Every day, another person logs off their computer, downs their work tools or hangs up their uniform one last time. Sounds great, right? Not exactly. Now, there’s nothing wrong with someone retiring, the problem is that that someone isn’t you! In fact, that someone may not be you for decades or worse it may never be you! It’s no surprise that many people are struggling to retire at any age these days but fortunately, I’m here to help. As such, I am going to share with you the one thing you need to reach financial independence in just 10 years time so if retiring early is part of your financial game plan then make sure to stick around!
Most people have some sort of aspiration around retiring early. I mean, who wouldn’t want to have total autonomy over their time years sooner than everyone else around them? I believe as humans, one of the biggest contributors to our happiness is being able to do what we want, when we want and there are usually three things that get in the way of that. The first are our responsibilities to our family — think having to go to your in-laws for dinner or having to drive your kids to and from soccer practice. Then, there are our jobs. While it’s sad to say, the majority of people aren’t exactly in love with their jobs and these time suckers steal an incredible amount of our autonomy while giving very little in return. The final impediment to the whatever, whenever lifestyle is money. It’s pretty hard to do what you want when your bank account doesn’t allow for it.
Now, I can’t give you a “get out of dinner with your in-laws” card nor am I going to offer to drive your kids around town but, ideally, using the strategy I’m about to share, you can reach financial independence sooner rather than later and reclaim the time that should be rightfully yours. So, how do you become financially independent? Let’s get into that now. Being financially independent means saving and investing for decades until you reach a point where you have enough money in the bank to cover your bills for the rest of your life. For some, amassing this amount of money takes a very short period of time but for most of us, this is a lifelong financial endeavour that we work towards.
For example, if you were investing to have $1 million in the bank at retirement, contributing $400 a month at a 7% rate of return, would have you waiting 40 years to reach this goal. That’s a pretty long time to have to wait to retire if each day at work is more of a chore than a pleasure.
The Early Retirement Struggle
So, the question is, why do people struggle so much with early retirement and if you ask me there are three main reasons. The first, is that they simply have no plan in place that will allow them to make the financial decisions that will facilitate early retirement. It’s like driving a car without a GPS. Sure, you may get to your final destination, but chances are you won’t take the most expedient routes and you still risk never getting there at all. Every good retirement plan should consist of your goal retirement figure, your retirement timeline and the monthly contributions and returns you must have to reach your goal on time.
The second type of people who likely won’t retire before they’re gray are those who can’t manage their spending. Simply put, if you’re spending so much that you can’t even meet your monthly retirement contributions then sorry but you have zero chance of being able to down your work tools early.
Finally, there are those who are doing all the right things. They have a retirement plan, they have an investment system in place but the one thing they lack is a sufficient income. You see, as I already shared in the previous example, even if you’re contributing $400 a month, it will take you 40 years to retire with $1 million. If you ask me, retiring in 40 years from now isn’t exactly retiring early. Fortunately, there is a solution to this issue and one that I believe can have you retiring in just 10 years time. I’d be willing to bet this is something you’d be interested in hearing about more so let me get into how you can put this 10 year financial independence system in place!
The Solution
As we already mentioned, it’s going to take a long time to accrue the assets you need to retire with a sufficient nest egg based on how much the average person saves monthly for retirement. Fortunately, there is a way to accelerate this process and it comes in the form of making more money. Making more money can solve a lot of problems in life and being able to retire is no different. This is why, I believe that the one thing you need to retire early is to have a side business. I want to share an example of how much quicker you can retire when combining assets with a side business rather than just taking the asset only approach because I believe it is without a doubt the quickest way to retire early outside of winning the lottery or lucking out and having Aunt Mable leave you all of her inheritance money!
Let’s continue with the notion that having $1 million in the bank by the time you retire is your goal. Withdrawing 4% from that total a year would offer you $40,000 to live off of and to you that is plenty. Great, now we’ve established a retirement target.
Assuming you make an average salary of $50,000 and are diligently saving to the degree where you can save and invest 30% of your income, then every year, assuming you get no further increases in pay, you should be able to invest $15,000 a year. At an 8% annual return, investing $15,000 a year would allow you to hit the $1 million mark in just 24 years time. For people starting young, this probably already seems like a good deal. I mean, retiring in your mid-40s is well above average. However, this isn’t the 10-year plan I’ve promised to share with you and as such we need to look into how your side business can speed up this process because unless you’re a high income earner, you will still have to wait multiple decades to retire on your assets alone.
Let’s say that on your quest to retire early, you buckle down and find the drive to start a side business outside your working hours. Maybe you turn into an early bird to get work done before you clock into your job or maybe you burn the midnight oil to make your early retirement dreams become a reality. Regardless, you put in the work and get a side business off the ground. Now, as someone who has started many online businesses in my life, I can tell you first hand that the hardest part is gaining the initial traction that’s required to start making money. I know on YouTube for example, it took me 3 years to start making six-figures a year but I will share a more reasonable income example for those who think six-figures is too lofty of a goal for them to achieve.
Let’s assume that in your first 2 years of business, you break even and make no money. In year 3 you make $5,000, year 4 you make $10,000, year 5 you make $15,000 and from year 6 onward you earn $20,000 a year. Again, if you’ve never started a side business before then these numbers may still seem hard to attain but trust me if I can make money with a side business then I am sure you can do the same!
Now, of course, this extra money you’re making isn’t going to be going towards buying a new car or a fancy watch. No, it’s going to be a supplement to the $15,000 a year you’re already investing through the income you earn from your job. So, by investing all of your annual profits from this side business, in combination with the savings from your job, you’d have $500,000 in just 11.5 years. If you withdraw off this amount at 4%, you’d have $20,000 a year and in combination with the $20,000 you are earning annually from your side business, you would have the $40,000 a year you would need to live and leave your job for good!
Now, I know what you’re thinking, “but Adam, you said I could retire in 10 years and not only will it take 11.5 years but I still have to work!?”. Let me address both of these points right now.
The reality is that the numbers I used for the side business example are rather conservative. As I already mentioned, in my own side business endeavours, I’ve been able to grow to $100,000 a year in just a few years and chances are you will see more success than the example I gave therefore if you factor in making and investing more income then you can probably reach financial independence even sooner than in 10 years time.
Now, the more fair question pertains to the fact that while you may end up with enough money to leave your job, running a side business will still require you to work. I believe that everyone must contribute to others in some way to feel fulfilled. This is why, even when working the crummiest jobs, when you do a good job, you tend to feel a sense of pride and purpose. However, given that I know most people won’t admit that they need work to keep them fulfilled, there are business models you can employ to make this extra cash in hands-off ways. For instance, business models like drop-servicing allow you to outsource client projects to your hirees and simply collect the difference in profits.
However, I stand by the fact that you are going to get a lot more out of running your own business and feeling as if you are contributing during your financial independence years. As such, let’s go over some of the best side businesses you can start if retiring in the next 10 years seems like something you’d like to do!
Let’s face it, there are a ton of different side businesses you can run. Some people make extra money by mowing people’s lawns, some people teach others online and others post pictures of their…ugh faces, yeah faces on the internet for others to see.
If you ask me, there are really just two criteria that your side business should meet and they revolve around income potential and longevity. I think the first criterion is rather self-explanatory, if you pick a side business that can’t earn you much money then it’s obviously not going to provide you the income you need to retire early. So, I hate to break it to you but if you were trying to flip bottles of Coca-cola like Warren Buffett used to do then you may be staying in your job longer than you’d like.
Assuming you have the income part of the equation handled, the other important criterion is longevity. The income you need to earn from your side business is going to be required for as long as your cost of living stays the same and you want to remain retired. This means that you need to start a side business that will serve you now and later on in life.
Therefore, building a side business around bricklaying or roofing may be great now but at 65 years old you may feel otherwise. This is why I recommend you build a business around a skill that you can do for life. Some side businesses that come to mind include photography, writing and teaching to name a few. Basically, to meet this criterion, just ask yourself if you could still run your business at age 90 and if the answer is yes then you may just have a winning business idea.
All in all, retiring early, or retiring into a side business you love doesn’t have to take decades to achieve. With a few good years of consistent saving and investing, you can build an income and a life around work you enjoy with the added benefit of never having to make small talk with your boss at the water cooler again. If this sounds like it could work for you then start putting things into motion because early retirement is closer than you think!