Can You Really Retire Early With a Lower Income?

pexels-photo-196666Last night I was reading an early retirement article on MSN. These types of articles always interest me because I find early retirement pretty fascinating and a long-term goal for myself. In this particular article, the woman featured was able to retire at the age of 32 after paying off $100,000 of student loan debt and amassing a $690,000 net worth in just 5 years.

This is probably thanks in large part to her job as a lawyer which provided her with an annual income anywhere from $160k to $320k. While this story was particularly inspiring, it was also sort of unrelatable for people who don’t earn that much money.

If you don’t make a huge six-figure salary, do you even have a shot at retiring early? In the interview, the woman stated that she did believe people with a lower salary could retire early too if they wanted to and I agree with this.

It may take longer, but you can still get a similar end result even if you’re not a big-time lawyer. Here are 4 things you must do if you earn a lower or average income and still want to retire early.

Start Investing Now

You need to give your investments plenty of time to grow so interest can compound and your money can earn you more money. This is why the earlier you start investing, the better. On average, the market provides a 7%-8% return each year so your money will be able to grow consistently until your portfolio reaches your desired amount needed to retire early.

Generally, a common rule is to multiply your expected living expenses during retirement by 25. If you plan to live on $40,000 per year during retirement, you’ll probably need at least $1,000,000 to live comfortable.

Again, the earlier you start investing, the better chance you’ll have at reaching that amount. Investing earlier is also easier because it often means you can do less and still get better returns. The person who starts investing $1,000 per month at the age of 25 often has more than the person who starts saving $2,000 per month at age 35.

Decrease Your Living Expenses

This is a common practice for anyone to follow who wants to retire early but if you’re not earning a ton of money, doing this is a must. You have to commit to living frugally and keeping your expenses low if you want to free up more money to invest.

For example, if you earn $45,000 after taxes, that adds up to $3,750 per month in disposable income. If you want to invest $1,875 or half of that each month, you’ll need to make sure you lower your living expenses.

Doing things like renting or buying a house in an affordable area, getting a roommate, driving a used car or using public transportation, getting rid of cable, lowering your cell phone bill, bringing your lunch to work, dining out less, and shopping around for better insurance rates can all help you lower your living expenses.

Remember, you need to make long-term and sustainable lifestyle changes so be sure to get clear on your values and determine what is and isn’t important to you. That way, you’ll be able to spend and save without guilt. If early retirement is a big priority for you, it will be easier to cut expenses and commit to a frugal lifestyle.

Consider Diversifying/Increasing Your Income

While you don’t need to earn a multiple six figure income to be able to retire early, earning some extra money and establishing additional income streams wouldn’t hurt your progress and could actually help you reach your goal quicker.

Realize that the average millionaire has 7 streams of income, so it’s wise not to put all your eggs in one basket. Think about what types of passive income streams you’d like to have when you retire. Dividends from your investments can be your main source but you could also have rental property income, royalties from books and other products, or you could even start a blog and get into affiliate income.

In order to contribute more to your early retirement efforts, consider earning some extra active income during your active working years. You can get another part-time job, do some online work, start a side business, etc.

Something as simple as babysitting, driving for Uber, or walking dogs can help you contribute more money to your investments.

Avoid Debt

Debt will be one of the biggest obstacles to stand in the way of you retiring early. Do your best to pay off all your debt and avoid accumulating more debt. Again, spending less and adopting a frugal lifestyle can help with this.

If you commit to always spending less than you earn, getting into debt won’t even be a possibility. Get into the habit of only spending the cash you have and not financing things just because you can afford the minimum monthly payment.

Don’t feel like you need to use credit cards if you’re just carrying a balance each month. You’ll reach financial independence sooner once you get rid of debt for good and focus on earning interest on your hard earned money instead of paying interest.

If you don’t have a high income, don’t write off the idea of retiring early completely. Instead, focus on these 4 tips to build wealth. It may take some time, but the sooner you start, the better your results will be.

Have you ever thought about retiring early?

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