Early Retirement

As I said last time in Part 1, by and large, we are a typical Midwestern family. Full disclosure however, I have a career in STEM. So while I don’t make nearly as much as my counterparts on the east or west coasts, I do make an above average salary for the Midwest. I want to acknowledge that for all that my journey isn’t going to look like Mr. Money Mustache’s, your journey may very well not look like mine. How does a typical family like mine retire early on a single income?

And yet while not unimportant, your annual salary doesn’t determine when you can retire. The length of your working career is determined by your savings rate, or the ratio of your savings to your earnings. For example, if you earn $50,000/year and save $10,000/year your savings rate is 20%. The higher your savings rate, the quicker you can retire. Let’s see how this works by taking a look at two examples.

A Doctor and a Plumber

Exhibit A: A high-earning doctor who makes $300,000/year. He’s doing pretty good financially, but let’s say he spends $280,000/year. Divide 280,000/300,000 and you get a spending rate of 94% and a savings rate of 6%. He may make 5X’s the national average salary but he will have to work for 50 years to be able to retire because of his lavish lifestyle.

Exhibit B: A plumber who makes $50,000/year, but only spends $35,000. His savings rate is 30%, and he will only need to work for 24 years before being able to retire. The plumber may only make 1/6 the salary of the doctor, but he can quit the workforce in half the time by merely keeping his spending under control.

To reach a 30% savings rate the doctor would only have to cut his spending by 25%. That means a 25% decrease in spending leads to a 52% decrease in the amount of time you need to work. This is an exponential decline in the amount of time needed to retire because boosting your savings rate has the double effect of both increasing the money you put into your nest egg and decreasing the amount you spend, thus decreasing the amount you’ll need for retirement.

Early Retirement in the Midwest

In 2018 the median household income in the Midwest was $64,069/year (source), and the average consumer spending was $59,909 (source). If we divide spending by income we get a spending rate of 93.5% and a savings rate of 6.5%. If we assume that everything not spent is put into a retirement account that returns 7% (the market average accounting for inflation), we come to the conclusion that the average Midwesterner can retire in 48 years 4months. Almost 50 years is a long time to work.

Now let’s do the math using the spending that I calculated in Part 1 of this post. I estimated our family’s spending to be about $43,200/year. If we divide $43,200 by $64,069 (the average Midwestern income, not our actual income), we get a spending rate of 67.4% and a savings rate of 32.6%. If that $20,869 is put into a retirement account returning 7%, it will only take 23 years to be able to have enough to retire. And if I adjust the median income for inflation to 2020 dollars I get less than 21 years!

That being said, I’m not planning to retire in 20 years, at least not at this moment. We’ll see what God brings in the future, but I’m content to keep working. One of the reasons for that is that we plan to have more kids so expenses will increase, and we also still plan to give money to church and other charities. We donated about $10,000 last year so if I add that to the $43,200 budget, the time calculates to a little over 30 years. That’s not retiring super early, but it’s quite a bit less than the average.

Anyone Can Retire Early on a Single Income

The current average retirement age is 65 for men and 63 for women. If you were born after 1960, the full retirement age is 67 if you want to receive full benefits from Social Security. That means if you started working at 18 the government expects you to work for 49 years. That is a long time to be slaving away for the Man. Retiring in 20, 30, or even 40 years is still retiring early.

A 25% decrease in spending leads to a 52% decrease in the amount of time you need to work.

Be responsible with your money, be frugal, but don’t feel like you need to scrimp and save every cent you make. It may mean you retire later than other FIRE followers, but so what? It’s your money and your life. Make your money work for you in a way that allows you to live the lifestyle you want. If you can do that, you’ve won.

Not everyone has a large salary, but by following some of the tips I laid out in Part 1 of this post and being diligent about only spending your money on what’s important, even a typical family with children can save for early retirement on a modest income.

What do you think? What’s a major expense for you? Or what have you sacrificed to reach financial independence? Let us know in the comments below!

By and large, we are a typical Midwestern family. I work an 8 to 5 job, my wife is a stay-at-home mom, and we have one child. It took us seven years to have our first kid, but we plan to have as many kids as God will give us (I hope He doesn’t give us more than four). I only work 40 hours/week because I want to be able to spend time with my family, and actually get to enjoy some of my youth. We spend a good amount of time at church so moonlighting is off the table. Also, we give money to church and other charities. So how does a family with (hopefully) multiple children, limited time, retire early on a single income all while also donating to charity?

The most basic advice you can be given is to make a budget, and then spend less than you make. This is pretty solid advice. We have a budget, but it’s mostly for tracking our spending rather than strictly budgeting it. We find that having a number without holding ourselves to it rigidly works well for us. The main expenses in our budget are groceries, entertainment, gas, bills, and pop-up expenses. Here’s a rough breakdown of what those expenses look like for us, and how we work to spend a reasonable amount in each category.

Groceries

This category is pretty self-explanatory. We cook for ourselves most of the time and we buy groceries at Walmart. It comes to a few hundred dollars a month.

When you shop at Walmart, it’s pretty easy to keep the grocery budget low. We make sure to buy non-perishable items in bulk. In our opinion, most generic brands taste just the same as name brands, so we tend to buy almost exclusively off-brand groceries.

For breakfast we usually eat cereal. Cereal is already pretty cheap but we make each dollar stretch by buying the giant bags to off-brand cereal. This doesn’t mean we get the cheapest stuff possible, but we often get Malt-o-Meal brand and save name brands for the cereal for when there is no off-brand available. Breakfast usually comes to $0.50/meal.

I bring a lunch to work which usually consists of a sandwich, a bag of chips, a drink, and maybe a dessert. Courtney makes bread which is super cheap since it’s mostly flour, but homemade bread is far better than even expensive quality bread from a store. Instead of individual bags of chips, we get a family-sized bag and portion it into little Ziploc baggies (which are then reused so we aren’t filling landfills with plastic).

I may get ridiculed for this but I still like Capri Suns so we get a big pack of those and put one in my lunch. And for dessert Courtney makes cookies or cake or something that tastes way better than junk food from Walmart and is much cheaper. If I am working from home, as I have been for the last year, we tend to eat leftovers, or just the same thing I usually eat in lunches. My lunch probably costs $2/day.

Dinner is where things get a little more “expensive”. We love Italian, Chinese, Indian, Mexican, pretty much everything, but what do these all have in common? They cost quite a bit at a restaurant, but can be made for cents on the dollar at home. You don’t even really need to know how to cook. I make a mean stir fry if I do say so myself, and it’s basically just meat, frozen veggies, rice, and whatever seasonings and sauces sound good that evening. And it always makes leftovers. We can make dinner for like $3/meal.

Entertainment

This category consists of eating out, hobbies, going to movies etc. We eat out once a week, on average, each have a couple of hobbies, and will go out for the occasional movie (When movies are actually in theater, unlike this year). Entertainment comes to about a couple hundred dollars a month.

Basically we save money on entertainment mostly by cooking our own meals, but when we do go out for food, we have a few simple rules that help us save hundreds/year.

1. We don’t order drinks. Sure pop tastes good (so I’m told), but at anywhere from $2-$6 for a drink, it can add up quickly. Also pop is terrible for you, even sugar-free pop is still carbonic acid which degrades your teeth. Water is free and good for you!

2.  We never order alcohol. It helps that we don’t like the taste, but the tax on alcohol makes it fiscally untenable. See also all the health reasons laid out in rule 1 above.

3. We don’t order dessert. By now you’re probably starting to think I’m just a kill-joy. But the reason we don’t order dessert is that we almost never finish our plates when we eat out. Don’t stuff yourself just to eat some piece of cake that’s been sitting out in their kitchen for 12 hours. Make your own cake at home. It’s much tastier and cheaper.

4. Take home leftovers. Don’t force yourself to finish the food that’s on your plate because you think it’s wasteful not to, and don’t throw it out. Get a to-go box! Those leftovers can become a meal tomorrow, thus saving you money on your grocery budget. I have heard that there are actually people who think it’s cheap to take home leftovers.

5. We like to see movies in the theater, but we never buy snacks from the theater. We always bring our own snacks to the movies. In this day and age, most movie theater employees don’t bother checking your bag unless you’re carrying in a duffel bag. We make it a game to see how much we can sneak into the theater. Our goal is to one day sneak a whole pizza in!

As for hobbies, both of us have reasonably cheap hobbies. My wife loves to collect books, and I like to rock climb. When done right, neither of those hobbies are horribly expensive. My wife almost never pays full price for a book, opting to either buy them online or just finding books at thrift stores. And even though we have to go to a climbing gym to climb (not many big rocks in Kansas), I get a punch pass that goes on sale twice a year.

Gas

Once again, this category is also self-explanatory. While we try not to drive a whole lot, about once every month or two we travel to Nebraska to see family so that’s about $50 in and of itself. Since I’ve been able to work from home for the past year, we’ve been able to keep gas under $100/month.

We have two cars, both of which get about 30 miles to the gallon. We live about 15 miles from my work place, and while we could live closer to save on gas we like our neighborhood. I save on gas by coasting up to red lights and not accelerating quickly. The majority of gas is wasted when starting from a stop so if you time your lights well you can save a lot on gas. I’m not kidding. Seriously, if you only take one thing from this whole article, I want you to start coasting up to red lights. My wife, who edits these articles, doesn’t want me to leave this in but I’m dead serious. Also I never turn the AC onto full-blast. It takes a lot of energy to run a condenser.

Bills

This category includes our mortgage, utilities, and other recurring bills. The mortgage is obviously the biggest part of this section, but we refinanced last year and locked in a rate of 2.625%! We usually keep our bills under $2000/month.

The best way to save on bills is to refinance your mortgage. As a general rule of thumb if you can get a 1% reduction in mortgage rate, it’s worth refinancing. We refinanced from a 4.325% to a 2.625% dropping our payments by about $200/month. Utilities are another area where there is room to save. In the winter time we keep he heat at 68°F during the day and 64°F at night. In the summer we keep the AC at 78°F during the day and 72°F at night. These are totally reasonable temperatures for the Midwest. We are also in the process of replacing all the lights with LED’s. We are waiting until they burn out because it’s dumb to replace something before it’s broken.

Popup expenses

This category is our biggest variable in the budget. This includes annual insurance payments, car maintenance, big trips, and other expenses that are not monthly. We budget $1000/month for this, but it can be anywhere from a couple hundred to a couple thousand. Last year we averaged about $1000/month.

This is hard to keep control over, but in general we save on transportation by driving old cars. Since our cars aren’t worth much we only pay for liability insurance. In my opinion, full coverage is a scam. I also do much of the routine car maintenance myself. My dad and I change our own oil, brakes, and rotors. A high-mileage synthetic oil change will cost you $80 at an oil place (and even more at the dealership), but doing it yourself will only set you back about an hour plus the cost of the oil (about $20 at Walmart). Changing oil on two cars twice a year saves us $240/year. And for the record I’m not a car guy, I just looked up how to do this on YouTube.

As for vacations or big trips, we work to keep costs low by Pricelining hotels, packing meals for car trips, and finding deals when possible. But I’ll be honest, this is the area we are most likely to splurge. We like to try new experiences, so often vacations are full to the brim with different activities.

How Much do we Spend?

So doing a back of the napkin calculation, our essential expenses are roughly $3600/month or $43,200/year. This allows us to use a large portion of my salary for other things.

One of the things we do with this is we tithe 10% to our local church. This isn’t a compulsory giving, but 10% is an easy amount for us and we’re happy to help the church out however we can. We donate to an International Student organization that works with our Alma Maters, and this year we donated to the Prevent Cancer Foundation.

All this isn’t to say look at us we’re so frugal. But I hope it does give an example of how a middle-class family can easily stay under budget. And as I mentioned earlier in this post, we’re not strict in keeping to this budget. While we try to be frugal, we’re not being cheap. We don’t just eat Ramen noodles or rice and beans to save money. Courtney makes real meals that taste great, and we still go out to eat regularly. We don’t turn off the heat in the winter time and when something is seriously wrong with our cars we take them to a mechanic.

There’s a difference between frugal and being cheap, and while that line is different for different people, I don’t think we’re cheap. We don’t pinch pennies or clip coupons, but we like to live frugally so that we can spend money on things that are important to us. Like I’ve already said many times on this blog: financial independence isn’t a race, it’s a slow burn. So based on our spending how early can we retire? Find out in Part 2 of this post next time.

What do you think? What’s a major expense for you? Or what have you sacrificed to reach financial independence? Let us know in the comments below!