Thinking about retirement can be daunting, especially when you consider the average life expectancy in the United States is 77 years old.
That means if you retire at 65, you have just 12 years to enjoy your hard-earned freedom.
And let’s face it, if you’re fortunate, those years are filled with joy and fulfillment. But for some, health concerns or financial constraints can turn those golden years into a waiting game, which isn’t how anyone wants to spend their time.
But here’s the good news: it doesn’t have to be that way. Believe it or not, early retirement can be within your reach, even if you’re not pulling in a six-figure salary or swimming in wealth.
How do I know?
Because I’ve achieved it myself, and I’m here to show you how you can, too. In just seven years, you could be sipping cocktails on a beach or pursuing your passions without the weight of financial worries dragging you down.
Let’s dive in and explore how to make your retirement dreams a reality, starting from ground zero.
The 7-Year Roadmap to Financial Independence
Let’s break it down year by year and outline how to achieve retirement in just seven years.
You can take various paths, but I’ll share the route I followed.
Before we delve into the specifics, let’s talk about savings rates for a moment.
It’s a crucial concept I’ll explore later in this article, so bear with me. Your savings rate and early retirement go hand in hand. Whether earning $200,000, half a million a year, or $50k annually, your savings rate holds the key.
Consider this: with a savings rate of just five percent, retirement could be a distant 66 years away, allowing you to sustain yourself indefinitely. Boost that rate to 30 percent, and retirement could be achieved in 28 years.
Here’s where it gets exciting: if you reach a savings rate as high as mine, 75 percent, you could potentially retire in a mere 7 years.
And guess what?
You could even expedite the process further. This timeframe is based on amassing enough wealth to sustain yourself indefinitely without ever earning another cent.
It all boils down to spending significantly less than you earn—a fundamental principle on the road to financial freedom.
Year One: Initial Saving
Let’s dive into year one, where the groundwork for your journey to retirement begins. While it may seem mundane, this initial phase is crucial for laying a solid financial foundation.
Your primary focus during this period is simple: save money.
It’s all about tightening the belt and trimming unnecessary expenses wherever possible. Whether it’s housing, transportation, or groceries, aim to slash costs. Every dollar saved counts.
What is your target for this inaugural year?
Aim to squirrel away approximately ten thousand dollars. It may not sound like much, but this initial push sets the tone for your future financial success.
Year Two: Start a Side Hustle
Welcome to year two of your retirement journey.
In this pivotal period, saving remains paramount, but it’s also time to kickstart a side hustle. While saving is crucial, there comes a point where maximizing your earning potential becomes equally important.
When it comes to side hustles, there are two paths you can take.
The first involves trading your time for additional income, whether it’s through gig economy platforms like DoorDash or Uber or taking on a part-time job.
I juggled construction work in the mornings with my regular W-2 job in the afternoons and evenings. While this approach can yield immediate returns, it’s limited by the number of hours you can commit.
That’s where the second option comes in which is to build a business.
For me, this meant launching a YouTube channel, which didn’t generate income for the first few years. For you, it might be a small business like selling something online.
Ideally, your business should be scalable and flexible enough to operate from anywhere with just a laptop.
While this route may initially seem slower, the long-term potential for growth and compound interest can be exponential, steering you away from the need to amass a hefty cash reserve like $1.2 million.
As you start raking in the cash from your side hustle, resist the temptation to splurge or dive into the stock market.
Instead, stash your earnings in a high-interest savings account and refrain from touching it.
I funnel 100% of my side hustle earnings directly into an investment fund. We’ll delve into investment strategies in the next year but focus on building that financial cushion for now.
By the end of year two, aim to have amassed $25,000 through a combination of frugal living and side hustle earnings. While boosting your income is great, maintaining a steady W-2 job is crucial, especially during these initial years of your retirement plan.
Year Three: House Hacking
Welcome to year three, where your $25,000 in savings is poised to ignite a compounding effect on your journey to retirement.
While it may not seem like much, this is where strategic moves can set the stage for significant financial gains. Enter house hacking—the key to leveraging your savings and turning them into a powerful investment tool.
So, what exactly is house hacking?
It involves purchasing a two to four-unit multi-family property using a first-time home buyer FHA loan, typically requiring just three and a half percent down payment. Here’s the kicker: you’ll need to live in one of the units for at least a year to comply with the loan terms.
Let’s address the cash crunch you might be facing at this stage.
To ease the burden, consider employing a tactic I like to call “seller hack.”
Here’s how it works: when making an offer on a property, offer slightly above the asking price, say $310,000 for a $300,000 property, with the seller reimbursing you $10,000 towards closing costs. This effectively reduces your upfront cash outlay by $10,000, which is rolled into your loan and paid off over 30 years.
It’s a savvy move that frees up cash for other investments.
Once you’ve secured your multi-family property, move into one unit and rent out the others.
Suppose you’ve done your homework and purchased the property wisely. In that case, the rental income from the additional units should cover your mortgage, taxes, and insurance.
This means you’re living rent-free while building equity in your property. And most importantly, you’ll save every penny of that freed-up cash for the next phase of your retirement plan.
Year Four: Scaling
Welcome to year four, where your side hustle is gaining traction, you’re enjoying rent-free living, and your savings are steadily growing.
Things are looking up, and it’s time to kick things into high gear. In my opinion, this stage marks the fastest route to achieving Financial Independence—I’ve experienced it firsthand, and let me tell you, it’s exhilarating.
Here’s the game plan: it’s time to acquire another multi-unit property, ideally with three or four units, using a first-time home buyer loan.
In my case, I opted for a five percent down conventional loan for my second property. Now, you might be wondering if it’s possible to utilize a first-time home buyer loan more than once. The answer is yes, as long as the new property represents an upgrade to your quality of living.
This could mean moving to a unit with fewer units in the building, a larger and nicer unit, or a better location within the neighborhood. The key is that it’s an improvement in your living situation.
So, go ahead and make the move this year.
Once you’ve transitioned to your new property, it’s time to convert your previous residence into a rental.
With any luck, you’ll see a positive cash flow of anywhere from $500 to $ 1000 per month from your first rental property. It’s a significant milestone that boosts your passive income and accelerates your journey towards financial freedom.
Year Five: Optimization
Year five is where the pieces of your financial puzzle start to come together.
Progress is palpable, and you’re edging closer to your goal each day. Now, let’s explore the options available to you at this stage.
Remember, there’s no one-size-fits-all approach to achieving Financial Independence, but I’m here to share what I’ve found to be effective.
Quick disclaimer: I’m not a financial advisor, just a regular guy sharing insights from my experiences. Your situation may differ, so always do what’s best for you.
In year five, you have a couple of paths you can take. You can opt for another round of house hacking to further accelerate your progress or ease off the accelerator and focus on optimizing your current assets.
Now’s the time to ramp up your earnings potential by honing in on key strategies.
Firstly, consider dedicating some time to ramping up your side hustle. Invest a few months, or even the entire year, into fine-tuning your venture to generate consistent monthly income ranging from one to three thousand dollars.
With several years of experience, achieving this milestone should be well within reach.
Additionally, explore the potential of optimizing your housing situation by leveraging platforms like Airbnb. While this may not be feasible in every location, it can be a game-changer where it does work.
Take my experience, for example; I transformed a four-bedroom unit into a lucrative Airbnb setup by adding an extra bathroom. This simple modification allowed me to double my rental income effectively.
With my second property, I pulled in around $5000 monthly from a $2600 mortgage, taxes, and insurance expenses. After factoring in Airbnb expenses, I still pocketed a substantial amount, likely around $2000 a month.
This additional income stream, while requiring some effort to manage, was akin to earning half of what I made from my day job—talk about a significant boost!
So, as you enter year five, consider these strategies to supercharge your income and propel yourself even closer to financial freedom.
Year Six: Scaling Further
Welcome to year six, where the focus remains on expanding your income streams and taking your financial journey to the next level.
At this stage, your primary objective is to continue building upon the foundation you’ve established to achieve greater financial independence.
One key goal for this year is to scale up your side hustle, aiming to reach an income target of approximately $5000 per month.
After dedicating several years to nurturing your entrepreneurial ventures, this milestone should be well within reach. Whether it involves scaling up existing endeavors or exploring new avenues, the key is to diversify and maximize your earning potential.
I highly recommend revisiting “The 4-Hour Workweek” by Tim Ferriss if you haven’t already. This book offers invaluable insights into optimizing your productivity and creating passive income streams—a perfect resource for this stage of your journey.
As you work towards scaling your income, keeping an eye on achieving autonomy in your business endeavors is important.
The ultimate goal is to ensure that your income streams aren’t solely dependent on your direct involvement. While scaling up, strive to delegate tasks and streamline operations to reduce the time commitment required gradually.
Aim to transition from working 20 to 30 hours per week on your side hustle to just five to ten hours per week, freeing up more time for leisure and pursuing other interests.
So, as you embark on year six of your retirement plan, keep your sights set on expanding your income streams while working towards greater freedom and flexibility in your entrepreneurial pursuits.
Year Seven: The Last Move
Welcome to the final move of your seven-year retirement plan—or perhaps more aptly named, the pivotal transition to a more long-term living arrangement.
While it might not be your last move, this step is significant in solidifying your path to financial independence.
In our case, we settled into a single-family home with an attached dwelling, essentially a duplex.
With monthly housing expenses totaling around $1200, significantly lower than the cost of even the most basic one-bedroom apartment in our city, our financial burden is substantially reduced.
This shift dramatically decreases the amount we need to save for retirement, paving the way for greater financial freedom.
Given our circumstances, I couldn’t secure another first-time home buyer loan. Instead, my wife obtained an FHA loan for this property, requiring just three and a half percent down payment with $10,000 back towards closing costs—mirroring our strategy thus far.
Alternatively, after several years of diligent saving, you may have accumulated enough funds to pursue a conventional loan with a 20 percent down payment.
Regardless of your financing route, the goal remains the same: acquire a home where you’ll feel comfortable living for the next five to ten years.
If expanding your rental portfolio is still a priority, you could continue house hacking for a few more years before transitioning to a single-family home, allowing your rental properties to cover the mortgage.
With this setup in place, you’re poised for financial freedom. You’ve got two rentals—perhaps one running as an Airbnb, earning you anywhere from two to four thousand dollars monthly.
Your side hustle is generating four to seven thousand dollars monthly. Effectively, you have the means to achieve financial independence, albeit with the understanding that your side hustle requires ongoing attention.
But fear not; you’re only working five to ten hours a week from anywhere in the world with just a laptop—a truly liberating lifestyle.
Wrapping Up:
Reaching financial independence doesn’t require waiting until you’re 65 or amassing a million-dollar nest egg.
It’s about making sacrifices, living frugally, earning more, and investing wisely. While real estate has been our preferred avenue, there are numerous paths to financial freedom.
Whether through stocks, entrepreneurship, or other ventures, the key is to pursue your passion and take strategic steps toward your goals.