If you want to retire well in advance of what is considered normal, there is only one thing you need: lots of time. Let me explain…
The common saying is that “time is money,” but even more important than that is the fact that money is time. The more money you have, the more time you have, and time is the single most valuable asset in the world.
If you have time, you have freedom, which is the ultimate goal and to many the greatest measure of wealth. Robert Kiyosaki of the famed “Rich Dad, Poor Dad” book also describes wealth in terms of time:
“Wealth is the number of days forward that somebody can survive. So, if you stop working today, how long can you survive?”
As we think about retirement, we think of working for a long time while building up a fund that we’ll eventually be able to pull from for the rest of our life. To get a rough estimate of when we can potentially retire, most do a simple calculation:
Wealth (time) = Net Worth / Expected Expenses
So, if someone has $500,000 saved up and expects their expenses to be $25,000 per year, they have 20 years worth of time. Once this time period exceeds our expected remaining lifetime, we believe we’re able to retire.
So, based on this view, if you want to retire early, how can you do it? Well, there are four ways.
1. Large Amount of Money
Of course you can retire early if you have a massive amount of money to pull from, but it isn’t realistic for many to build up a multi-million dollar fund early on in their careers.
The good news is that there are other ways to retire early, including…
2. Financial Freedom
Something that we’re not taught in school (but should be) is called financial freedom. This is when your passive income, or earnings made by doing little or no work, exceeds your expenses. When you have this, you technically have infinite time (or wealth). This means that you can go on living your life, and you’ll still have income coming in even without working.
You ask: How is this possible? Isn’t this only for rich people?
Well, it’s not easy to obtain financial freedom, but it is most definitely possible. There are two primary ways that you can create passive income:
- Put Your Money to Work For You
One strong commonality of the wealthy is that they put their money to work for them. This means that they take the money they do have, and have it make even more money for them. The wealthy not only spend less than they earn, but they invest the difference wisely. This is how “the rich get richer.”
Examples of this include: investing in the stock market, real estate, bonds, interest from savings, Treasury bills, loans (to others), etc.
- Put Your Business to Work For You
Put simply, the best way to create a large amount of wealth is through entrepreneurship. Many of the wealthiest individuals I know start a business, and then scale that business while taking themselves out of it by using systems along with the skills and efforts of others. There is often a lot of work upfront and starting a business has its risks, but the earnings of a business are uncapped, giving many the potential for outstanding financial rewards.
This form of passive income can include any business, such as: real estate, software, affiliate marketing, network marketing, online businesses, royalties from books/music, etc.
If that’s too hard to think about, there is one other form that anyone can pursue…
3. Work Freedom
“Choose a job you love, and you will never have to work a day in your life.”
Many believe that this is a fantasy to be able to do what you love, but the wealthy people I’ve talked to know that passion and purpose are requirements to be completely fulfilled. Plus, the more you enjoy something, typically the better you are at it. As a result, more money shows up.
Not only can you make more money in the long-term by combining a passion with skill, but the real key is that if you do something that you enjoy, it doesn’t feel like work… and not having to work is what retirement really is, anyway.
4. A Combination of All of the Above
Don’t be mistaken: There is work involved to make a lot of money. It isn’t easy to gain financial freedom. It can be risky or challenging at first to do something you love for your career. So the key for anyone is to try and do the best they can at each one of these areas: net worth, passive income and passion.
- Focus on building your net worth. Whether it is from getting a raise, working more hours, growing a business or reducing your expenses, the more money you have, the more time you have. Also, consider the financial decisions that you make on a regular basis. Keep in mind that when you save money, you’re buying your future freedom.
- Learn how to put your money or business to work for you. Investing and entrepreneurship can be confusing and risky at first, but learning about them and getting started can pay off huge dividends down the road. They have for me in a short period of time.
- Find a way to incorporate your passions into your work. Many of the wealthy entrepreneurs I interviewed for my book started out working for someone else before they slowly followed their passions and created their own businesses. It often takes time and effort to be able to figure how to do this effectively, but know that it is more than possible.
It is the combination of all of these things that can realistically help you get to your goals much quicker than you otherwise would.
To put it in perspective, let’s go back to the example. Let’s say another person has $400,000 saved up for retirement. However, they spend a few years learning and setting up their investment portfolio of stocks and real estate. They learn how to comfortably make more than $10,000 per year with their investments on average each year, and also turn a hobby into another $5,000 per year income on the side. Assuming they have the same $25,000 annual expenses as the first example – even though they have less money, they have more ‘wealth’ because they have 40 years worth of time (since their net expenses are $10,000).
Now, you can change these numbers as you wish (here’s a wealth calculator spreadsheet that can help) as every person’s situation is drastically different. The important point to remember is that the goal is to increase the amount of time and freedom we have, while having the least possible amount of things we don’t want to do (i.e. work). When you get to the point where you don’t have to do something you don’t want to do for a long, long time, that is when you can ‘retire’ and do as you wish.
This is what I’ve been fortunate enough to accomplish, and that is how I ‘retired’ at the age of 27.
With all of this said, I strongly encourage you to take your wealth seriously, but also take it one piece at a time. With strategy, focus and effort, the result may be an ultra-early retirement for you.
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