I don’t know about you, but when I was younger and used to think about money, I assumed it was just math, dollars and cents. All you had to do was understand how simple math worked, make a bunch of money, save it all and invest. You are good to go! As it turns out, this was only part of the equation. Without a doubt, having the knowledge around the math of early retirement is a must, but just as an important is understanding the physiological components of money, and your life when you no longer “earn” money. In the final article in Level 1 – The Basics, I’ll explore what your life in retirement might look like and discuss some things to ponder before you pull the plug. Prior to moving to early retirement, be sure to do some self-reflection on your emotions, relationships, and what you plan to do with your time.
Income and savings, and associated spending, drive success towards financial independence and achieving early retirement. Debt, on the other hand, is the wildcard. It can completely cripple any chance of reaching financial or, it can be an accelerant and turbo charge the dollars coming in the door. I view debt in five separate buckets. They are mortgage, credit card, student loans, auto loans, and other. Mortgage. Mortgage is a term that that describes a loan for a piece of real estate. Most folks know a mortgage as the bill they pay each month to keep their house. There are various types of mortgages available, and each have their benefits and drawbacks. We will go into home loan options more in Level 2. The average American has mortgage loan that totals $173,995 (https://www.nerdwallet.com/blog/average-credit-card-debt-household). Or in other words, their name is on a sheet of paper, but the bank owns $173,995 worth of the house they live in. When I talk to people, most say they “own” their home, or that they are a “home owner”. In reality, they only own a fraction of the home they reside in. For most folks, the bank owns the majority of their home. Over time, if they continue to make mortgage payments, they will eventually “own” their home once the debt is fully paid off. Total mortgage debt in the US sits at a staggering $8.74 trillion.
From as far back as I could remember, I wanted to retire early. I remember being a young kid, watching adults go through life, day after day doing something they don’t want to do. To some degree, it was kind of sad. At that point, I was six years old and decided that I would do everything I could to retire early. I quite literally started stuffing dollar bills and spare change into a tin can in my closet. Later in life, I realized that I don’t really want to retire early, but instead gain my financial independence. Financial Independence or “FI” is when you have enough money saved or being generated by stock investments, real estate rental income, hobbies that make money, etc. that you no longer need to rely on a typical 9-5 job to pay the bills.
If you are new to the world of personal finance, welcome! If you have been around for a while, you’ll know that there are numerous spectacular blogs, highly talented authors, and overall some very smart people writing about personal finance. I have learned a great deal from many of these folks. However, if you noodle around most of these sites, you’ll see that most have a very distinctive style they follow. Frugality, real estate investing, small business owner, etc. I had a hard time relating, as it seems these folks had found a niche, and I just felt, well, more average than them.