How I Retired At 31 From The Corporate World - Smart Money Today

How I Retired At 31 From The Corporate World - Smart Money Today

Save And Compound To Retire Earlier

The money that you save in your youth are worth much more than the money you save near your retirement

There is nothing better than retire early and live a financially free lifestyle. The general thinking is to work your ass off for 40 years and retire to enjoy the few years left of life.

Sad!

I worked for 14 years and achieved retirement like the general public in their 50s and 60s.

Yesterday while thinking the most important steps I took to make myself financially free, few stood out; I was able to save 80% of my income over the years, invest the savings monthly in mutual funds and unleash the power of compounding.

Simple formula; SAVINGS+INVESTMENTS+COMPOUNDING = FINANCIAL FREEDOM

This is my little secret which gave me freedom to do whatever I wanted instead to report at work at 10am every morning until 10pm (my job back then wasn’t the 8-5 office job, but I was a chef. You can read my full story here).

So, if you want to retire in your 30s or 40s, probably my story will help you to achieve that.

Don’t Get Distracted Along The Way

I have helped friends and coworkers over the years to save money, invest and set them on the path to financial freedom. I notice that people struggle the most with constancy, meaning they get distracted along the way by other “priorities” for their money.

The usual excuses I heard from my friends ranged from; “This month I take my girlfriend on vacation, so I can’t save money”, “I had a hospital emergency, so no more saving”, “I bought a new TV, and I used all my paycheck”, these are just a few of the thousands of stories.

They had a little devil on their shoulder to make them do “bad” financial actions.

I wanted to help my friends, and I knew it was a major undertaking (it has been), but a unique one as well.

I realized that helping others is more rewarding than helping myself, so I stick with it. I still coach my friends every month, asking about their progress and assist them to save more money.

I notice over the years, the best way to save money is to make monthly deposits to the mutual fund or ETF account automatic by a bank instruction. So, whenever the paycheck get cashed in, immediately a part of it would be transferred to the investment account.

This is the smartest way in my trials to use technology to create a habit for people. The temptation to spend all the paycheck is the devil on your shoulder.

Once the cash is gone from your checking account, you would stick to your budget because you don’t have an easy access to your cash.

Another important factor for financial freedom success is to start saving at an early age because you will benefit from the power of compounding.

What Is The Power of Compounding

The greatest mathematical discovery of all time – Albert Einstein

Compounding is the process of generating earnings on an asset’s reinvested earnings.

Two things are necessary for this formula to work; re-investment of earning and time.

The earlier you start to save your money the greater the power of compounding will work for you.

I start to save when I was 23 years old with a monthly US$ 800. After 3 years, I add another US$ 1500 per month to the already US$800 monthly deposit because I got promoted, but my lifestyle stayed the same. Instead of letting the money sit in a saving account for a mere 1.5% which is below inflation, I decided to contribute to my future.

In average, I got a return of 6.3% for the last 10 years, not bad and not excellent but ok. Considering I had to face the 2008 recession that seems the end of the world, I’m happy with 6.3%.

Now I’m sitting on an egg nest of US$ 290.000. Pretty good considering I had only to transfer some money every month from my checking account to my brokerage account.

And this money will compound nicely for the next 20 years. Let’s assume an average of 6.3% per year, and zero contributions, the total will be US$ 1.019.008, a millionaire.

But if I will carry on with my monthly contribution of US$2.300 per month on top my US$ 290.000 principal, the total value will be US$ 2.120.301.

Wow, I will be two times millionaire by the age of 53. Exciting!

The best way to ensure your future financial success is to start saving today. The amount you save and invest isn’t nearly as important as started invest early wrote Burton Malkiel in The Random Walk to Investing.

What I liked the most from Malkiel’s book is “ten points plan to make sound financial decisions” system which is super easy to understand and to implement.

The real enemy of compounding is YOU.

Let me explain…

The secure path of saving and invest monthly in a mutual fund or ETF is that is boring and unexciting. Especially in good times when you hear news about stock’s return at 20-30% yearly. You might think; “why should I be happy with a 6% return when I can get more”?

Your greed might push you to take risky bet by investing in the market stock, excited by the huge returns.

Don’t be a fool!

Warren Buffet, the most successful investor in modern history, average a 19% return per year. What make you think you are better?

Start to save money today and invest in your financial future SLOWLY, here an easy tool to calculate your return with regular monthly payments.

Saving And Discipline Is The Key To Wealth

Here is the truth; the rich are wealthy not because they earn lot of money, but because they save lot of money.

How many stories of rich and wealthy people driving around a vintage car, or dress like a peasant and watch out for every penny they spend. This is the reason they are financially successful.

You can still have your morning cappuccino and apple cake in Starbucks, don’t need to cut on every pleasure, but only on the necessary.

Those who become wealthy do so by spending less than they earn. There is no other source of saving, and, by extension, of building wealth.

How I Save 80% of my Income - Smart Money Today

How I Save 80% of my Income - Smart Money Today

I Lived A 5 Stars Life Style While Saving Most Of My PayChecks

I grow up in a modest family on the mountains in Italy, where winter and temperatures under the 0 degree Celsius last for at least 5 months per year.

You must be wondering what the winter in Italy has to do with saving 80% of my salary. Everything or maybe nothing.

The thing is that during the 7 good season months we have to ensure to cut enough trees and grow enough vegetables to survive during the winter season. I realized that living in the mountain made me a natural saver, a kind of survival human instinct.

This can explain why most “cold” countries are much more productive and able to grow their economies faster and more efficiently than hot countries. Look for example at Africa, South America, and South Asia, their economies are far behind economies from Japan, China, North Europe or the USA which have winters.

I was reading a blog post on budgetsaresexy.com about people saving 40-50% , but I wasn’t so impress.

So, I decide to write about my 80% saving rate. I was unsure of writing about it because it might sound impossible to achieve for most people. I thought “if no one has written about it, it must be unsustainable.” But I’ve been saving 80% and more of my income for years.

I want to explain my habits, set of mind and tools that made it possible so you can benefit too.

Why to Save Money

If you don’t want to work forever, you better start to save money as early as possible. Saving money is the keystone to your financial free future, after come investments, business and so on.

However, it has never been my goal to save 80% of my salary, it just came naturally to me not to waste my hard earned money to buy unnecessary things.

You must be thinking that I was making a fortune to be able to save so much, but I wasn’t. As you know, I’ve been a professional chef for years, I have worked for five-stars hotels most of my career (this was the 5 stars lifestyle expressed in the title above).

My salary was US$4,000 per month only (I was working 70 hours per week), but the best part was the company package was with free accommodation, free medical and free food.

I was spending a lot considering my benefits.

Let’s have a look at my monthly expenses to get a better idea about my spending habits.

My Monthly Expenses

Food: US$70. I used to eat outside the hotel on my days off. I could have eaten in the hotel if I wanted too, I would save another US$840 per year.

Social/entertainments: US$250. I used to party every weekend, my bad.

Phone: US$15

Internet: US$17

Shopping: US$120. Some cloths or what ever needed. As said early, the less, the better.

Travel: US$80

House Cleaner: US$60

Rent: US$400 (FREE, paid by the company)

Water & Electric: US$25 (FREE, paid by the company)

TOTAL US$612 per month

So awesome, actually I was spending only 15.3% of my salary, so the saving in average was 84.7%.

I was a single man back then, and this helped. I always recommend to start early saving your money for retirement because as you age, the expenses will increase with the coming of family and babies. However, your income should grow as well.

What helped me to keep my costs down was to remove all the unnecessary cost and headaches that come with owning things.

The less I own, the happier I am

For example, I rented a condo with sea and golf view located only 1 Km from the hotel where I used to work, so I didn’t need a car but instead every day I enjoyed a free bicycle ride to work.

Not only it was healthy, but helped my body to kick start the day. A bicycle has low maintenance cost, no need for petrol or insurance, saving you big bucks.

Of course, I could have saved US$200 dollars from the rent and moved outside town. But was it worth it?

Let’s have a look to my colleague which used to live outside town and go to work by car (when the car wasn’t in the shop for repair).

So, how much the car cost him?

Toyota Yaris purchase price: US$22.000 (in Malaysia cars are expensive)

Let’s say the life span of a car is 10 years, so US$22.000/10 years= US$2.200 per year

10 Km every day go and come back from work, for 251 days. 10×251=2510Km

Let’s say you do 25.1 Km per litre, so you would need 1000 litre of petrol per year. One litre cost is US$0.572. Total petrol cost per year is US$572

Car Insurance around US$400 per year

TOTAL US$264 car’s cost per month. This doesn’t consider the US$22.000 principle if invested in a PTF or mutual fund with a 7% return per year, after 10 years would be worth US$ 43.277.

It is a big saving, isn’t it? In the comment below let me know your thoughts.

A funny story here. I bought a used bicycle to go to work during my stay in Malaysia for US$140. I used it for two years and had to sell it because I was moving out of the country.

Here come the best part; after two years I sold the bike for US$170, making a profit of US$30. I always bought cars and bikes used, because I never lose much and sometimes even gain. But this is for another article.

Is Easier to Save When Younger or Older?

When young, you don’t have many overheads, so your saving rate should be healthy. I fill sorry for the students that have to pay back their loan. It’s an headache but somepeople have paid it off in 18 months.

When you are older, your income increases so even with higher expenses for the family. You should still achieve a healthy rate of saving. Keep in mind the more you save, the less you will work in future.

Early retirement isn’t a dream. It is just good habits in saving and investing the remaining to become financially free.

I want to share you an excellent news; life is getting cheaper. Most of the products are made in China, and they are super cheap.

Today I bought a pair of swimming goggle for a mere US$3.22 on eBay including delivery. How amazing is that? 10 years ago I would have paid at least US$15, without someone delivering to my door.

More robots will be used to mass produce and prices for items will drop steadily.

Did you notice that a car now cost same as did ten years ago?

This is why the world is in such low inflation. Products are just getting cheaper. And 2016 will be an excellent year for product prices because oil is trading below US$ 30, and seem the price will stay at this level for some time.

Imagine tomorrow you will buy things much cheaper than today, so why don’t wait tomorrow?

Keep your money invested instead, so they grow and tomorrow you will buy even cheaper things.

Tools Will Help You to Save Without The Pain

I used two simple tools that help me to keep in control of my spending.

ExpenseLite; this free application is on my iPhone, and whenever I spend money, I just insert the data there. It is easy to use and fast.

Excel Spread Sheet: every month, I put the monthly expenses/earning into an excel spreadsheets as shown below.

The above spreadsheet will help you to monitor your expenses. After 12 months, combine the figures, and you will be shocked to see how much money you have spent on phone calls or meal at the restaurant.

Reflect, and see if you can put your money to better use.

I used to spend US$5000 per year in drinking at weekends. What a waste of money, and I realized it thanks to the above simple IN/OUT phone application.

I reduce that spending to US$2000 per year, US$2000 invested in market stock and the remaining US$1000 I spent in traveling.

You can use more sophisticated online software such mint.com, but personally, I like to keep it simple.