The Only 2 Steps to Early Retirement Are Saving Money and Investing It Well

If you want to retire early, you only need to do two things: Save money and invest it well. Most people think they’ll naturally be good at these tasks. They also think they’ll actually do them. Needless to say, most people are wrong, and that’s why almost no one retires early.

Let’s consider an example:

When you throw around the word “debt,” most people shudder. Surprisingly, no one bats an eye when you announce you’re buying a house – which is just about the biggest chunk of debt you could possibly put on your shoulders.

The idea that mortgage debt is different from any other debt is an old wives’ tale. It’s one of many that have snuck into our culture disguised as “common sense.” “If you pay the rent, you may as well use it to pay off the mortgage!” “Real estate always goes up!” These are ideas, not truths.

Meanwhile, the data suggests families stay in their homes for nine years on average. That’s far from the 30, 40, 50 years most families are planning to stay when they buy. If your house increases 6% in value each year over those nine years, you’ll have gained 70% overall. That sounds like a lot of money, but if you deduct buying and selling fees, property taxes, maintenance costs, and the interest on your loan, you’ll likely make a small profit at best.

Index funds, on the other hand, are considered boring. They’re not a sexy investment. They barely feel real! After all, they’re just numbers on a screen. You can’t touch your index funds, and even if you could, they still wouldn’t look as snazzy as a three-bedroom house. What they are, however, is a safe, proven, consistently well-returning financial instrument.

Historically, the stock market returns about 8% each year on average.

If your index funds match those, they’re likely to move you towards early retirement quicker than a house. You’ll also have better access to the money, as you can sell the funds at any time. Finally, index funds have very low fees that won’t eat away your profits. As you can see from this simple example, investing wisely is trickier than you’d think. There’s always more than one side to consider, and listening to society’s opinion of the day will often only get you into trouble.


The most important and even more neglected part of retiring early, however, is saving money.

Why? First, the more frugally you live, the less
money you’ll need to retire. Second, the more money you save, the more you can put into your portfolio, and the faster you’ll build the steady return retirement fund you need.

Saving starts with awareness. Sooner or later, you’ll have to sit down and figure out where your money is coming from, and where it’s going. First, do this at a high level. Start slowly. Then, dive deeper. Make a spreadsheet. How many expenses from last year can you track down? How much did you save? Look at your main expenses. How much did you spend on rent? How much on food? How much on transportation?

Those are usually the biggest levers we can pull, so it makes sense to pull them first.

The FIRE (Financial Independence, Retire Early) community is all about savings rate. If you save 10% of your money, it takes nine years to save up one year of expenses. At a 50% savings rate, you’ll have one year’s worth of cash in the bank for every year of work. That’s an insane difference.

Being a diligent saver does not mean you have to give up every little treat you enjoy, but the only way to achieve financial independence as fast as you can is to save as much of your income as you reasonably can. This may sound obvious, but most people don’t think about it this way. They never consider their own speed vs. their own maximum speed because they’re too busy looking at how fast other people are going.

Even in developing countries, discretionary income is becoming a thing.

Nowadays, many people around the globe could easily save 30% of their income. Few actually do. Unless you live in a very expensive place, you might even find you can save 50% or more. Would it be so bad to eat out once a week instead of twice? Do you really need a car? Might public transport be cheaper? These are questions worth considering.

Saving and investing your way to freedom is the first step. Once you do, you’ll have all the time in the world to earn even more and afford the lifestyle you truly desire.

Action Item: Get an overview of your earnings, spending, and investments

Save money. Invest well. Two steps, that’s it. Once again, it all starts with awareness. Money is just a stream. It flows into your life, and it flows out of it. But if you don’t know how much of it goes either way and through what channels, how can you expect to affect the currents in your favor?

If you’ve never done it before, taking stock of your finances can seem like a daunting task, but it doesn’t have to be. You can do it four minutes at a time.

If you don’t keep a budget already, add up your grocery bills of the last month today. That’s doable, right? If you’re already budgeting, make a list of your various saving pots. Which bank accounts hold how much money? If you’re already doing that too, make a list of your investments.

Can you note all stock purchases of the last month in a spreadsheet? And if you’re keeping detailed tabs on everything already, just glance over your records today.

Use awareness to stay on money’s heels at all times. Then, whenever you catch some, all you’ll have to do is save it and invest it well.

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