Lean Financial Independence: Early Retirement on a Supertight Budget

Sarah and I are at an interesting crossroads in our financial journey, one we’ve alluded to a few times recently.

As we’ve said before, our goal is to retire early when we’re in our late forties, roughly around the time that our youngest one leaves the nest. There are a number of reasons for this: a big part of it is household and social stability as they grow up, along with living in a good school district.

Once our children are out of the nest, Sarah and I intend to sell our current home, drastically downsize our possessions, buy a small country home with a few acres on it, and basically retire at that point. We intend to travel a lot in the United States with long stops at all of our national parks, get deeply involved with a few local charities, and pursue a few major personal goals; one of mine is to write a series of fantasy novels the way I want to write them, rather than with an eye for making a living from them.

Recently, however, we came to the realization that we’re very close to “lean” financial independence already.

So, what do I mean by “lean” financial independence? I simply mean that if we were to adopt a lifestyle with very low expenses – substantially lower than what we have now, but definitely livable – we could both quit our jobs right now and live for the rest of our lives off of our income.

To be more specific, if we chose a 3% withdrawal rate on all of our savings and investments and also moved to a smaller house and banked the money we earned on that transaction, we would be able to live on the investments at a level just above the poverty line. However, it’s worth noting at that point that our home would be paid for and we would have zero professional expenses.

While it’s not a life we would actually want right now for a number of reasons, it is a scenario that, once we realized it a few months back, has entered into our discussions a little bit.

The Benefits of “Lean” Financial Independence

Naturally, as Sarah and I do when any major decision or life option appears on our radar, we started making a big list of pros and cons. Here are the major benefits of “lean” financial independence, as we see it.

Tons of free time when we’re young and healthy The earlier that we “retire,” the more years we have in which we’re healthy and energetic and have the desire to take on major life challenges. Doing so right now likely gives us three or four decades of good health. That’s a lot of time to chase many of our personal dreams.

The idea that I could go on three or four hikes a week and spend several hours each at a few different charities and take care of the many other things I’d love to be doing but I simply don’t have time for seems blissful.

Infinite career opportunity We both look at this kind of opportunity as a chance to switch careers and have much more independence in our career choices. We can afford to earn nothing for a while if we have “lean” financial independence, so we can easily make career choices that might make no sense otherwise and we can also stand up for ourselves and leave unhealthy workplaces.

This doesn’t necessarily mean a dissatisfaction with our current career. It just means that when you have enough money come in to ensure your basic life expenses without working, it becomes much easier to make hard career choices and to be selective with your opportunities. It becomes possible to take huge risks and try things you might never otherwise try.

A more minimalist life Part of the appeal of “lean” financial independence is that it requires a more minimalist life than we have right now. This isn’t so much in terms of possessions – though that’s true to a certain extent – but in terms of the daily hectic nature of our lives. We sometimes feel constantly busy, as though we’re on an endless cycle of commitments and tasks that never ends. Getting off of that treadmill seems quite appealing, but it’s something that’s fairly difficult to do with our current life commitments. Eliminating a bunch of commitments would be pleasant. Although this idea is tied to more free time, it’s more of a realization of the lower stress that comes from eliminating commitments and downsizing one’s possessions.

If you’re intrigued by the idea of reducing stress by downsizing possessions, something I am a strong believer in, I recommend Marie Kondo’s books The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing and Spark Joy: An Illustrated Master Class on the Art of Organizing and Tidying Up.

A huge “emergency fund” if it’s needed If things went very awry, one or both of us coud return to the workforce in some capacity to bolster our income. Over the short term, however, we could certainly withdraw a larger portion of our savings in order to make ends meet, though that would almost definitely lead to some need to return to the workplace at some point.

The Drawbacks of “Lean” Financial Independence

Of course, there are some significant drawbacks to jumping onto this path.

A very “lean” lifestyle Although we don’t live a particularly expensive lifestyle as it is, we would still lose many little perks that we currently enjoy as we simply wouldn’t be able to afford them. My monthly hobby budget would almost entirely disappear, for one. We’d likely eliminate almost all of our entertainment-related subscriptions. Our summer travel would be much leaner.

While Sarah and I are very frugal, we do enjoy some hobbies and some entertainment options. We could give them up, of course, but losing those options would definitely be noticed. We’ve already filtered things such that we’re only using the entertainment and hobby expenses that really matter to us, so cutting those things would really be felt. We’ve already cut out the easy things, so further cuts would involve the hard things.

Serious health insurance questions If we both retired, we would be on our own when it comes to health care options. Going forward, it’s really hard to tell what the health insurance landscape of America will look like. Will there be a health insurance exchange? What will Medicaid and Medicare rules look like? It’s hard to tell going forward.

While Sarah and I could handle our family’s current medical expenses out of pocket, that’s definitely not a given in the future. We do not want to be caught in a situation where a medical problem with a member of our family soaks up all of our savings.

Stale resumes If we spend several years in this state of early retirement, our resumes will eventually atrophy, leaving us in a position where it is difficult to return to a lucrative career. We can, of course, combat this by staying somewhat current in our careers and keeping up some of our professional contacts, but if you’re doing that, are you really retiring early?

This is definitely something I’ve noticed with my previous career. When I made the choice to try full-time writing with a flex schedule to spend a lot more time with my children, I made efforts to keep my resume in my old career path fresh, but enough years have passed that the resume – and my contacts in the field – are extremely stale.

Making the Decision

After weighing these pros and cons, Sarah and I have made the choice, for the time being, to not head for a “lean” early retirement in the near future and instead head toward a more robust early retirement in ten years or so. Here are some of the key deciding factors that swayed us toward staying in our current path.

We both enjoy our careers. Neither Sarah nor I hate our current jobs, other than the fact that they eat up a lot of time that we might enjoy using for other projects. The reality is that every single hour you spend has an opportunity cost, meaning that you can no longer use that hour for anything else, but we both have the opportunity to spend professional hours on tasks that we enjoy that have a positive impact on others and without intense professional stress. That’s about all you can really ask for in a career, to be honest. The relative quality of our respective careers leans us toward staying with them for the time being.

This would, of course, push us toward early retirement if we disliked our jobs. Career satisfaction is generally a factor that resists a move to early retirement and career unhappiness is a factor that pushes people toward early retirement. Thankfully, we’re on the happier end of that spectrum.

We are apprehensive about the future. The next few years look uncertain to us in a number of ways. The opportunity for individuals to obtain health insurance for their families outside of the umbrella of an employer seems certain to change, which would definitely make a lean early retirement much more challenging, and something like a nationalized health care system – which would be a huge boon for early retirement – seems incredibly distant right now. Many investment markets seem high right now, and while I think market timing is useless, it is a truth that growth can’t continue forever.

The future holds changes with regards to early retirement, and when you’re considering a plan that requires you to walk a tightrope anyway, it seems even more risky to start on that plan in the face of those potential changes.

We place a ton of personal value on stability. A big part of this comes from our role as parents and our desire to have a very stable and secure home for our children as they grow and branch out into the world. Until they’re ready to fly on their own, we want them to have a nest to return to, one that they feel very safe and secure in. We’re not helicopter parents – far from it – but we want them to have a foundation in their life that they don’t doubt so that they feel confident taking flight in whatever journey life takes us.

Like it or not, there is more stability to be found in continuing to earn a healthy income from our careers and treating our early retirement savings as an emergency backup of sorts.

Reaching “Lean” Financial Independence Yourself

The options we have on the table before us would have seemed like an absolute dream several years ago. The idea that it was even possible for both Sarah and I to not be working for an extended period without us losing all of our possessions and basically being homeless seemed like an utter flight of fancy.

How did we get from there to here? I’ve written about these strategies often in the past, but for many people this will be their first exposure to The Simple Dollar, so here’s a quick summary.

We spend a lot less than we earn and bank the rest. This has been a constant for roughly a decade or so. We simply don’t spend a large portion of the money that we earn. This means living beneath our means. We live with the knowledge that we could definitely buy a lot more things, travel a lot more, have shiny new cars, and so on. We don’t do those things because they’re not as important to us as other things.

We automate our savings. Money is automatically taken out of our checking account and put into investments each week. This forces us to budget and make spending choices based on what’s left over. We never allow ourselves to have a bunch of cash in our checking account that we’re tempted to spend.

We avoid debt like the plague. We simply don’t get into debt. We keep a healthy cash emergency fund at our bank and replenish it if we ever need to tap it. If we don’t have the resources to buy something that isn’t essential, we don’t buy it and wait until our next pay period. If we know we have a big expense coming up, like a car replacement, we intentionally start saving for it so we can pay for the car replacement in cash.

We cultivate low cost hobbies and interests. Most of our hobbies are really inexpensive. We simply don’t throw money into expensive hobbies. My primary hobbies involve hiking in local state parks and other nature preserves (which is basically free), reading books I’ve checked out from the library (again, free unless I mess up due dates), and playing board games at community game nights and with my family (low cost, but it’s the one hobby I have to really watch).

We don’t worry about what other people think. Having clothes or cars or gadgets that were chosen to impress are meaningless to us. Most people don’t notice them at all. I don’t really notice what cars other people drive or what clothes they wear.

We pride ourselves on achievement rather than possessions. I’m more proud of the books I’ve read than the ones I’ve owned, for example. When I think of my hobbies, I think of the things I’ve made or accomplished rather than the stuff that I have.

We cultivate a social circle of friends with a similar philosophy. Most of our closest friends have an outlook that’s very similar to our own. They spend less than they earn. They intentionally save and invest the difference. They have low cost hobbies. They don’t buy things to impress others. They focus more on achievements rather than possessions. Our conversations and social events constantly reflect those values and thus naturally reinforce them.

Forging Your Own Path

Whether you choose to save your money to retire “lean” as early as possible or you save to retire early with a higher level of income or you choose to save for a completely different big goal, the exact path you follow is up to you and no one else. It is your own path.

What’s the right choice? What’s the wrong choice? The thing is, when you’ve saved up and invested enough money to start seriously thinking about financial independence, what’s “right” and “wrong” has a lot more to do with what you value than with following the rules of others.

You get to decide when you’ll have enough income coming in to retire early.

You get to decide what you’ll do with that time.

You get to decide whether you want to jump into a different career or just spend all your time enjoying a hobby or engaging in a passion that doesn’t make money.

There is no right. There is no wrong. There is only you.

At this point in my life, I find that a particular quote from Ralph Waldo Emerson provides a ton of guidance and solace.

“Do not go where the path may lead, go instead where there is no path and leave a trail.”

I am the first person in my family and the first among my friends to really be facing these questions. I don’t know all of the answers. The best I can do is learn from books, listen to my heart, and forge a path.

Maybe that path is a great path that I’ll be happy with. Maybe it won’t be. Regardless, I share this path and this journey with you, with my friends, and with my family. If nothing else, they can draw their own conclusions and ideas from it.

Trust yourself. Learn as much as you can from what others have done. If lean early retirement feels right for you, make that leap. If it doesn’t, stay on a different path.

Forge your own destiny. You’ll always be glad you did.

Trent Hamm
Trent Hamm
Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

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