Money making tips from a couple who retired in their 30s
One everyday pair reveals the secrets to giving up work and still having money to spend
Do you dream of retiring early? How about really early – as in your 30s? It sounds impossible, but one everyday couple – Jeremy Jacobson and Winnie Tseng – actually made it happen, retiring at ages 38 and 34 respectively six years ago. So how on earth did they do it?
The short answer is basically through a lot of sacrifice. The pair worked their behinds off for a solid 10 years and saved 70% of their combined yearly wage of around US$135,000 (AUS$187,690). That meant no trips to the movies, no eating out and scrimping like a Depression-era housewife. It was challenging admits Tseng, but surprisingly do-able. “After a few years we realised early retirement was possible if we tried really, really extra hard to reach our target,” the former account manager said.
By 2012 they’d reached that target. A whopping US$1million purely in savings. What’s more, they made another $1million buying US and international stocks by investing in Vanguard index funds. They choose to rent and invest instead and say they’re proof the strategy works.
As a result, the couple were able to take an extended holiday for around five years, travelling the world, even with a newborn baby, living off the dividends from their investments – about $4000 a month.
Here are their top tips for retiring early.
Pay off all debts
Before Jeremy even began to dream of early retirement he laboured hard at his job for six years, sometimes pulling 80-hour working weeks to doggedly pay off a US$40,000 student loan and credit card debt whilst maintaining a mortgage. “I don’t think you can even start to think of retiring at any age when you still have debt,” says Deborah Southon from budgeting and debt experts Fox Symes. “Do everything you can to get rid of it otherwise the interest charges will overwhelm you and you’ll never get ahead.”
Aim to save 50 per cent of your wage
The pair reckon most people and couples in particular, can retire in their 30s as long as they’re on a reasonable combined wage and save around 50 per cent of it. But the key is to start early when you’re in your 20s, before kids and other expenses weigh you down. “From the time you start you’ll be able to retire in about 15 years’ time if you invest as well,” says Jeremy. “However, the majority of people who can save 50 percent, won’t. They don’t want to wait for a car or more furniture.” After living in Taipei, the pair settled back in Seattle where they lived off a strict budget of US$2,000 or less. They also sold Jeremy’s house for a small profit of $100,000.
Cut back all costs
The pair didn’t want to run a car, so got an apartment near work (a one bedroom for $225 a week), grocery stores and a farmer’s market. “I rode a bike to work, we prepared simple meals at home and bought a lot of food from the market,” says Jeremy. “We also bought our furniture from craigslist second hand.”
Scale back on entertaining
Instead of expensive nights out, the couple met friends in parks or went to fun “soup nights” where people would each bring a soup to sample in someone’s home. Many times they declined social activities which required extra costs. “Not many people have the will power to willingly cut out the majority of socialising,” says Deborah. “Whilst you can often say no to a new top or eat a cheaper meal, it’s often much harder to turn down an enticing social invitation.”
In fact, a Fox Symes research study found that out of 1,014 Australians, one third (30 per cent) admitted to overspending on entertainment secondly only to groceries at 34 per cent. “As this is where a lot of discretionary spending goes if you can cut down in this area, it really will save you a lot,” she adds.
Invest in stocks, not housing
The couple also made a big decision to not buy another house which they say has been instrumental in their success. “I feel a home itself is not really an asset,” says Jeremy. “They’re giant money sinks which require a lot of money on maintenance. In America houses only roughly increase in value with the rate of inflation, maybe a little more. They’ll sometimes grow faster in places like San Francisco, however stocks have grown way faster and often pay dividends. That’s where we’ve decided to grow our money and so far it’s worked beautifully for us.”