Finding the road to early retirement

The road to early retirement is a lonely one. The few travellers are restricted to lucky Lotto winners, genetically blessed athletes, and successful entrepreneurs - right?


Most people scoff at the idea that hardcore saving and clever cost comparisons can be enough to put you on the fast-track to financial freedom.

But personal finance blogger Mr Money Mustache knows firsthand that millionaires are made $10 at a time.

Our friend is Canadian-born and now lives in Colorado, in the United States, so we'll forgive him the missing "o" in his moniker.

Otherwise known as Pete, his philosophical musings combined with brutal, punch you in the face honesty have earned him a cult- like following of devoted "Mustachians" around the world.

The story at the centre of it all is simple. Already naturally frugal, Mr Money Mustache applied his engineering brain to work out the best ways to prune household expenses.

His wife got on board, and all the savings were channelled into share index funds and rental property.

At age 30, MMM had enough stashed away to quit his job, start a family, and live off the passive income forever.

Here he offers his unique take on early retirement and the disease of consumerism, as well as tips for growing your own luscious stash.

Did you truly retire at the age of 30? Surely you must have won the lottery, or perhaps run a sideline manufacturing meth?

My wife and I really did retire from our pretty good jobs at that age in order to start a family. It's hard to believe it has been almost eight years now.

But there was nothing amazing about what we did - we simply lived moderate lifestyles (like what a pampered student might live in university), while earning higher salaries. This let us save about 65 per cent of our take-home pay, which if invested leads to enough money to retire on in under 10 years.

You and your wife had high- level jobs and one year had a combined income of US$160,000. Many of us will only ever earn a fraction of that sum - what hope do we have?

The odd part of the math behind this is, it doesn't matter so much what you earn, but rather how little of your income you can live on. It's all about the savings percentage. Obviously, it is easier to save more when you earn more, but people of all incomes manage to spend everything they earn, so there is some wiggle room.

We were actually pretty sloppy and inefficient compared to many other savers. So even people with half our salaries could accomplish the same thing within just a few more years, with slightly less luxury spending.

Conventional financial advice holds that earning more money is a more powerful tool than trying to spend less. What's your take on this?

It is very powerful - if you get your savings muscles built up first. Otherwise, you might just spend all of that powerful new income.

Extra money is of very little use when you spend it - it only takes on power when you reinvest it and let it start generating its own income. Only once you have truly passive income from investments, can you really afford to spend freely.

If you're already well past 30, have a young family to raise and a whopping great mortgage, isn't it too late to bother?

I'd say there's never a bad time to start living a simpler and better life, and amassing some more wealth as a side effect. You'll be happier and stronger for it, and every dollar you save becomes a permanent employee that will work for you for the rest of your life. Start building your staff - you'll soon be needing their help.

The global economy sucks. How can I get I get good enough investment returns to make my savings keep up with inflation?

What part about the economy sucks? We're at, or close to, the highest level of prosperity the human race has ever experienced in its existence! The key is to take a longer-term view, instead of focusing on the current low-yield environment.

If you buy low-fee index funds that represent the world's stock indexes (in the US you can get perfect funds through Vanguard), you'll do just fine. I also enjoy dabbling in rental houses and peer-to-peer lending, but owning productive assets is always the key - not just money in the mattress or a savings account.

What's your typical reaction when people write to you saying they owe money on a credit card or other form of high-interest bearing debt?

Great and furious anger! It is just plain wrong to let a credit card go unpaid or borrow money to buy anything other than a profitable investment.

If you ever end up with this kind of debt, it needs to be viewed as an emergency, where all of your income goes towards paying it off - no luxuries, no breaks, live on a friend's couch. Only at that point are you ready to relax a bit and work on your plan to start building some real wealth.

Do you use a budget?

No budgets here - I've never used them. Spending is more of a philosophy. Instead of saying, "Is it convenient? Will I enjoy it?", you ask yourself, "Is this thing really essential to increasing my lifetime happiness, even if it means I am trading some of my life away to buy it? Would I rather have my freedom sooner, or this big-ass television?"

Sometimes you still choose the big-ass television, but at least you've thought about what you're giving up.

If you're constantly being frugal, how do you ever enjoy the finer things in life?

The finest things in life are free time, family, friends, and nature. And maybe a good beer or two thrown in. All of these things cost very little.

Now, having said all this, I do still have a weakness for the occasional fancy thing myself - my house, for example, and bikes and good food and travel. There will be plenty of time to accumulate these things too, but it works out better if you keep it in balance with the concept of also buying your freedom. Stay on the trailing edge of luxury and you still get to live a modern life, but at about 75 per cent lower cost than your ultra- consumer friends.

Can you explain your own unique take on what it means to be retired?

If you stopped doing anything, you'd definitely be bored. But my definition of retirement is: "You no longer have to work for money. But you are free to do whatever you like, which may include paid or unpaid work of any type."

Since retiring myself I have built two houses from the ground up, renovated a dozen other ones, raised my boy to age seven, started a blog, volunteered on loads of projects, and learned more things and had more fun than I had in the entire time I was working. It's busy, but very satisfying work.

Quick-fire list - what are the simple things you can do that will lead to financial independence?

The biggest thing is not burning up all your money in cars. Live close to work, ride bikes, and cultivate a local lifestyle. Also, make your own food, buy high- quality used goods instead of cheap new ones, and always run the numbers so you can optimise things instead of buying based on whims and emotion. Learn about simple long-term index fund investing. And enjoy the lifestyle - embrace hard work and effort as the things that make life worthwhile. So you'll become happier even as you get richer.


When can you retire? If your household earned the average income of $81,000, here's how much you'd have to save each year to retire early:

$8100 (10%) 51 years

$16,200 (20%) 36 years

$24,300 (30%) 28 years

$32,400 (40%) 22 years

$40,500 (50%) 17 years

$48,600 (60%) 12 years

$56,700 (70%) 9 years

$64,800 (80%) 6 years

$72,900 (90%) 3 years