But I Can't Afford to Save!

So you have $2,000 coming in a month, after tax; you have no savings, your car just broke, and you really want a new handbag.

Ok. I can't wave a magic wand and fix everything for you. In some ways, this is hardest for the people who need help most. Mr. Money Mustache (see link on right) is really good for *middle income* people - people who have lots of money coming in, and who just fritter it away. Go there, and prepare to be Facepunched into Badassity (yes, really).

The same tenets are true, though, no matter your income, net worth, and expenses.

Spend less than you earn. Clearly any other option is long-term unsustainable! But just *balancing* your budget is only the first step. If you want to retire early, you have to save *hard* and, ideally, *start early*. The general rule of thumb is that, if you can save half of your income, you should be able to retire in ten years.

For a twenty-something or thirty-something person, that is a HUGE deal, in my opinion. All by NOT buying new cars and the latest phone every year - surely not?!

It is much harder for someone with less disposable income, but still doable. We have but few needs, really, and only a few of those are expensive.

Housing. Housing is not cheap. At the moment, in Canada's major cities at least, renting is almost certainly a better deal. Remember, just because you live in an expensive place now, you don't have to retire in one. There are plenty of (beautiful) places in Canada where housing is very affordable; geographically, the vast majority of the country is affordable. But, where the people are, the prices rise - it makes sense. And you have to work where the jobs are (right? Well... not necessarily. If you can start your own business, there is a very good chance you can work from home, and there are all sorts of benefits from doing so.. but that is another post).

In my opinion, if it is *impossible* to save > 50% of your take-home pay, and you want to retire early, you must move or get a better paid job. There is simply no way to do otherwise. So if your take home is $2,000 and your rent is $1,000 you have to make changes.

Family and friends will make this difficult, of course. I certainly don't advocate just shooting off to Fort McMurray without planning it out. But, if you can earn $100k a year there, and $30k in a big city... well. You could work out there for a few years and retire, quite easily. Are you willing to make that choice? How much do you *not* want to be in an office in 20, 30, 40 years from now?

But let's put all that crazy talk to one side. The first step to finding out why you can't afford to save is to make a budget, and track your spending - down to the last cent, every month for a couple of months. The next step is to plug leaks (again, this is all a choice - you *can* have your Starbucks, your beer - but each dollar you spend is a dollar not working for you).

A sample $2000 budget might go something like this:

$700 rent
$125 food
$15 cellphone
$35 internet
$50 utilities (assuming water + heat are included)
$75 misc
$200 car (gas, insurance, maintenance)
$100 emergency fund
$700 savings

Yes, this is only 35% savings, but it's a good start. Once the emergency fund reaches a number you're comfortable with (or you have access to a Line of Credit), push that money into savings. Live in a big city? Take the bus, ride a bike, and use car rentals ($10 specials!) to get about. Hopefully the 'misc' category can also go into savings.

$15 cell phone am I crazy?! No... but that, too, is another post.

The next step is to get a side gig, bringing in extra cash that you can either split 50/50 between fun and retirement, as a great incentive to do it... or just invest it, if that *is* incentive enough for you.

There are countless side gigs out of there, from the literal (join a band and go gigging!), to teaching students to get them through their exams, or a foreign language... to buying and selling on eBay and the local classifieds... to blogging, knitting, growing your own food (low return on investment, but it serves more purposes than just money).

Over time, salaries rise. The key to early retirement or financial independence is *not* letting your lifestyle rise with it. A key phrase is 'pay yourself first', and that means making sure money comes out of your chequing account and goes into your investment account *before* you are tempted to spend it, and come to no longer miss it. Your budget says you have $x dollars a month for 'fun' so that's all you're going to spend!

As I mentioned in the Credit Card post, high-interest debt is a killer. Debt that costs less than it earns you is good (especially in the case that it makes financial sense to buy a house rather than rent... but that is not the case in Canada. Not saying it is a bad thing to own a house, but mathematically speaking it is probably more sensible to rent - especially in the large cities). Credit card debt will eat up a stupid amount of money and should be avoided - transfer it if you can. But if you do, make sure you pay off the new card and do NOT start racking up more debt on the old one. Really, 20% is very 'convenient' - for the credit card company.