Truth be told, most people’s personal finance strategy should come down to a single major component. I would love to tell you I am a genius and that in order to become financially free you need to read every blog post that I put up on this site. That is just not the case, regardless of my (or other educators) nerdy love to show you every hack and tweak there is.

Now, can you speed up your financial progress by going nerdy like I do? HECK YEEEEEEAAAAAHHHHHHH (excited)! For sure, you can rock it out at super speed if you want to. Just come with me . . . and you’ll be . . . in a world of pure imagination (for a Gene Wilder reference – In Willy Wonka).

But do you have to nerd out? Well, (big sigh), no you do not.

There are two directions you can go:

1. “The financial nerd direction” – First, increase your savings rate to the range you need to in order to retire when you want. Then optimize you investments to keep even more of your money (which entails lowering your tax burden and decreasing your expenses and fees). Finally, become very good at looking for opportunities to speed up your wealth building (whether via real estate, or business building, or whatever niche you desire).
   • This direction entails spending a decent amount of time each month monitoring your budget, your investments, and the market your niche is in, plus looking for new hacks and tricks. More-or-less, this is a very low hours-part-time job (maybe 2 to 3 hours a week, extra beyond your job).
2. There is the “I don’t care about being a financial nerd, I just want to retire early or on time” direction – where you pretty much want to reach your goal but you don’t want to think about your finances much, or really at all. You increase your savings rate to where it needs to be and you don’t worry about the nerdy stuff.
   • This direction entails almost no extra work during the standard week. You review your spending and income once a month to make sure things are on track with your budget. You check your investments once a quarter or so to make sure they are being invested correctly from your income/bank. And once a year you rebalance your investment account so it stays how you want. Otherwise, you live your life and don’t think about personal finance nerds or our brain-buster ideas.

I would personally love to have all of you come on the nerdy train with me and retire way earlier than the normal American. We could all hangout, travel, go hiking, have tea parties, or whatever (I have never had a tea party but it sounds like you just drink tea and eat food, so I would probably accept an invitation). But I also am real in the understanding that some people in this world do not like finance, and so, want the simple plan they can count on.

So, to keep things super simple, we are going to focus this conversation on the the biggest factor that impacts your ability to retire early or on time.

That is . . .

. . .

. . .

WHAT PERCENTAGE OF YOUR INCOME YOU SAVE AND INVEST EVERY YEAR!

I know. You were hoping for something better than that answer. It is not very sexy or secretive, or shocking in anyway. But it is the truth. If you do only one simple thing with your money, and that is to save a large percentage of your take home pay and invest it, you have already improved your likelihood of retiring early (or on time), exponentially.

There have been a lot of books and blogs and articles written on this topic, and they are all helpful. But I am going to send you to one of my favorites for some extra enlightenment, while I breakdown some some of the important information for you.

Here is my favorite blog on the topic from an innovative gentleman named Mr. Money Mustache – Shockingly-simple-math-behind-early-retirement/

For a quick synopsis on the bulk information, you can fairly accurately calculate the time it will take you to retire by knowing two things (and having a handy-dandy chart to reference after you know the two things).

Thing number 1- how much take home pay (after taxes and deductions) do you make each year (also known as “net income”)? Note: You need to count your retirement plan or HSA plan contributions in your take home pay. That money is actually savings/investments, not deductions like taxes or health care insurance expenses.

Thing number 2- how much do you spend of your take home pay each year.

If you divide how much you spend by how much you take home (adding back in retirement plan and HSA contributions), you get a nice decimal and then a number. So, equation of annual expenses/annual take home pay = x.

If the answer to that equation is .04 when you do the math, that would then mean 4%. If the answer to that equation is .30, that would mean 30%. In any of these answers, this should then represent what percentage of your income is going towards investments (as the funds are not going towards your expenses).

For another post talking more about the percentage you should be saving of your income, check out – why-they-say-you-should-invest-20%-or-more-of-your-income

As outlined by Mr. Money Mustache¹ and others, here is the handy-dandy chart to reference once you do your calculation:

As you can see, you can find your savings rate (the percentage you calculated from the equation above) on the left-hand column, and to the right of that savings rate, you have the number of years it would take you to retire by saving that percentage of your income.

If you are only saving 5% of your income, mathematically, it would take you 66 years to be able to retire (based on the assumptions Mr. Money Mustache outlines, which are getting a net, real return of 5% with your investments, and withdrawing 4% a year of your portfolio to live off of when you are retired). Luckily there is such a thing as social security to help you out if you are only investing 5%. But, hopefully you are mentally noting that if you wish to retire at 55 or 60 years old (or before), 5% is not going to cut it, for anyone.

If you push to saving 20% of your net income, you can see that would drop your retirement time frame down to 37 years (saving you almost 30 years of work time). So, someone starting work at age 21 that saved 20% of their income every year, could retire at 58 years old. If you bumped up to 40% of your income, that would drop it down to 22 years. That same 21 year old saving 40% of their income would only have to work until they were approximately 43. Wouldn’t be to shabby, aye?

And you can keep going down the list. If you are not 21 years old, that is perfectly fine (and also expected – I doubt many 21 year old’s are reading this blog post). What matters is not how old you are now, but how soon you want to retire. If you cut expenses (which therefore improves your savings rate quite a lot) and focus on putting the money towards investing (and maybe get a side hustle to bring in extra income and increase your savings rate further) you can speed up your retirement time frame as much as you want.

You are in control of your destiny here people. What do you want? Do you want to be done in 10 years? Cool, rent out a room in your house, sell your expensive car, cut all but one of your 5 tv subscriptions, drink normal coffee or tea instead of Starbucks, work some extra shifts, and get yourself to saving 65% of your income and you can be done in a little over 10 years. It is not magic.

One other important thing to note! Those years until retirement are assuming you have nothing invested currently. If you already have investments, your timeframes can drop faster because your current investments will help speed up the process. Someone savings 65% of their pay, but has $100,000 in investments already, could retire in 8.7 years (with same assumptions as before) instead of the 10.5 years shown above.

Do the calculations for yourself. I do not expect you to be at your target range currently (or maybe even close to your target range). But you now have the knowledge you need to get yourself to your preferred retirement timeframes. So if you do not get there, you have only yourself to blame. On the flip side, if you do reach your target retirement timeframe, you deserve to be extremely proud of yourself because you have yourself to reward (and maybe luck/god/the universe, a little).

Read on through more posts to dive a little more into these important aspects. Here is the calculator you can tinker around with also to help you with your specific situation- Networthify Early Retirement Calculator. And, if you do want to nerd out a little more with me to give yourself a little added edge so you can retire faster than the dates on that chart above, check out the “Little F.IR.E Series” blog posts under the tab near the top or reach out to me for some coaching.

THINK BIG and save on!

1. https://www.mrmoneymustache.com/ ↩︎