The idea of retiring early is one that appeals to many of us. We work hard, we don’t want to wait until we’re too old to really enjoy ourselves before we stop. We want to retire while we’ve still got plenty of time to enjoy good health and an active lifestyle. We want to be able to reward ourselves for years of hard work with even more years of joy and pleasure. In fact, it’s thought that one in four 18 to 34-year-olds have set early retirement as their big financial goal, and websites and blogs focused on FIRE (Financial Independence, Retire Early) are becoming more popular all of the time.
But, while retiring a few years early might be very doable without too many lifestyle changes, and just a normal level of saving, if you want to retire much earlier, say in your 50s or even 40s, it’s going to require a big effort in most cases.
Being able to retire so young means that you need to save hard for a long time. Most people practicing FIRE aim to save at least 50% of their monthly income, and more when they can afford to. Unless you have a very high income, this might mean that you need to live very frugally. That might sound a little scary, but the good news is, it’s definitely possible.
What Do We Mean by Living Frugally?
You’ve probably heard the word “frugal” in relation to budgeting and saving money plenty, especially if you’ve done some research into very early retirement. But, what does it actually mean? Frugal living is about much more than saving a little when you can or making a few small changes and cutbacks when money is tight.
Living frugally means being very intentional with your spending. To live frugally all spending must be done mindfully. When we live frugally, we spend as little as possible on the essentials, and never any more than necessary.
How to Live Frugally
Most of us have practiced a little frugality from time to time when we’ve overspent or need to save for something specific. But, living like that all of the time is very different. Here are some of the ways that you can live frugally, helping you to hit that early retirement target.
Create a Realistic Budget (and Keep it Up to Date)
One of the most important elements of a frugal lifestyle is a realistic, and fluid, budget. Work out how much you want to save each month, and how much you need to spend. Set individual budgets for things like food, transport, utilities, and entertainment, and break them down as much as possible.
But, to be useful your budget needs to be realistic. Part of this means understanding that your budget won’t be the same for your whole working life. Your needs will change, your expenses may grow, your income could rise, and your priorities and situation could change a lot. Get into the habit of accessing your budget and making changes regularly to stay on track.
Get Your Priorities Straight
It’s important to know where your spending priorities lie. For most of us, food and housing are high priorities, but you may have others. Think about what you need, what you can’t be without, what you are happy to spend more on, and where you think you can live with the biggest cutbacks.
Become a Savvy Shopper
Living frugally isn’t easy, but, if you become organized and savvy, it doesn’t have to mean missing out as much as you might expect. Get into the habit of always comparing prices before you spend money, and you’ll get some great deals. Using cashback sites or cards can even mean that you make money when you spend.
One of the biggest ways to save and the easiest places to be a savvy shopper is your food shopping. Start making meal plans and shopping lists, shopping in budget stores, buying cheaper brands, and shopping in the reduced sections can help you to drastically slash your food bill, without neglecting taste or nutrition.
Always Consider the Long Term
When we’re being frugal it’s tempting to always buy the cheapest option, but this can create a false economy. If you need new shoes, buying the cheapest pair can mean that you need to replace them quickly. Buying a more expensive, higher quality pair, either second hand, or on sale, can mean that they last for much longer, and your long-term expenditure is reduced. When you spend, don’t just think of the here and now.
Create a Rainy-Day Fund
Let’s face it, as much as we try not to spend money, things happen. Unexpected expenses often crop up at the worst possible time. Without preparation, this can mean that you are forced to get into debt (which should be avoided as much as possible if you want to retire early). Instead, make sure you’ve always got an emergency fund in a high-interest, easy access account.
Boost Your Income
Of course, one of the best ways to save more is to earn more. Working hard and gaining promotions and pay rises is the best way to do this, but side hustles are a great way to boost your income and your savings pot.
Become a Saver
It’s all well and good living frugally, to save money for your retirement. But actually, how you save that money is important. Even with a frugal lifestyle, many people find that if they have money sitting in their account, they splurge from time to time, often when their mood is low and they need a pick me up.
To retire early, you need to save your money carefully, making the most of any excess that you manage to create by living frugally.
Use a Registered Retirement Savings Plan
A registered retirement savings plan is a great way to make your plan to retire early a reality. Wealth Simple offers this easy way to save tax-free for your retirement, and even upon withdrawal, the tax that you’ll pay will be marginal. Explore Wealth Simple to learn more, and to find other great ways to save and protect your money.
Investments are another great way to make your money work for you. Get advice from a professional, and consider any risks very carefully before making any large investments.
Move Your Money Around
So many of us are guilty of leaving money in a bank account out of loyalty, or because we worry that moving it will be difficult. This can mean that we’re missing out on higher interest or facing large charges.
Moving money is easier than ever. So is comparing interest and other perks. Get into the habit of checking for better returns and move your money around to keep it earning the most interest.
Keep Up to Date with Financial News and Developments
Part of having your money in the right place is understanding investments and financial markets and services. Living frugally probably means that you won’t want to spend too much on advice and professional services, so make sure you keep up to date with any changes and developments, as well as the latest fintech products and services.
Learn More About Your Own Savings Habits
Are you a good saver? Some of us are great at it, and others, even with a strict budget, struggle. If you aren’t good at saving, you might want to keep some of your money in investments and long-term accounts, so that you don’t have easy access to it. You might also want to use savings apps, to save small amounts little and often. This can be a great way to grow a rainy day or emergency fund.
Living well within your means, and being a savvy saver are two of the most important elements when it comes to saving for early retirement. But it’s also imperative that you start as soon as you can.
Ideally, you want to have started mass saving in your early 20s if you are aiming to retire in your 40s or even 50s. But if that ship has sailed it isn’t too late. On the downside, you’ll have more to save, and less time to do it. But, on the upside, you might earn more now than you did in your 20s and saving might be easier to manage.
If it’s your financial goal to retire early, start today, no matter how old you are, or what your current financial situation looks like.
Care for Your Mental Health
Living extremely frugally can be tough. Seeing all of your friends enjoying luxuries, treats, and holidays can be hard, and you might find yourself feeling jealous and as though you are missing out.
While you want to retire early, you don’t want to spend your working life miserable, jealous, and depressed. So, make sure you take care of your mental health. A small treat fund can help, and there are plenty of ways to treat yourself without spending much or anything at all.
The most important thing, when you are finding it hard, is to remind yourself of why you are being so cautious with money. Make plans for your retirement, think about how other people will still be working when you have years of fun ahead of you.
Yes, you can retire early by living frugally. But you need to be savvy, you need to be committed, and you need to work hard.