Today we are pleased to have fellow blogger Ben Davis of Cents to Retirement share some money saving tips that just may help you have the funds necessary to retire early.
In late 2012/early 2013 I developed the Chronic Fatigue Syndrome (CFS) presumably as a consequence of a very stressful work environment while doing my PhD. CFS made me re-think my entire life and in late 2014 I put together a master-plan to retire early. In particular, I thought I had 5-10 years before CFS would prevent me entirely from having a job. I remember the day I sat down with a bunch of papers and a calculator, and I started to assess my finances like I hadn't done before. I also remember that I went to fine detail with all my expenses, and I wrote all of them to the tune of dimes. I discovered memberships I was not using anymore and high fees that hadn't to be there. I knew right away that the first step was to remove all those expenses.
My early retirement plan is quite simple: I chose a cheap country to retire in (Portugal) and as a result I only needed a salary of about $1600/mo in today's dollars to be able to retire. Therefore, I didn't need a gigantic portfolio to be able to retire – I believe that a $700k portfolio will do the trick. Plus, I specialized in deep value real estate deals, which made the job easier. In fact, if you look to my stock portfolio right now, you'll find out that I only have minor positions as I expect a market correction soon and I am waiting for the right moment to enter the market. In this period, I read over 100 personal finance and investing books, learning everything there is to know about personal finance and investing (I publish reviews of these books on my blog – e.g. check out my Rich Dad Poor Dad summary – so you don't even have to buy them to start learning) I also found many early retirement and finance blogs that ultimately gave me the confidence I needed to start putting my plan into practice. With my master-plan put together, all I needed was execution.
When I say that I want to retire by 33, I get all kinds of looks and questions. Most of the people that believe in it (which is a reduced percentage of people), ask me what is the most important thing in the plan. Most well planned retirement plans revolve around a great combination of earning, saving and investing. In my particular case, I think that the most important angle is extreme saving and frugality. And that is what I want to talk about today. In the following, you'll find out exactly what I consider important to execute my plan successfully.
The most important way you can save money is on your day to day expenses. I have published an extensive list of saving tips and techniques on my blog, but I would like to explore a few of those points in more detail. You'd be surprised with how much money you can save by simply turning the lights off more often or take a walk to work instead of driving there (when possible). However, the following techniques are something that work better at a more structural level:
- Cash out the money you'll need for the week / month and leave your card at home. Do you know that people, in general, are way more reluctant to spend cash than money on their cards? Here's what I did when I started to save aggressively: every Sunday I would cash out the money I needed for the week, from an ATM, and hold the cash throughout the week. Of course that it was very important to have a list of products I needed to buy and how much they would cost.
- Write down ALL your expenses. OK, so using a brain trick that makes you hold onto your cash in a more effective way won't do the complete trick unless you know exactly where you're spending your money on. I use to write down my expenses and kick myself when I spent money that I felt was not worth spending. Today I actually look at it differently – I ask myself how much happier will I be if I spend that money. Either way, it was effective: I found myself spending money on one or two products once and once only. I'd kick myself so much that I would naturally reject to buy the same thing again when I came across it.
- Convince yourself you're spending more money than what you actually are. I would actually come home and through a few bucks to a bucket. Because I knew that I could only live off of the money I had in my wallet (as I didn't allow myself to use cards), I had to be extremely effective in managing my money. This has helped me saving thousands of dollars over the years.
These are tips that can be used by many people, regardless they make 30k or 300k.
Saving in investments
I am pretty much hands on when it comes to my investments, in particular real estate, when my health allows me to. On my blog, I often publish resources for Real Estate investing, including free real estate books, pro forma examples or how to get rid of couches. The way I started to save money on my investments was to assess the expenses with my real estate properties and determine which ones were the biggest ones. I concluded that I spent way too much money acquiring tenants. In Portugal, this usually costs an amount that is equal to the gross monthly rent. In fact, because you have to pay taxes on your rental income, it actually means something like two months worth of rent. Therefore, I started a Facebook page to promote my real estate. Currently, I can show my real estate properties to thousands of people for free through my Facebook pages and I usually find tenants quickly. This saved me a lot of money so far am I am sure it will continue to save me a lot of money in the next years.
Benjamin Davis blogs at From cents to Retirement, a blog that details his journey to retire early in his early 30s. Recently, Ben published his first book, entitled “My strategy to retire early“. Ben developed CFS during his early 20s, while doing his PhD, which motivated him to pursue financial freedom. He believes that the right path to retire early is hustling hard to increase income, saving aggressively and investing wisely. Currently, Ben is on track to retire at 33 years old. His long term goals include making From Cents To Retirement a reference blog for early retirement, inspiring others with his own story, owning 100 homes and retire in the coast of Portugal.