Planning for and working towards financial independence can be hard work, especially at the beginning when you have to learn new savings, budgeting and investing skills.
Financial freedom is a very worthwhile goal, though, for obvious reasons: If you don’t have to worry about money – meaning you cover all your living expenses with passive income like dividend or real estate income -, you are in total control of your time and nobody can tell you what to do. You are living life on your own terms. Life can not get any better than this! @bosslife 😉
However, what most people often don’t seem to realize or understand is that financial independence requires you to embrace the concept of minimalism. In a nutshell, minimalism means that you need to live WELL below your means for a long period of time in order to maximize your investment potential. Put simply: You need to go minimalist before you will enjoy the sweet fruits of financial freedom!
You Must Live Below Your Means For A While
Living below your means is a core skill that many people I know have used successfully in order to build a considerable retirement nest egg/investment portfolio. Contrary to popular opinion, most well-to-do people haven’t inherited their wealth or have won the lottery. No, they have built up their savings through a combination of frugality, budgeting, and investing/reinvesting their money!
I know quite a few people that sock away 40-50% of their income on a regular basis, and have a considerable number of side hustles going at the same time. If you want to retire early, you have got to hustle!
If you think, though, that you can just make your standard 401k contributions and save 5 or 10 percent of your income, and that this effort will allow you to retire early, then you are going to be badly disappointed! Retiring early takes effort and it requires sacrifice of a different kind: You have to forgo consumption today.
Think about it for a second.
You can do two things with your money: 1. You can buy things with it that you consume, or 2. You can invest it. Those are really the only 2 choices you have. If you save money today you forgo present consumption in order to be able to consume more in the future.
Unfortunately, too many people are unwilling to cut back on consumption today for the benefit of a brighter, financially more comfortable future!
Embrace Minimalism As A Pathway To Early Retirement
I have said it before, and I am going to say it again:
In order to be able to retire early, you need to sock away at least 50 percent of your income on a recurring basis, and put it all into dividend-paying stocks or other income-producing assets (rental properties, bonds, online businesses). You will also have to reinvest every dollar of your investment returns.
The easiest dollar you make is the dollar you don’t spend. Put as much money as you possibly can into your investment portfolio where it can compound over time and earn you additional income. Not spending a dollar is a lot easier than earning an extra dollar. Hence, if you want to retire early – unless you have a multi-million dollar business idea -, frugality and minimalism are as essential to your long-term financial success as investing money itself.
Minimalism requires you to drastically cut down your personal expenses in order to meet your aggressive savings goals. Cutting back on entertainment expenses including eating out is an easy way of building up savings fast. Most importantly, a focus on minimalism really shows you how you are using your money, and highlights areas of improvement.
A lot of people don’t understand that early retirement is crucially linked to some form of minimalism or frugality. Living a frugal life, i.e. living below your means in order to sock away money at a fast clip, is a central tenet of achieving financial independence. Sure you can play the lottery or gamble with stocks and cryptos, but this approach is entirely speculative, and success isn’t guaranteed. However, embracing minimalism/frugality combined with a solid long-term investing strategy dramatically increases the odds of you being able to retire early. Start saving money today!