From starting days in my job, I began searching answers for early retirement.

It took me close to 16+ years to finally retire from my job. At the point of my retirement, I was 40+.

How I did it? Why I did it? How you too can plan and retire early from job?

Probably these are the questions for which you too are seeking the answers.

I’ll share my experience in this blog post. I hope it’ll help you too.

• 1. How to start?
• 2. Why early retirement is tough?
• 3. Take a test.
• 4. Control Expenses.
• 5. Early Retirement – Non-negotiable goal.
• 6. Quantify early retirement.
• 7. Deduce a monthly investment plan.

1. How to Start?

Early start is key.

Generally people start thinking about early retirement in their 40’s. But to retire early, one must also start early.

How to start? Expose yourself to the concept of ‘financial independence’.

I read about it in a book called Rich Dad Poor Dad by Robert Kiyosaki. Read every page of it. It’s worth it.

This book has power to tune ones mind in favour of financial independence.

According to me, there cannot be a better start that this.

2. Why Early Retirement is Tough

Early retirement is difficult more because of our psychological limitations than financial.

We just do not let our jobs go. We stay glued to our job.

What is the justification? We say, “There is no alternative“. Cliche.

To learn to swim, it is important to first enter the water. You may fear the worse, but one has to face it to overcome it.

New born babies are welcomed in this world by cutting the umbilical cord.

It may look extreme, but it is an essential requirement to make the baby self sustainable.

Similarly, to become financially independent, we must cut our umbilical cords.

You will feel the pain. You may also cry for few days, but it will eventually go away.

How to do it? Take a test….

3. Take a Test

Why this test is required?

Because it will confirm if one has a mindset to become financially independent.

Yes, financial independence (early retirement) is a tough goal to follow.

There will be instances, where giving up on this goal will look a lot easier than continuing.

So before starting – ask yourself to take this test. It will give you an idea of the magnitude of task in hand.

3.1 What is the test?

The test is to go-lean and start leading a frugal lifestyle for next 2 months.

Spend only on those items which are basic and necessary for survival. Cut-off all other expenses.

How to manage monthly expenses? Fund them from your savings.

But what if the saving is not big enough?

Give yourself time, build savings, and then take the test.

My humble suggestion is that, take this test for at least 3 times before taking the next step.

Tip: Try to take these 3 tests within a span of one year.

4. Control Expenses

Once you have given the tests, you’ll get a feel of your salary dependency.

To reach the goal of ‘early retirement’, the only way is to break this dependency.

How to do it? By balancing ones expenses over income.

Remember: To retire asap, “learning to spend only as much as we can earn” is the key.

The trick lies in mastering your expenses (spending habits). Why?

Because our spending habits are not as controlled as it should be.

But when priority is “early retirement”, spendings must be controlled.

How to do it? By budgeting and tracking expenses.

Start with budgeting expenses

4.1 Budgeting Expenses

I remember, I first prepared an expense budget way back in year 2008.

I was living in a new city (metro), and expenses suddenly skyrocketed.

In those moments of realisations, I learnt about budgeting expenses.

Myself and my wife, prepared a list of all expenses.

We categorized them based on its frequency – spent daily, weekly, monthly, yearly etc.

Once the list was ready, we tried to guess, how much were its monthly cost.

Example:

It was an exhaustive task to perform.

It took us close to 3-4 days to prepare the complete list (with monthly costing).

Once the list was ready, it became our budget.

The monthly costs specified against each line items were our upper limit.

We decided to keep our expenses within these limits.

But how to assure the compliance? By tracking all expense.

Read: About benefits budgeting and expense tracking.

4.2 Tracking Expenses

Preparation of expense budget was still an easier work. What’s even tougher was expense tracking.

It is a painstaking activity, and it needs to done on daily basis.

But people who judiciously track their expense knows its sublime power.

I’ve been tracking all my expenses since at last 10 years.

Read: About building expense tracking software in excel.

It’s been one of the biggest force which helped me to retire early from job.

Had I not been tracking my expenses, I would’ve never realised that overcoming job dependency is possible.

Tip: Use mobile app to start tracking expense. Once you start becoming accustomed to data feeding, switch to Excel.

5. Make Early-Retirement A Non-Negotiable Goal

Start telling yourself this at least once before going to bed:…

“I’m ready to sacrifice my job, but I’ll not give-up my goal to retire early”

[Read: How to practice goal based investing]

Keep fuelling your determination by chanting such slogans.

Is it necessary? Yes it is. Why?

Staying in job and continuing to earn the same way is a lot easier.

What is more difficult? Taking steps to elevate oneself to financial independence.

What is the difficulty? Fulfilling the priority of early retirement along with the job.

So, how to do it?

Take the next step – quantify early retirement.

Read: Tough financial goals needs more risk.

6. Quantify Early Retirement

What it means by quantifying retirement?

Checking how much money you need to retire early.

How to do it?

By looking deeper into ones standard of living. There are few steps to do it…

6.1 Step #A: Categorising Expenses

In point number 4 (above), we have already listed expenses and done its budgeting.

Here we will further categorise these expenses in the following heads: essentials, comfort & luxury.

• Essentials: These are those spendings which cannot be compromised. Few examples: grocery, bills, fees, loan EMI’s, transportation etc. These are such expenses which no matter what, will continue to yield. These expenses are generally of fixed in nature. In other words, these are unavoidable expenses.
• Comfort: These are those spendings which are NOT unavoidable. But because they have become part of our habit, they are hard to give-up. Few examples: miscellaneous shopping, multiplex expense, dinning out etc. These spendings are generally variable. Few months they will be low, then a sudden jump. In most cases it is not possible to make these expenses zero. But there is a huge margin of savings here.
• Luxury: India middle class generally spend less on these items. But whenever it comes, it eats away majority savings. Few examples: dinning in a star hotel, long vacation, vehicle purchase, home furnishing etc. Generally, luxury purchases are done in bulk. The potential to carve-out savings is maximum here.

People tend of overspend on comforts or luxuries.

When priority is early retirement, these two expenses must be brought down considerably.

Idea is to conquer expenses step by step. First focus should be on essential expenses.

6.2 Step #B: Calculate Retirement Corpus

How to do it? Let’s understand this with an example.

Suppose Jack spends Rs.2.0 lakhs per month to manage his daily expenses.

Out of Rs.2.0 lakhs, 35% is ‘compulsory’ expense (uncompromisable spendings).

35% of Rs.2,00,000 = Rs.70,000

Jack wants to retire early.

How Jack can generate an income of Rs.70,000 per month.

From retirement savings built by Jack.

How much retirement saving will be enough to generate Rs.70K per month?

Rs.1.4 Crore. [Return = 6%, Time = N/A, Inflation = N/A]

Use corpus calculator

Adjust for inflation

Suppose Jack (age: 30 years) is not ready to retire immediately.

He needs 10 more years to retire (he will retire at 40).

In this case Rs.1.4 Crore will not be enough. Why?

Because of inflation of current expenses.

How to estimate retirement corpus in this case? Use the above calculator with the following data:

• Current Income Requirement (Rs.): 70,000.
• Return on Investment (% p.a.): 6.
• Time for Retirement (Years): 10.
• Avg. Inflation in future years (% p.a.): 6.

Considering the above numbers, necessary retirement corpus is Rs.2.5 crore (10 years from now).

Hence, Jack must build Rs.2.5 Crore in next 10 years to retire early (at 40 years of age).

7. Deduce a Monthly Investment Plan

Why we are talking about an investment plan?

Let’s carry Jack’s example further for better understanding.

In #6.2 above, it was clear that Jack needs Rs.2.5 crore before considering early retirement at 40 (in next 10 years).

How Jack will build the corpus of Rs.2.5 crore in 10 years? Jack has two alternatives:

• Savings Route: Jack must build Rs.250 Lakhs in 10 years. It means each month Jack must save Rs.2.08 lakhs. This way in 10 years Jack will collect Rs.250 Lakhs (Rs.2.08 x 12 x 10). But Jack’s income is only Rs.2.0 Lakhs per month. It is impossible for him to follow savings route and build Rs.250 lakhs.
• Equity Investing: If Jack invests Rs.84,000 per month in equity based mutual fund for next 10 years (@16.5% p.a. return), he can build Rs.250 lakhs. You can also check the numbers using the below calculator.

Monthly Investment Calculator

Jack must use the the power of compounding (investing).

This way his monthly investment load will be substantially reduced.

Jack, who spends Rs.2.0 lakhs per month, with some effort can save 84,000 per month for onward investing.

The amount of Rs.84,000 per month can be reduced if Jack has some existing savings (say Rs.10 Lakhs).

In this case what will be the investment load on Jack?

Use the above calculator with the following metrics:

• Corpus to be built (Rs.Lakhs): 250
• Current Savings (Rs.Lakhs): 10.
• Expected Returns (% p.a.): 16.5.
• Time for Retirement (years): 10.

Jack’s investment load will be Rs.68,500 per month.

The investment plan for Jack

He’ll invest Rs.68,500 per month for next 10 years, in a vehicle which can generate a return of 16.5% p.a. to build a corpus of Rs.250 lakhs.

Such specific calculations actually helps in creation of a realistic roadmap for early retirement.

Is this enough? One can achieve financial independence just by investing? Yes and No.

Yes because, mathematically, nothing else is required.

No because, I personally felt the need for more. What I did?

8. How I secured my Early Retirement?

When I started implementing my investment plan, everything was going like perfect (It was those years of 2009-10).

The market was bullish. Everything I was touching was giving some returns.

But soon, I faced reality. I could see my portfolio size not growing as fast.

In fact, for next 3-4 years, market was either stagnant or too volatile.

But I never stopped my SIP contribution. I picked my mutual funds and remained stuck to it.

I still remember, ‘HDFC Top 200 fund’ was one of my picks in those days.

In those moments of uncertainty, I though about alternative income generation.

Since then, my focus has drifted from capital appreciation to regular income generation.

I started becoming a die-had fan of passive income sources.

I also decided to start my full time blog which eventually became a decent income generator.

When my blog became more stable, I started diverted most of my income towards reducing my debt burden.

I still remember, how fanatic I was towards the goals of living a loan free (zero EMI) life.

Tips: From my personal experience:

• Continue your SIP no matter what.
• Invest for passive income generation.
• Try to build an alternative income source.
• Become debt free asap.

Conclusion

We all want to retire early from our job to lead a free life.

But in order make this dream a reality we shall get passionate about its realization.

The next step is to set forth and write down few steps about how you are planning to reach this ultimate goal.

Always remember that, plan for early retirement is linked with ones ability to lead a financially independent life.

If one can become financially independent, dream of early retirement will automatically become a reality.