Mr. Money Mustache is 39-year-old Pete’s “slightly bossier and more opinionated” alter ego. He explains how to retire early — 35 years early:
Pete, who prefers not to divulge his last name to protect his family’s privacy, retired when he was just 30. His wife retired with him, and for the past nine years they’ve been stay-at-home parents. Their investment income supports their lifestyle, but they also work when they want, on their own terms.
One secret to their success? They live on very little for a family of three: about $25,000 a year. They own a car, but mostly bike. Dining out is an occasional luxury. And shopping for stuff? That’s best avoided. But their philosophy goes beyond mere scrimping, says Mr. Money Mustache. It’s about enjoying life with less.
Based on a long-lasting hobby of reading books on stock investing, I realized that you can generally count on your nest egg to deliver a 4% return over most of a lifetime, with a good chance of it never running out. In other words, you need about 25 times your annual spending to retire. So we tracked our spending and our net worth, and when we hit the magic number we declared ourselves “retired.”
For the last few years, the mantra was “$600,000 in investments, plus a paid-off house.” This is enough to generate $24,000 of spending money, which goes quite far if you have no rent or mortgage to pay.
For most people, cutting costs is by far the most powerful way to increase wealth. This is because it is easy to burn off almost any amount of money — just ask the 78% of NFL players that have financial problems shortly after turning off the cash fire hose of a pro sports career. It is also possible to cut almost any budget in half, leaving the happy latte cutter saving 50% or more of her income.