I Retired Early: Here’s My Monthly Budget
You may have heard about the early retirement movement making waves with stories of dedicated savers who have been able to escape the traditional workforce much earlier than 65. You may have even wondered how it’s possible to retire at such a young age instead of waiting until your golden years.
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The good news is that if you’ve ever considered the idea of early retirement or are curious about how the finances work, GOBankingRates spoke with a millennial who just retired at 40.
Walli Miller is a financial coach and founder of Financially Thriving, who has been on a FIRE (Financial Independence, Retire Early) journey since 2015. She recently submitted her two-week notice and walked away from a six-figure salary. She shared her exact monthly budget and tips for how you can start your early retirement journey.
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Early Retirement Budget
“I retired from my 19-year career in public interest but have started a side hustle,” Miller said. “I don’t rely on that income, but it’s a way for me to teach others to do the same and stay productive.”
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If you’ve ever wondered what the budget of a person who retired early would look like, here’s the budget Miller shared — she and her partner live in New York City and expect to have a monthly income of about $3,700 to $4,000.
$1,600 for housing
$50 for two cell phones
$55 for internet
$450 on groceries/household items
$70 for pet-related expenses
$300 for his/her spending/fun money
$200 on eating out/date nights
$35 on subscriptions
$300 on self-care, personal development, etc.
$150 for vehicle expenses — car insurance, fuel, tolls
$132 for the Unlimited Metrocard for transportation
Other spending categories, like giving and travel, depend on savings funds and income.
As you can see, Miller and her partner had to create a detailed budget so that they would be prepared for life as retirees at an early age. If you don’t have your numbers figured out, it would be challenging to try to leave the workforce at such an unconventional age.
How To Create Your Early Retirement Budget
These are the steps Miller suggested for setting up your early retirement budget.
Step 1: Create a Spending Plan
“I made adjustments along the way, but I have several years’ worth of history to notice which categories remained constant and which ones fluctuated the most and required flexibility,” Miller shared on the importance of creating a spending plan. “I’ve used the same Excel spreadsheet since college and have the data to show how my income and spending have changed.”
You have to know how much money you’re spending monthly to plan for this. You’ll want to have some data to back up your plan so that you’re not overwhelmed by expenses.
Step 2: Have a Cash Cushion
“Having a year’s worth of living expenses in a high-yield savings account provides a safety net if the market is down,” said Miller. “Sure, the stock market [was] up over 21% in 2023, but it was down 20% in 2022. These ups and downs in the value of our portfolio are to be expected.
“Having a savings account to pull from when our portfolio is down is helpful. We’ve also saved for big-ticket items, like eventually replacing our vehicle, healthcare costs and travel.”
The goal is to have enough money saved up to help you cover future expenses so that you’re not stressed about finding work once you’ve retired early. Your emergency fund will have to be at a healthy level if you plan on leaving the workforce earlier than normal.
Step 3: Create an Investing Personal Statement
“It can be tempting to jump on the latest stock trend or go after an upcoming investing strategy — looking at your dogecoin and NFTs,” noted Miller. “But I’ve created an investing philosophy and have stuck with it. If the investing doesn’t align with my personal statement, it’s a hard pass.”
When you retire early, you’ll likely be living off money from your investments. This will require you to remain disciplined with your investing, so you don’t squander your savings on a failed investment.
Step 4: Enjoy the Journey While Planning for Early Retirement
“There are many ways to reach early retirement, but sacrificing quality of life wasn’t an option for me,” Miller said. “Since we started our journey to financial independence and early retirement, we prioritized saving, but it didn’t come at the expense of enjoying life along the way.”
She elaborated, “We spent money on the things and experiences that mattered most to us, which included traveling, fun dining experiences, a few luxury pieces and spending time with friends and family.”
You want to ensure that you’re still enjoying the journey, because you don’t want to be so focused on retiring early that you remove all joy from your life.
Step 5: Have a Plan for After You Retire
“It’s important to not only retire from something but retire to something,” said Miller. “I don’t know where I’ll be or what I’ll be doing five years from now, but I have a plan for the next six to 12 months. I have a long list of places I want to travel to, skills I want to improve and new hobbies I’d like to explore.”
If you’re going to retire early, you want to be positive that you’ll have ways to spend your time so that you don’t end up returning to the workforce out of boredom.
Closing Thoughts
If you’re curious about the concept of early retirement, this article should be a helpful starting point for you. One of the biggest barriers to retiring at a young age will be finances, so it’s essential that you create a financial plan that makes sense for your lifestyle.
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This article originally appeared on GOBankingRates.com: I Retired Early: Here’s My Monthly Budget
