retire early and what early retirement will give you.  And keep revisiting that “why” regularly--especially when you’re tempted to get off course.

Don’t let pride or circumstances lead you off course. And when your course needs adjusting, make the proper adjustments.  Revisit your budget and your investment choices.

Monitor your course monthly and make changes as needed. You’ll get there eventually.  Now that you know the steps you need to take to retire early, you might be wondering what life is like for early retirees.

What does early retirement mean for you?

Early retirement is nothing more than having enough money in savings and investments that you no longer have to work.  Early retirement doesn’t mean you sit on your tail and never work again.

This is what some of the early retirement naysayers focus their criticisms on.  Yes, some people who retire early sit on their tails and play video games all day.

Or get into “hobbies” that aren’t especially healthy. However, smart early retirement isn’t like that.  The truth is that early retirement is nothing more than a tool for financial freedom.

It’s the freedom to do what you want to do.  That might mean working at your dream job for little or no money. Or, it might mean traveling the world.

Maybe it means starting up a ministry to help people in a way that is important to you.

Purpose is key

The important thing is this: When you have enough money to retire early, you’ve got to ensure you still have a purpose in life.

You’ve got to be making a difference and using your time in a healthy and positive way.  Maybe that means teaching classes at your local Community Center. Or volunteering for a cause that is important to you.

The point is that you need to be needed and to have a mindset that purposes to be useful.  If you do that, early retirement will be a good thing. If you don’t, early retirement can be a bad thing.

Here’s an example: I knew a guy once that inherited millions of dollars from his parents.  He quit his job and spent his time doing whatever he wanted to do--without any purpose.

He basically spent his days indulging himself on whatever he fancied.  After several months of this, he ended up depressed and addicted to drugs.

He “had it all”, yet he had nothing.  He was at risk of losing his wife and kids.  When he finally woke up to his innate human need for purpose, he got his act together and started looking outside of his own indulgences.

He’s now happy, healthy and making a difference in the world.  Life is not about money: it’s about purpose. Keep that in mind as you work toward early retirement and all will be well.

How much money do I need to retire early?

So, how much money do you need to retire early?  You can figure that out with a simple formula.

Create a post-retirement budget

Start by creating a post-retirement budget.  How much money will you need to cover your retirement expenses once you’ve finished work?

Your debt should be gone, so you’ll only need to account for basic living expenses, taxes and money you want to fulfill your post-early-retirement dreams.

Make your budget--and be a little generous. Add ten percent or so as a buffer for unexpected expenses.  And don’t forget to consider future expenses such as health care expenses when you’re older.

Maybe you’ll want to save 401k or other savings for those types of expenses and use your non-retirement savings for your pre-sixty-five life.

Just be sure you have a financial planner in place to cover “now” and “later” expenses.

Multiply your post-retirement budget

Your next step is to multiply your post-retirement budget by the number of years you want to support yourself.  For instance, let’s say you need $3,000 a month in post-retirement.

You want to retire at 40 and have enough money to support yourself until you’re 90.  $3,000 x 12 x 50 (years) = $1,800,000. This means you’ll need $1.8 million to retire at 40 if you want to survive on the cash for 50 years.

And the really good news is that if you’re wise with your investments, you could live forever on the money in your retirement accounts.

For instance, if you earn an average of at least two percent interest on your $1.8 million, you’ll be able to take $36,000 per year as retirement income and never touch your $1.8 million, provided you’re including money to pay taxes in your $36k.

This is the power of investment interest, and this is why investing wisely is so important.

Next Steps

Now you know the steps you need to take to retire early and to be able to stay retired.  What’s stopping you?  Create your own play for early retirement and start dreaming big.  

It's time to start retirement planning for the future you want to have.