The key to achieving financial independence at a young age is maintaining a high savings rate. Contrary to the 5 to 10% savings rates advocated by mainstream financial planners, early retirement requires savings rates upwards of 50%. We are not the most granular when it comes to saving, but we have reached a fairly high savings rate using a few simple methods.
First and foremost, we’ve learned the liberating power of owning less. It’s not about self-imposed deprivation or shunning all worldly possessions. Instead, it’s about adopting a minimalist mindset à la Yvon Chouinard, a champion of sustainability and founder of Patagonia.
Our focus is on quality over quantity and surrounding ourselves with items that add genuine value to our lives. The principle is simple—own only what you truly need. This way, we reduce clutter, expenses, and, most importantly, we’re rewarded with a sense of freedom that’s unparalleled.
Surprisingly, one of the tools we don’t use in our financial journey is a stringent budget. Now, this may sound counterintuitive for those aiming for early retirement. If you’re someone who thrives on detailed budgeting, we wholly endorse it. There are excellent resources like Mint.com or Personal Capital that can make this task much easier. However, we’ve found that due to our natural inclination towards minimalism and thoughtful spending, a strict budget isn’t necessary.
Our spending habits have evolved into a careful deliberation process. We think about potential purchases for several days before deciding whether they’re truly worthwhile. Shopping isn’t a pastime for us; it’s a purposeful action guided by need and mindfulness. This approach has been incredibly helpful in minimizing impulsive purchases and unnecessary expenses.
While we don’t keep a budget, we’re diligent about tracking our finances. Every month, we sit down together to chart our savings trajectory, scrutinize our credit card statements, and ensure we’re maintaining our desired course. Our savings rate fluctuates between 50% to 80% of our income after taxes, depending on various factors each month. Regular financial check-ins ensure that we’re always aware of our spending patterns and savings progress, allowing us to make adjustments as needed.
Travel is another area where we apply our frugality. We utilize credit card miles to purchase flights, which has led to substantial savings over the years. A word of caution here—if you’re planning to use credit cards, discipline is key. We have our cards set to be automatically paid off in full every month. Avoiding interest payments and maintaining a good credit score are crucial considerations when using credit cards for their rewards.
In a nutshell, our approach to saving for early retirement is based on a blend of minimalism, mindful spending, strategic use of credit card rewards, and regular financial check-ins. These tactics have helped us drastically increase our savings rate, propelling us speedily towards early financial independence.
