In Money magazine's February issue, they list three steps needed to retire early:
- Live below your means. Live in a low-cost area, send your kids to public schools, and drop the vacation to the Caribbean for day trips to a nearby beach.
- Set lofty goals. The old "save 10% of your income" rule isn't enough for extreme early retirement. Aim instead to sock away 20% to 25% of what you make.
- Be allergic to debt. People who retire early aren't deeply in debt.
Here are some thoughts from me on these:
1. Ha! I couldn't have said #1 better myself! (Though I would have said "spend less than you earn.") :-)
2. Yes, you can save a bundle by living in the right city.
3. You don't have to give up everything to retire early. Who would want to do that anyway? Let's have a little fun along the way! But I think a big vacation EVERY year is probably out of the question for most people. Besides, close-to-home trips are some of the most fun ones there are.
4. Not only look to save money wherever you can, but also look for ways to earn more money. This makes it easier to sock away a boatload of money as well as enjoy a few of life's extras along the way.
5. There's a reason why all the people who claim debt is a good thing are still not retired. ;-)
If we consider a good education one of the best investments, then there may be plenty of good reasons to send your kid to a private school.
Posted by: cephyn | January 29, 2008 at 11:39 AM
Agreed with cyphyn. If you get a good degree in a right field, you may be able to save over 25% of your salary and still afford the Caribbean vacation.
"Spend less than you earn" is a good generic advice. Some people need to give up Caribbean vacations, others can afford both trips to Europe and the Caribbean, and still save (as long as they fly coach and look for good deals). Granted the latter are in the minority, but if you get a good degree and buy a home below what you can afford, you just may be among them. It really is a matter of priorities. If you can afford $2000 a month mortgage, but buy a place with $1000 a month mortgage instead, then you can easily spend a $1000 for Caribbean vacation and still have $11000 left.
I always take exception to "live in a low-cost area" suggestion. If your profession is such that you can only get a job in a high-cost area, then you wouldn't save by living in a low-cost town and be unemployed. If you can get a boring job in a low-cost area and an interesting job in a high-cost area, should you get a boring job and count years to retirement?
Posted by: kitty | January 29, 2008 at 11:59 AM
I really can attest to the power of living in a low cost area. I live in a mid-size city (150-250k population) in the Southeast and the cost of living is wonderful (18% below the national average). The median house price is $187k and the median income of ~$64k provides quality of life equal to $161k in San Francisco. I bought a brand new 2000 sq ft home with tons of "upgrades" for two times my salary. The unemployment rate is half the national average and in the last few years there has been strong growth in jobs, population, and home prices (yes, local home values went up 1.56% in 2007). I have lived in 7 different states and my family is from Chicago. I never would have picked to live down here if work had not brought me here, but now I love it and would never move back up to the expensive North. If there is something I want to do in NYC or San Francisco I'll visit for a week, but I will never live there even for twice the salary.
Posted by: Adfecto | January 29, 2008 at 12:02 PM
Hey Adfecto, what city are you in now?
My family and I live in Chicago now and wouldn't mind leaving some day!!!
Posted by: Timer | January 29, 2008 at 12:57 PM