Retire Early by Not Being a Moron with Your Money

Learning how to retire early starts with only spending within your means and on things you can actually afford. This simple advice is the bedrock upon which Slow Down and Save is built. If you follow this advice (and invest the remainder), you’ll be retired early before you know it. So then why do so few people do this?

Modern life is very convenient, and society has developed countless ways to get you to spend money. However, it turns out that by instating a few simple rules (just by not being a moron when you spend it), you can be financially free far sooner than you realise.

Being in control of your spending is a fundamentally important topic. I should be screaming from the hills about it. Instead, I’ll just write a blog.

Consumer debt is far more prolific than you realise

In the UK, the average household owes £2,471 in credit card debt. In the US, the numbers are much higher, at $6,492 per person. I’m shocked that the average American has around five times more credit card debt than the average Briton. Even so, what I don’t understand is what everyone can possibly be spending their money on. Why do people need so much stuff?

However, the hole of debt doesn’t stop with credit cards. In the UK, the average car loan was £12,482 in 2023, while more than 2 million cars were bought using finance in the 12 months to May 2024. In the US, average loans were $41,572 for new vehicles, and $26,468 for used vehicles in Q4 2024. Meanwhile, 57.89 million (!) vehicles were sold in the US in 2019 (new and used), of which ~80% were bought using finance.

Debt – the black hole ruining your life

High interest debt like credit card and automobile loans are a black hole of finance, with interest payments sucking you down and crushing you until you have no money left. I call this the debt spiral – where interest payments constantly keep you poor, making it very difficult to escape the situation – especially if your life circumstances stay unchanged.

In other words, in order to escape the debt spiral, you have to make profound changes to your income and/or spending situation. While investments produce interest that compounds over time, the interest on debt also compounds – but you have to pay it all back.

Which side of the curve do you want to be on? My advice is simple: if you want to avoid getting into debt, don’t buy shit you can’t afford.

There are, however, a couple of exceptions to this rule, namely housing and education:

Housing

A house is generally an appreciating asset, and so it can be argued that owning a home is a better place for your money than renting, even if the only realistic way for most people to buy is through a mortgage (which accumulates interest). At least with mortgage repayments, you’re buying an asset which should appreciate over time – and this is a good thing, even with the interest you’re paying off.

However, there are some compelling arguments against buying a home. Home ownership comes with phantom costs – expenses you must cover, such as home insurance and maintenance, which a landlord would otherwise handle if you were renting. Buying a home can also come with extra taxes (Stamp Duty in the UK), which can add tens of thousands of pounds to the purchase price.

Personally, I’m quite neutral on the buy vs rent debate. I personally own my home, but this is more for my own peace of mind – knowing I’ve got a permanent place of residence that I can’t be kicked out of easily.

Education

Higher education is expensive, but everyone should have the right to a good education. When it comes to financing it, however, getting a loan is the easiest (but most expensive) option. Personally, I’d want to keep down loans as much as possible – borrowing money from your parents might be the best idea (lower interest rates), and/or taking advantage of any financial gifts from the family. If you have any savings, now might be a good time to use them.

You want to come out of higher education with as little debt as possible: even get a part-time job if you have to (work more during the holidays so it doesn’t impact your studying). Finally, keep your costs down as a student (don’t go blowing hundreds of pounds on expensive nights out which you can’t really afford).

If you do want to pursue an expensive degree financed through a student loan, please work out how long it will take to pay off given the average wage you might earn. Some degrees, such as education, humanities and arts are known pitfalls with very long returns on investment. You should carefully consider if they are worth studying (unless you value your passion for the subject and future enjoyment the career will give you more than the financial burden it creates).

Retire early by being slightly less ridiculous than normal

Living a slower, more intentional life and saving money to retire early does not mean you have to become ultra-frugal (although that would certainly help you reach your financial goals faster). You just need to spend money slightly less ridiculously than normal, and have a little greater than average knowledge about personal finance.

This knowledge, and the actions you take from it, and when compounded over time, will be enough to send you towards financial freedom potentially decades earlier than if you had done nothing.

For example, simple actions like delaying the purchase of a new car by a few years, or keeping your smartphone until it actually needs replacing, or going on one fewer holiday per year, will save you thousands annually. Let’s take a look at the maths:

• One fewer holiday per year: savings ~£1000 per person.
• Keeping a smartphone for its entire useable life (8 years, and then replacing with a used model at 50% discount): savings ~£220 per year (vs buying a new model and replacing every 4 years).
• Buying a 5-year old used car every 10 years (in cash), rather than a new car every 5 years (financed): savings ~ £4,300 per year (assuming the new car is £40,000 and depreciates to £20,000 after 5 years, and the used car is £20,000, depreciating to £10,000 after 10 years).

Small lifestyle changes make a big difference over time

So, all of a sudden, you’re saving ~£5,800 per year vs your supposedly high-flying neighbour who has the latest car and phone, and goes on more holidays than you. Most middle class people have the option to live these two different lifestyles. The difference is that for the person who makes these (relatively inconsequential) sacrifices, and invests the savings, they’ll be significantly richer.

After 20 years of investing the difference (assuming a 9% average annual return), they’ll have £311,000, and after 40 years, £2.2 million! Now that’s serious money, but it all came about from simple financial habits performed over many years.

There are, of course, many other ways to save money easily that do not require big lifestyle changes. The key here is that you don’t have to make all these changes at once. That would be a major shock and likely an unsustainable change to your lifestyle. Rather, make incremental changes over a period of time and you’ll barely notice the difference.

The 4% Rule

If you invest into the global stock market, then you can expect an average annual return of somewhere between 7-9%. This means that you can withdraw around 4% of your portfolio every year and it will sustain you for the rest of your life (the additional 3-5% accounts for average inflation). So, if you can withdraw at this rate (called the safe withdraw rate), or lower, then you can stay retired for ever!

Because of this, you can calculate how long you’d need to work based on different savings rates. If you were able to save 96% of your salary (and live off only 4%), then it would only take you 1 year to retire. If you plot out all the potential different savings rates, and how long it will take you to retire, you get an exponential curve as shown below:

So, you can see that at low savings rates, even a small increase can profoundly reduce the number of years you need to work. The effect is less significant the higher your savings rate. At a 10% savings rate, you need to work 51 years; at 26% it’s 31 years; at 50% you only need to work 16.6 years. If you can eke out still higher savings rates, you can retire even earlier.

Be intentional with your spending and saving

By spending more intentionally and being slightly less ridiculous than normal, you could reach financial independence decades earlier. At this point, work becomes optional and you can do what you want with your time. You’ll probably find out that your happiness increases over time because of the added financial security you give yourself. Plus, you’ll be able to spend more time on the things that really make you happy – health, hobbies, friends and family.

There are two financial escalators in life – the debt escalator which forever pulls you downwards, and the investment escalator – which pushes you upward towards financial independence and early retirement. I certainly know which one I’d rather be on!

FAQ

Have you had experience of debt or positive returns on investments? Are you now considering more seriously how you could bring forward your retirement date? Let me know in the comments below:

Other posts that might interest you:

• Make consistent investing the #1 priority with your money
• Investing in the stock market and building wealth
• Simple ways to save money
• How to slow down your life by buying less

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