How To Retire in Seven Years

 You can become financially independent in less than seven years starting from a scratch. Most people think that financial independence is about earning a massive salary but they’re wrong. It's not what you earn, it's what you keep that truly matters. So it doesn’t matter how big it is, it's what you do with it that counts. Mike Tyson earned 400 million pounds in his career and in 1995 he reportedly spent four hundred thousand pounds a month, which is 4.8 million dollars a year. Eight years later, he filed for bankruptcy. On the other hand, Jeo Average who could work as a sales Manager could be earning thirty thousand pounds a year and only spends ten thousand pounds on his lifestyle. You can find out by calculating what you save as a percentage of your take-home pay well. Mr. Money Mustache has calculated how many years you’ll need to work based on how much of your wage you save. So if you take home 40k a year after tax  and you invest 10000 pounds that year, your savings rate is 25 and you’ll be financially independent in 32 years. If your take-home pay is 80k a year and you invest 4k a year, your savings rate is 5 and you could retire in 66 years. If you’ve never invested in the stock market before just stick to the low cost global index trackers rather than buying individual companies.  You shouldn't run out of money in retirement. Current national averages are garbage.The average saving rate in the U.K is 2.9 percent a year, the U.S is over twice as much as 6.3 percent, in Pakistan, mostly rely on pension and in the private sector there is less trend to save. 

The relationship between savings rate and time to reach financial independence is not linear, it's exponential so if you’re spending all of your income every single month and never saving a penny ever you’ll never retire unless you have help from a pension fund, the lottery or an inheritance.

Here are some finest tips to help you work towards financial independence.

1- Track your Spending

The most important factor in reaching financial independence early is reducing your spending. Peter Drucker famously said, if you can’t measure it, you can’t manage it. If you do this one thing and ignore the remaining 17, your finances will be vastly improved. First step in improving anything is self awareness. Once you understand your circumstances you can make the appropriate changes.Track every single penny you earn and every single penny you spend for the next 30 days. Be a little bit more mindful about what you’re spending if you look back over the last 12 months statements of what you spent and what you earn you get 10 extra cue points and they’re practically priceless. Once you’ve got some data to work with, you’re perfectly placed to move on to the next step.

2- Make it a Game

Apply gamification to this and any other area you want to improve. Gamification helps engagement, enjoyment and execution. So take a look at what you spent last month and see If you can beat it next month take that a step further and look at what you spent over the last 12 months and try and beat that for the next 12 months, track your progress and give yourself a reward for achieving it or if you’re a savage you could give yourself a forfeit for not completing.

 The more you have fun with this, the easier and more effective it will be.

3- Go for the Effortless Wins

Start with the low hanging fruit to get momentum there’s no lifestyle changes needed at this stage. Look to reduce your credit card and loan debts, utility bills, mortgage rates and insurance. You have to spend money on these anyway so you might as well pay less for the same thing. Use comparison sites to see what’s out there, become a finance floozy and switch companies to get the best rates. 

4- Multiply Annual Expenses by 25

If you’ve got a pension you’ll likely have invested in the stock market whether you know it or not. The stock market will go up around seven percent a year. Some years it might go up 20 percent, other years it might drop down by 10 percent. But historically, year after the year on average it’s 7. In 1998, three professors of finance at Trinity University created a paper Trinity study. It found that if you withdraw no more than four percent of your retirement pot each year you’ll be able to remain in retirement without running out of cash. This four percent became known as the safe withdrawal rate. So for example if you had a hundred grand in stock and shares you could theoretically withdraw four thousand pounds a year and theoretically never run out of money.

5- Moving Home

In the U.K people pay anywhere between 25 and 50 percent in income on housing costs depending on location and age. You can lower your council tax, utility bills and mortgage. This could save your money. If your commute is more than 25 minutes drive then consider moving home. You can bike or walk to work. You’ll not only save money and precious community time but also get the health benefits of moving rather than sitting. 

6- Upgrade your Transport

 Consider selling your car all together or transitioning to one car household. Say goodbye to car tax insurance, fuel and maintenance and if you can live without a car look at how the average consumer spends that 162 pounds a month and look for opportunities to save about 70 percent of car costs are attributed to maintenance 25 on fuel and the other five percent on miscellaneous items like cleaning and accessories.

7- Master Expenses, Then make more money

There’s only so much that you can reduce your expenses by you still have to pay for food council tax, utility bills and a mortgage. At some points you’re going to encounter diminishing returns on your efforts. Think of mastering expenses as level one. Don’t stop there once you’ve locked down your spending habits, move on to level two and make more money. Level two has limited potential and can dramatically change your life. We all have the same opportunity to earn millions of pounds a month if we want to. You are just choosing not to by increasing your income. You rapidly expand the spare cash that you have each month which you can invest into income producing assets.