As I’ve mentioned on this blog earlier, I retired for a bit over 2 years. But the idea of retirement shouldn’t be to prepare yourself to do nothing. Because do nothing gets you, gets you fast, and gets you bad.
Instead, the idea of early retirement should revolve around doing the meaningful. It should revolve around working on things you’re passionate about and working for that passion and not for the associated compensation.
A few days ago I did a twitter rant about the inability to find equilibrium in life. You can read the rant below
My friend Haris pointed out that this is because the natural human state is not meant to be at rest. In fact, the natural human state is izteraab or restlessness and instead of avoiding izteraab one needs to embrace it.
I started writing this blog in order to finish my early retirement experiment and re-engage with work on some level. It was an effort to resume what I term in my rant as light work. Next thing I knew was that I was working full-time running e-commerce stores, content arbitrage and more.
After going through the experiment of early retirement, working lightly, and then working full-time, I’ve come to the conclusion that I can not and should not avoid work. I haven’t bought freedom from work completely probably because I don’t want to. The only freedom I’ve bought is that I can and should work on things that are most meaningful and fulfilling for my personal happiness and not whatever pays the biggest buck.
I’m also willing to engage with whatever pays the biggest buck as long as I can find people I can invest in who can then carry on that work.
The key to retirement is understanding a fundamental concept called savings rate. A lot of people only focus on the savings, and not the savings rate. Let me explain to you why the savings rate is more important than the savings.
A friend of mine was saving $200 every month while he was making north of $1000. A few years later, his business really took off and now he was saving $300 every month while making nearly $3000. While he was making progress in saving more money, he thought that he was going to retire much earlier now. But that isn’t true. He actually delayed his retirement. Sounds strange, right? Let me explain.
His savings rate before was 20% of his income and a few years later despite increasing the savings amount, he reduced his savings rate to 10%. The reason why this matters is because his expenses have gone up considerably. While his savings have gone up by $100 each month, his expenses have gone up by $1900 per month.
Now that his new lifestyle requires much more money to maintain, and assuming that he doesn’t want to downgrade his lifestyle once he retires, his savings will now support him for considerably lesser time period. And hence he will have to work for a longer time period now before he can retire.
I’ve often worried thinking about this. What do you do with all newfound time if you’re going to retire early. How are you going to spend decades with no productive way to spend your time. What is early retirement and should one aim for it or not?
Since recently, I think I’ve started to get answers for this. Early retirement doesn’t mean that you have to stop working. It just means you don’t work for money anymore. You only work for happiness. You only work to get your adrenaline fix. And you only work because certain work milestones make you incredibly happy.
There’s a huge difference between getting to choose what to work on and going to work early in the morning everyday, even if you’re sick, to work on things that you don’t want to spend 1 second on.
I also feel, it is only after you’re mentally and financially free, you’re going to deliver your best work. You’re going to unleash your true self and potential. You need this kind of freedom to do your best thinking.
So by all means, plan your early retirement. And then set on a journey to do what matters the most to you.
I have met few people who are financially literate and do not use spreadsheets frequently both in their personal and professional lives. I love spreadsheets and use them to track my day to day expenses, taxes, donations and just about everything.
Just as you can’t run a business without tracking revenue, costs and making projections, I feel it’s reckless not to do the same in your personal life. Because in the end the fundamentals of money are the same. If the expense is higher than the revenue, whether its business or your personal life, the result will be the same.
I recommend everyone to create spreadsheets for their household expenses. This will help you project what your annual spending is going to be like. Once you have your annual expense projection, you can set your income goals accordingly. You can plan savings, project wealth generation and eventually plan retirement. It all starts with a spreadsheet.
Financial freedom is often misunderstood as people equate it to really high salaries. Most middle class people who start working by 25 can retire by the latest at 40. I’m not kidding. It is the only truth I know, and without any generalization. For now, how about you simply track and ensure that you’re earning more and spending less and once you’ve done that, you can head over to MMM to learn how the rest works.