We’ve all been there. You’ve scanned over your annual expenses, debt and taken a look at financial goals. You’ve got children to look after and big purchases coming up. The FIRE calculator just isn’t showing you the right figures and early retirement seems impossible.
You’re right, it is difficult to retire early in Europe.
But it’s not impossible.
We’re tired of the myth that early retirement is impossible in Europe, and today we’re here to debunk a few. Read on to find out how you can make small lifestyle changes in order to save, invest and prepare for early retirement in Europe.
- I can’t lower my expenses
- I have young kids who are expensive
- I don’t earn enough
- I will run out of money
- My investments are down
Myth 1: I can’t lower my expenses
It’s very true that our lifestyles can be both freeing and limiting. Many of us are caught in the crossroads of spending now and living in the moment, versus tunnelling our money into different investments for long term financial protection. It may feel like you’re already scrimping and saving where you can, but there are a few categories of spending that most of us don’t even consider.
Think about the luxury expenses that you view as essential. We’re talking subscriptions to TV services like Netflix or Hulu, or paid versions of Spotify or Apple Music. Are you losing hundreds of Euros in monthly fees for car lease, insurance and road tax?
Think about the long term savings you can make by swapping your purchases around and deleting some of the paid services you might be able to access for free. In order to achieve FIRE, many of us have to make lifestyle sacrifices in exchange for later financial security.
So, consider returning your leased car and spending out just once on a vehicle with no road tax costs and low insurance. This way, you avoid the interest payments, lower your expenses and divert future income into your investments instead of towards an ongoing vehicle cost.
Myth 2: I have young kids.
Family can be a brilliant source of happiness in our lives; but having children doesn’t come without costs. That’s ok, many of us are prepared for the expenses associated with bringing up children. It comes with the territory.
Having kids shouldn’t throw off your retirement plans, in fact, they can be worked into your costings and calculations. Luckily for us Europeans pursuing FI, many higher education facilities are either free or low-cost. So you won’t have to consider college savings plans unlike many American parents who want to support their children through higher education.
In order to adjust your FIRE plans to take young children into account, consider the lifestyle adjustments you are planning to make. Will your children require new school uniforms or clothes every year, or will you go thrift shopping and accept hand-me-downs from friends? Will you meal prep and plan every meal or splurge on takeaways and fast food? A careful lifestyle plan (with a buffer!) should be enough to take children into consideration as you plan early retirement.
Myth 3: I don’t earn enough
In Europe, our salaries tend to be much lower than our American counterparts. Having said that, we don’t usually have the costs of healthcare or high tax rates included in budgets and everyday life. Still, a low salary can limit our ability to plan ahead for early retirement and it may feel like you’ll be working for the rest of your life.
Luckily, it doesn’t have to feel that way. There are a number of ways to combat a low salary, including:
- Building up multiple income streams
- Creating passive income
Each of these routes will have different benefits and considerations depending on your personal situation. For some, geo-arbitrage is the obvious choice as you are already working remotely. You’ll experience tax breaks and a lower cost of living while earning the same income, so can have more of your salary leftover.
For others, building up side hustles and businesses can be more lucrative. If one of these becomes highly successful, you could even end up replacing your salary with a full-time income. Lastly, building a passive income stream means you’ll avoid trading your time for money. It could be the best option for those of us who want to maintain an income while taking early retirement.
Myth 4: I will run out of money
So you’ve calculated your FIRE number and your current savings and investments are nowhere near enough. In fact, to reach your desired retirement pot goal, it’s going to take far too many years worth of hard work. Retiring EARLY is completely out of the question.
Here are some more extreme ways to live frugally and reach your early retirement goals if your current figure is way off:
- Downsize your living arrangements: either move into a smaller property or swap a permanent residence for van life
- Sell your vehicles if they’re not required
- Create a non-fungible token (NFT) for free and sell it
You could also change your FIRE strategy to a Barista FIRE style. This means that while you’ve technically retired from your corporate career, you’re still bringing in a level of income from a part-time, low-stress job. While you don’t necessarily need to rely on this money, it can supplement your investment pot and provide increased security around your early retirement choices.
Myth 5: My investments are down due to covid
Unfortunately, this is a common occurrence for many who had plans to retire early before the covid-19 pandemic. It’s true that losses during this downturn can set you back years on the original plan. But it’s not all negativity.
Firstly, re-calculate your FIRE number and the 4% rule associated with your living expenses. These may have changed due to the pandemic or other life events, so it’s good to be clear on the exact figures you’re dealing with.
The downturn may have highlighted that you’ll need an extra layer of security to be able to retire early in Europe. Think about creating passive income streams through affiliate marketing, for example, or whether you can afford to purchase a rental property. Growing your wealth can hardly hurt your chances of retiring early.