This is a guest post by Elizabeth from Working for Rachel. Elizabeth is starting her savings and plans to gain financial independence in 8 years at 35. If you like to read more please consider subscribing to her RSS feed.
I’m 27, and I want to retire at 35. I live in a big midwestern city with my boyfriend of three years and I work for a good-but-not-astronomical salary as a publications manager at a nonprofit. So far, I only have about $22,000 in savings and investments. We don’t own real estate. I don’t have any great investment or business ideas. In short, I might be crazy.Still, I think I can do it.My plan thus far is pretty simple: $2500 in savings every month and reducing expenses down to about $1000 a month. Right now, all I care about is that those rough numbers work. My planned savings plus a conservative estimate of interest equals an amount that can yield what I believe is a reasonable monthly income for the rest of my life.Five Ways I Save
I live in a city. The rent is higher, but there are lots of free things to do, an extensive public and university library system (essential for me), and good public transportation.
I don’t own a car. Have never had one and hope to never need one.
I don’t own a house or condo. I don’t believe in starter homes—they tie up your money in exchange for an iffy return on investment. If and when I buy, I want to be able to afford a good down payment on a place I can see myself living in for the rest of my life.
I don’t “go out” drinking, dancing, or to the movies. When I get together with friends, it’s usually at a literary reading or a free networking event.
I don’t spent much on gifts. I spent about a hundred dollars last Christmas, and that was high for me. My boyfriend and my family members aren’t very materialistic and I don’t see much value in giving them something they don’t really want (or vice versa). Next year, I’m planning on suggesting a gift-less Christmas.
I also have an ace (or maybe only a jack) up my sleeve—a trust fund. So far, the principal is only $24,000, but my grandmother will potentially continue contributing $12,000 a year to it until I’m 35. I don’t factor this into my retirement planning calculations as I don’t know how long she will continue to contribute and counting too much on an inheritance seems both stupid and a bit callous.
My current strategy:
I save $2500 every month, which is about 70% of my net salary. My savings are divided between a Roth IRA, which is invested mostly in stocks, and my high-yield savings account. I’ve decided not to contribute to my 401(k) until my company contributions kick in, because I expect to want access to this money well before traditional retirement age. (I did find out about the 72(t) rule a few days ago, and that may change this decision.)
I track my net worth every month and have marked on my calendar when I’m going to reach round numbers like $50,000 and $100,000.
$1000 a month is about how much I should have left over after my savings goals, but I’ve been spending more than that, using my “extra” freelance income as spending money instead of savings. Not good.
My retirement plans are based on spending of about $1000–$1300 a month, increasing after the first few years to keep pace with inflation. I need to make sure I can really live on that money or the whole plan’s going to fall apart. With fixed expenses of only about $820 a month, I should be able to get there.
My Future Goals
So for the next few months I’m going to challenge myself to spend progressively less in my discretionary spending categories (food, books, clothing, entertainment, and miscellaneous). I’ll start out by trying to beat my all-time lows in each category, with the new lows becoming my numbers to beat for the next month. By the end of May 2008, I hope to be spending $1000-$1100 a month.
I’m also going to start putting all freelance income directly into my savings account to make it easier to resist temptation.
To read more about my progress towards financial independence, join me at my brand-new blog, Working for Rachel. I’ll be making up frugal rules for myself, exploring new investment options, and sharing the mistakes I make along the way.
If anyone else would like to share their plans or experiences with early retirement or financial indepedence in a guest post let me know. Contact me at <myfirstname>@earlyretirementextreme.com.