Have you noticed when it comes to personal finance books – they all give conflicting advice?
Some say start a business, some invest in properties, and some say invest in the stock market.
So the question is – which is the best way to retire early? Well, there are 3 ways to look at it:
The Entrepreneur – the type of person who retires early by starting a business and selling it.
The Investor – the type of person who retires early by investing in property, businesses, etc.
The Saver – the type of person who retires early by investing in the stock market long term.
The best approach for you depends on your personality and how much risk you can endure.
In this post, I talk about the 3 pillars of finance to master: income, expenses, and investments.
I also talk about the 3 early retirement personality types: Entrepreneur, Investor, and Saver.
Finally, I discuss which option is more reproducible, and where to find out more information.
The 3 Pillars of Personal Finance
As a rule of thumb, there are 3 pillars to personal finance: Income, expenses, and investments.
Income is money in, expenses is money out, investments is money generated from money.
Your average working person or middle class couple is usually average in these three pillars.
They have an average income, they have high expenses and have below average investments.
This is why they are unable to retire early, because their personal finances are just – average.
Those who manage to break the mould, and retire early, are not average in these 3 pillars:
- The focus on generating a lot of money, outside of their job, through a business or side hustle.
- They focus on reducing their expenses, choosing to spend the money on assets not liabilities.
- They focus on investing their money in investments that generate a great return and low fees.
However, no one is perfect, most people decide to focus exceptionally on one of the 3 pillars.
The Entrepreneur
The entrepreneur’s source of wealth will come from their ability to generate a lot of money.
This personality type of people will focus on entrepreneurial ventures in order to retire early.
The realise that the traditional path of making money will take them too long to retire early.
They want to start a business, generate a lot of income and eventually sell it for a huge profit.
These personality types are more focused on the income pillar – earning as much as they can.
They tend not to focus much on their spendings; after all, they can keep making more money.
Their investments tend to be average as well – they invest money but it’s not their main focus.
They’re on the fast track to retirement – if they sell their business for £1 million, they’re free.
However, this path is not guaranteed – after all, not all businesses last after the first 5 years.
However, entrepreneurs would rather try, fail, and try again than play it safe like the Savers.
The Investor
Investors are the type of people that are excellent at turning their money into more money.
Their personality type is focusing more on the investment pillar to achieve early retirement.
These people don’t want to play it safe and invest in index funds – that’s too boring for them.
They want to invest in a bit of everything: property, business, cryptocurrency, you name it.
They don’t want to just generate 10% returns on investments a year- they want over 20%.
They’re not focused mainly on making money via income, they can do that with investments.
They are not as focused on saving much of their money – their priorities are on buying assets.
They want to buy assets, sell them at a higher price, and repeat it until they can retire early.
However, the problem with this personality is it’s not guaranteed; investments go up or down.
Nevertheless, they would much rather take this approach and risk it all compared to a Saver.
The Saver
Savers manage to retire early by obsessively controlling their spending and hence save a lot.
Regardless of what their salaries are, they live off of up to 50% off it, and save/invest the rest.
Unlike Entrepreneurs whose goal is to increase income, their goal is to reduce their expenses.
They are unwilling to quit their jobs to start businesses, even if it might increase their income.
Unlike Investors who are looking for massive growth, they are happy with safe investments.
They would rather invest each month into index funds for years, watching it grow over time.
The pro about Savers is even if they increase their income, their expenses will stay the same.
Their goal is to maintain their same expenses, and put more into their investments instead.
The con about Savers is that their early retirement strategy takes decades in order to retire.
Although it is a fairly slow strategy, they can be sure they will still retire before most people.
Which One are You?
As you can see, there are many paths to retire early depending on which pillar you focus on.
- Are you an Entrepreneur – whose goal is to increase their income through different ventures?
- Are you an Investor – whose goal is to grow your money using various high risk investments?
- Are you a Saver – whose goal is to reduce expenses in order to have a smaller target portfolio?
Me personally, I am primarily a Saver – but also an Entrepreneur and potentially an Investor.
My goal is to increase my income exponentially yet optimise my savings as much as possible.
To find out about these retire early personalities, check out the book: Quit like a Millionaire.
The authors talk about how by being extreme Savers, they were able to retire in just 9 years.
Are you on the path to early retirement? How is it going? Please share in the comments below.
If you have any future blog article suggestions, please let me know in the comments below!
