Escaping the rat race is a widely held ambition, unless you are one of the lucky few who genuinely enjoys his/her chosen field of work. While I found a great deal of satisfaction in my career, the long hours and incessant pressure meant I was ready to call it quits at the earliest opportunity.
While I didn’t quite make it by 50 — I was 53 when I left my office in London for the last time — it was still young by most standards today. When I meet other people my age, invariably they are still working and one of their first questions is, “How did you manage to retire so young?”
My answer often surprises them as it sounds simple and involves steps that most people can take, provided they start early enough. Here’s what I say:
Contain your costs
I cannot stress this enough. Throughout my career, I found many of my colleagues spent all their income, no matter what level they were paid. While that is a personal choice — people are free to do what they want with their own money — such a live-for-today mindset is rarely compatible with early retirement. Savings must come from somewhere, unless you are one of the lucky few who inherit a large sum from a rich relative.
My approach to spending has always been frugal. A personal rule of thumb was to save one third of my annual income, and I did this by cutting back on luxuries and containing my costs. It’s amazing how much can be saved by shopping around on the internet and negotiating over big-ticket items.
Start investing as soon as possible
There’s no point saving if you don’t make your money work for you. In my opinion, the best way to do this is by investing in the stock market. Begin as early as you can and stick with it over the long term. I began in my early 20s and continued right up until retirement. That way, I enjoyed the benefits of compounding over three decades.
Tax-efficient investing through ISAs and pension arrangements is also important in order to maximise wealth. In addition, at times throughout my career, I was too busy to devote hours researching individual stocks. That’s where the likes of The Motley Fool can help, while I also looked for fund managers who could do this for me but only those who charged low fees and costs. If I was looking today, I’d be considering Fundsmith Equity as a good home for my savings.
Be realistic
Earning a lot of money helps some to retire young, but most people I know who have stopped work early aren’t members of the 1%. Rather, they are men and women who, in exchange for the freedom from paid work, have accepted that many of the material things they used to enjoy can no longer be justified.
If changing your car every two years or going on expensive foreign holidays are important to you, then its unlikely you’ll be comfortable with the trade-offs that need to be made in order to live on a lower income. In the end, it’s a choice: time versus money.