Frugal Living Helps You Hurdle to Early Retirement

Frugal Living Helps You Hurdle Towards Early Retirement!

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Can Frugal Living make a difference in how soon you retire or is it just a waste of time? We’re going to give you one example of the power of frugal living as it specifically pertains to how soon you can retire.

How Much Money Do You Need to Retire?

First, let’s calculate how much money you need to retire for a moment.

Most retirement planning projection systems don’t adequately show the impact of frugal living in retirement estimate calculations—probably for good reason. Most people aren’t frugal!

However, the average person has rarely been shown “The Power of Frugal Living” regarding retirement calculation below. You may become a convert to frugal living when you see how frugality speeds up your retirement plan.

A Retirement Rule of Thumb

The general rule of thumb in Retirement planning is to remember that for every $300,000 in investment savings you can safely expect to generate about $12,000 dollars in income.

The generally accepted safe withdrawal rate is 4% of your investment savings (I am currently challenging this “safe” assumption with other personal finance geeks throughout the country).

Four percent of $300,000 is $12,000 dollars.

Building Savings is a Huge Hurdle

A dog jumping over a yellow hurdle.

It takes a long time to save $300,000 dollars for most people I know. The average person has a tough time saving $300,000 dollars over their entire lifetime. And the $1,000,000 dollars that many planners recommend is too huge a number to even consider.

Good luck saving $1,000,000 dollars if this is your main retirement strategy

How to Clear the Savings Hurdle

So, what do smart people do to jump over this hurdle? They clear this financial hurdle by implementing “The Power of Frugal Living” to support their retirement dreams.

Have you ever thought of eliminating $12,000 of your annual expenses instead of saving $300,000 dollars as a retirement strategy?

How long would it take you to find ways to reduce your expenses by $12,000 dollars?

What if you did this instead of saving the $300,000 dollars to generate $12,000 dollars in investment income every year?

My guess is that it is much more reasonable to reduce your expenses by $12,000 a year then it is to save $300,000 dollars.

This is a huge concept folks.

Take some time to think about the implications as it pertains to your retirement planning.

How Fast Can the Savings Add Up?

It may take 20-25 years or more for the average person to save $300,000 dollars that will safely generate $12,000 in investment income.

BUT, It may only take you a few years to get to the point that you’re you can cut $12,000 a year in expenses by getting out of debt.

Frugal Living Reduces Your Retirement Savings Goal!

Let me say this another way.
This means you can reduce your retirement savings goal (depending on your Retirement final income goal) by $300,000 if you can find a way to cut your expenses by $12,000.

Okay, you are probably rolling your eyes by now saying to your yourself “this guy is nuts”. “How am I going to cut $12,000 a year from my budget.” Don’t give up so easily! Have a little faith. You’ll get there.

Keep reading resources like https://moneysmartfamily.com/ and take a look at their budget system – it’s a great way to manage your spending and cut expenses. Steve and Annette Economides are your retirement acceleration source.

Here’s A More Reasonable Goal for Savings This Year

Okay, here is the compromise for you skeptics. Let’s reframe the expense savings bar a bit.

Small achievable steps work best in your retirement plan. Most people can cut their expenses through good planning by at least $4000 per year.

Things like re-quoting your auto insurance, cutting your cable TV costs and using NetFlix or Hulu instead, changing your grocery shopping habits, doing the holidays differently – these are all incredible ways to slash your expenses and generate savings.

If you can find ways to save $4000 this year, this means you can cut your Retirement savings amount by $100,000 dollars.

The Coach’s Wrap Up

So, for every $4000 you cut in expenses, you won’t have to save $100,000 dollars in Retirement generating income. One more example and then we’re done.

If you cut $400 dollars in expenses this means you can cut your Retirement savings by $10,000 dollars. Okay, enough examples. I hope you see my point. Work on reducing your expenses and you have a much better chance of retiring on your terms.

Another excellent resource for frugal living and early retirement is our first book, America’s Cheapest Family Gets You Right On the Money, just click the words.

For additional encouragement to live frugally and retire early, check out our YouTube Channel.
We have around 200 videos that you can watch!

Action: If you want to calculate how much money you’ll need for retirement, try NewRetirement.com retirement calculator.

By Larry Weber – Staff Writer

About the author: Larry Weber served on the executive team of one of the largest public retirement systems in the United States for several years. He is passionate about helping people retire early by using frugal living strategies. He retired early himself by practicing what he preaches about frugal living. Larry is married with two grown children and volunteers as a personal finance and running coach in his spare time.

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5 thoughts on “Frugal Living Helps You Hurdle to Early Retirement

  1. Mary Ahern

    Great article! I will be retiring this year after 37 years in public service. My husband and I have already been living frugal our entire life, so it will not be a shock when both my husband and I are fully retired. I totally agree that you need to start frugal living before you retire, not after. So many people run up huge debts after retirement because they are so used to spend, spend, spend! Thanks for the article!

  2. Lori

    My husband was forced into early retirement when he suffered a massive stroke almost 2 years ago. He was terminated from his job 6 weeks after the stroke and because I was a stay-at-home mom, we had no income until SS disability kicked in 6 mos later.(Our 22 year old son took on 2 jobs and our church paid 2 months of house payments to keep us afloat.)

    He was a fully vested employee and I was able to secure his stock and roll it straight into an IRA that was very low risk and could be accessed anytime.

    That is now down to $20,000 and our current “fixed” disability income is 2/3 of what my husband used to make.

    He is full-time care so my going to work is not an option yet. He is now 61 and I just turned 60.

    My mom died recently and I will be receiving an inheritance from her trust of $100,000. We have about $20,000 in credit card debt and $72,000 left on our mortgage.

    I just don’t know the best way to manage our funds. We barely get by each month. I know paying off the credit card debts will shave off about $500/mo, but now our 14yo van broke down and we need a decent-sized vehicle to haul around my husband’s equipment to therapy and outings. I am thinking we need a financial planner. We never planned for this or retirement to our detriment. Now that our lives have been turned upside-down, I am at a loss.

    1. Steve Economides Post author

      Lori – Our hearts go out to you. You are making the best of a very difficult situation. It is awesome that your son and your church have helped out.

      Consider contacting MoneyManagementInternational. The offer credit counseling for a very low price AND given your situation they may be able to negotiate with some of your creditors for a discounted payoff.

      Alternatively, you could contact each creditor and ask what they would discount the amount you owe for a cash pay-off. We’ve seen creditors willingly reduce the amount owed by 20 to 50 percent.

      With some assertive communication you should be able to get your debt eliminated. Getting someone on your team to help walk through these decisions would be a great idea.

  3. Jackie Bolen

    It’s definitely a 2-fold process. Increasing income, while decreasing expenses. I try to focus on both at the same time to maximize the awesome! It helps to have a supportive partner on the journey, because it’s not that easy to do it alone. Sometimes I’m weak, but my GF is strong and will cook dinner for me when I just want to eat out 🙂

    p.s. the text in this comment form is so small that it’s hard to read what I write as I’m typing. Just FYI!

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