Forget about joining the 1%. Personal finance expert Michelle Schroeder-Gardner is currently on track to become part of the arguably more prestigious 3.7% of Americans under 55 who have retired early. The 31-year-old digital nomad figured out a formula for saving a whopping 90% of her income and earning seven figures so that she can quit working this year.
Personal finance expert Michelle Schroeder-Gardner with husband and two dogs
Laura Ann Miller Photography
If you’re starting to come down with a massive bout of comparisonitis, hold on. I should also tell you that nearly half of all Americans haven’t saved anything for retirement. So even if you’re not on the road to kicking your feet up yet, you’re not alone. But it’s time to turn things around.
As part of her blog, Making Sense of Cents, which gets more than 300,000 views per year, Schroeder-Gardner reveals the tips that she and her husband used to pay off $38,000 in student loans in just seven months, maximize their income and, of course, quit the workforce.
Follow Michelle’s best of advice for joining the Financial Independence Retire Early movement:
Understand your debt
Knowing exactly how much money you owe and at what interest rate is key to financial independence. One friend of Michelle’s thought she owed $34,000 in loans but it was actually more than twice that—meaning she’d need to strategize harder to eliminate that debt. Not all debt is bad, but you need to figure out if your debt is holding you back in terms of both high interest fees as well as stress. Set aside an hour or two to sit down and look at those financial statements you’ve been ignoring.
Find extra money through side hustles
Before you say you have no free time, consider that Americans watch an average of 28 hours a week of television. If you could use half of that time to find a way to make extra money, that could help you put more money towards your retirement plan, investing, and more.
Decrease your bills
Look for expenses that you don’t really use that add up to a lot over the course of a year. Then cancel them and put that money towards your retirement savings. Think: streaming services and subscription boxes. Also, comparison shop to find the best prices on recurring expenses such as car insurance, which most people overpay for. Michelle recently saved her mom more than $1,600 a year on car insurance by switching plans—and without losing any benefits.
Diversify your income
You can only cut your budget by so much. However, your income can grow by an endless amount if you find multiple ways to bring in money. You could start by renting out a room in your home, picking up a side hustle, dividend investing and more. Another bonus from diversifying your income: you won’t have to worry as much about one of your income streams having a bad month or completely disappearing because you’ll have others.
Build an emergency fund
From power grid outages in Texas to once-in-a-century pandemics, it’s never been more important to have an emergency fund so that a medical misfortune or natural disaster doesn’t destroy your finances. Having this money set aside can help you reach early retirement because you won’t be forced to resort to taking on high interest rate debt to get by. I recommend having at least 3-6 months of expenses saved in an emergency fund.
Have a number in mind
Your early retirement or financial independence vision will be different from your neighbor’s, your colleagues and Michelle’s. Figure out your number and then plan towards getting there. Two of my favorite books for helping you figure out how much money you need to retire early are Work Optional by Tanja Hester and Quit Like A Millionaire by Kristy Shen and Bryce Leung.
The bottom line is: Many can achieve financial freedom and retire early but you have to have a plan in place, be willing to hustle on the side and save a large percentage of your income. The effort will be worth it when you wake up one day and realize you have the freedom to do whatever you want.
