Financial Independence Retire Early

. 2 min read

There is something in society that we don't question. A behaviour that all the adults had when we were growing up, that we normalised so quickly that we didn't get to stop and think: "Why is everyone working?". So often people complain that they hate what they do, and yet there they are, doing it anyway. When you think about it its really quite bizarre.

You see from a child's perspective, going to work is a choice, if you don't like it, stop. We don't understand that there is a mortgage to pay and mouths to feed. If we asked our parents "why do you go to work?" food and shelter would surely be a fair reply. The problem is, it doesn't end there, the list goes on: car payments, entertainment subscriptions, bills, holidays... As one grows up it becomes evident: truly to them there is no choice, they are trapped. They are cornered by their own decisions. They value money more than they do time. But let's look at what happens if someone reverses these choices. Sell the car, down-size the house, cancel the subscriptions.

Suddenly the chains confining us to a wage are a lot weaker.

And this really is the secret to early retirement. The less money you live off of the more you can save, the more interest you receive until its enough to live on. It's so simple, yet sounds so novel and radical.

Many people have written about this in superb blogs such as earlyretirementextreme & mrmoneymustache. In light of discovery of this lifestyle I will be sharing my spending habits and how I plan on reducing them in pursuit of early retirement/financial independence in the hopes that you and I will be able to learn something along the way.

The Maths


From my time reading about early retirement I have found the best way to measure your progress is your saving rate (the percentage of your income being saved). Let me show you how simple the maths is.

When discussing early retirement the interesting thing is that common financial metrics become a lot less important (the shorter time frame means things like interest rates take a back seat and the savings rate dominates). Hence what it comes down to is one simple ratio.

spending rate/savings rate = years of work required for 1 year of freedom

If, like most of the UK, you save on average 8.52% of your after tax income we can use the above to find the average household would have to spend 91.48/8.52= 10.74 years working just to save enough to spend a year out of work. Though over this time scale pensions and interest rates gain significance.

Now this is where you can start to see the magic of early retirement; if someone were to save 80% of their income, in just one year of work they have saved enough to spend 4 years retired! This is because there is a hidden effect happening, another way of saying high savings rate is low spending rate! The more you are able to save per year the less you are spending! Thus, it takes even less time to save because you don't need as much.

You can see what I learnt when applying this to myself, in my self-critique of four years of student finance.

Graeme Russell

I created this blog as a way to reach people about topics I care about: ethics, self-improvement, and lifestyle. I hope you can find something of value here.