How to quit work at 35 with $1.3m

You might think the only way to quit work forever in your 30s is winning the lottery.

But a 29-year-old blogger and finance expert who is just a few years away from retiring with $1.3 million up his sleeve has shared his story with news.com.au.

And the best part is anyone can follow in his footsteps.

Every two years, news.com.au runs its Cost of Living Survey to learn more about our readers' biggest household money worries.

The results of the most recent survey are in, and news.com.au has now kicked off the Money Project in response, which will reveal the biggest money challenges facing Australian households and offer practical help on how to get your finances in shape for 2020.

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One of the key concerns of respondents this time around is putting money away for retirement, with the survey revealing it has jumped to the top of the list of things Aussies are saving for.

It has gone from the most intimidating future cost in 2017 to the second most in 2019 behind mortgage payments, with nearly two thirds of respondents believing they will need upwards of $750,000 to retire, with 45 per cent believing they will need more than $1 million.

While that might sound daunting, a US expert who goes by the pseudonym Sean "The Money Wizard" Potter said it's not only possible to retire with a stack of cash to your name - you can also do it decades ahead of schedule.

Mr Potter, who is nearing 30, has just over $US355,000 ($A537,182) saved - but while his original plan was to retire at 37 with $US750,000 ($A1,134,892), he's now planning to quit even sooner at 35 with $US850,000 ($A1.28 million) in the bank.

He said when he set his initial goal, he was earning $US70,000 ($A105,000) a year but had scored several promotions that put him ahead of schedule and bumped his pay up to $US105,000 ($A158,884).

In that time, his annual spending hasn't increased as much as he originally planned, and the stock market had also had "higher than expected" returns.

Mr Potter, who lives in Minneapolis in the US, regularly shares his progress on the popular My Money Wizard blog and was inspired after reading Jacob Lund Fisker's book, Early Retirement Extreme.

It’s possible to retire early – you just need to be smart with your cash. Picture: iStock
It’s possible to retire early – you just need to be smart with your cash. Picture: iStock

"In it, he outlines how he retired early with a portfolio around $US250,000 ($A378,297) while living off just $US7000 ($A10,592) a year. While that level of spending is far too extreme for me, it did open my mind to the idea that there were alternate paths than sentencing yourself to a 30-plus-year working career in hopes of eventually enjoying retirement in your 60s," he said.

"I saved the initial $US100,000 ($A151,319) by investing extra money from part time jobs as a teenager, avoiding student loan debt in college, and then continuing to live like a college student after I graduated."

He'd already saved about $US5000 ($A7565) by the time he started college from part-time and summer holiday jobs, and as he studied he kept investing any extra income into the stock market.

"Thanks to those initial savings plus riding the stock market recovery after 2009, those investments were worth around $US25,000 ($A37,829) by the time I was 23," he explained.

"At age 23, I graduated from university and took an entry-level job in finance, making around $US50,000 ($A75,659) a year. On that salary, I then saved 40-60 per cent of my take-home pay for the next two years.

"By age 25, those savings had grown to $US100,000+, mostly in passive index funds. When I hit $US100,000 ($A151,319), I knew I had compound interest on my side for the rest of my life.

"If I just kept it up, I'd have tons of options in my 30s, including walking away from work entirely."

Mr Potter said the freedom offered by early retirement appealed to him the most, and said he and other Millennials were turned off after watching their parents' generation "devote everything to their careers, usually making huge sacrifices for decades on end, only to have lay-offs hit and pensions dry up".

"Saving towards early retirement means taking control of your future and shielding yourself against a lot of those risks," he said.

But while he originally planned to retire young and "do nothing", he has since realised he actually enjoys work - just not the type that includes "slaving away in a cubicle with a boss breathing down your neck".

He's now revised his plan and is working towards "hobby employment" - doing the type of work he would "gladly do for free" like freelance writing, growing his blog, coaching a high school baseball team or even bartending.

That would give him two options - remain unemployed and live "frugally" off his $US850,000 ($A1.28 million) portfolio, spending around $US35,000 $A53,000) each year, or use a hobby job for living expenses and leave his portfolio largely untouched.

"I've run some calculations on what would happen if I leave my portfolio untouched while living off of my hobby income, and the results are pretty amazing," he said.

"Assuming a 6 per cent return on my portfolio from age 35 to 62, I'd reach 'typical' retirement age with somewhere around $US4 million $A6 million).

"In either case, I should be able to live a pretty relaxed lifestyle."

He said he spends up to $US36,000 ($A54,474) a year, which includes "lots of fancy dinners out, six-plus holidays per year and many other luxuries".

Mr Potter, who is about to tie the knot, said his circumstances could change if he has children down the track or if he and his wife-to-be moved cities, although he doesn't expect a dramatic change once the couple combines their finances.

He said two of the biggest secrets to retiring early was learning how to save and tracking your spending, with Mr Potter tracking "every cent" he spends, including around $US823 ($A1245) a month on rent, $US132 ($A200) on groceries, $US232 ($A351) on dining out and $US228 ($A345) on entertainment.

He said he had "two huge tips" for anyone who wanted to boost their savings, whether they wanted to leave work early or not.

"Track your spending. You can't control what you can't see, so the first step involves getting a handle on where your money is going. Plus, just knowing there's a record of your spending will subconsciously make you think about your purchases a lot more critically," he said.

"And think long and hard about your spending on 'The Big 3'. The average person spends around 70 per cent of their budget on housing, cars, and food. If you get those three under control, you can stop stressing about your spending on the smaller but much more fun costs, like travel and entertainment."

He said cutting his spending on "The Big 3" was a "gamechanger", as well as tracking his spending with a free spreadsheet on his phone.

"One of the biggest reasons I can save so much money is because I bought a $US13,000 ($A19,671) car in cash, which eliminated my car payment, and I split rent … which is at least one-third the cost of what the 'standard' financial advice would suggest someone on my income could afford," he said.

"And obviously, starting extremely young has given my investments a lot of time to compound. As the old saying goes, the best time to start investing is 10 years ago. The second best time is today."

Mr Potter said one of the biggest misconceptions about planning to retire early was that it meant you must have no social life and live at home for free.

In reality, he has always lived out of home and has an active social life - but the key was living "far below" his means in an affordable location.

"Avoiding lifestyle inflation is huge. With each promotion I received, I watched my co-workers ramp up their spending habits, which meant they were never able to get ahead on their savings," he said.

"Instead, I pocketed my raises, and I sent my increased income directly to savings. The result was that my lifestyle stayed just as awesome as before, while my bank account grew larger and larger.

"Doing this for a few years creates some huge momentum for compound interest to make you richer."

He said many people wasted money on material items that didn't make them happy, and said investing was also much easier than most people believed.